Inside Citi's plan for 'payment ubiquity'

Digital payment innovators have shown an almost limitless propensity to home in on banks’ turf, and Citigroup is ready to strike back.

Its new payments business builds off of the bank’s Treasury and Trade unit, aiming to add consumer payments to existing B2B and other financial services.

"From a relationship perspective, we're a trusted partner with these companies," Manish Kohli, global head of payments and receivables at Citigroup, said in an interview after Citi announced a merchant acquiring and consumer payments business for institutional clients.

Startups and more established technology companies have made major inroads in e-commerce and cross-border digital payments over the past few years. As e-commerce pushes cross-border payments for both large and small companies, it’s become necessary for incumbent banks to develop their own strategy for this market.

“We’re making this a solution that goes beyond card acquiring,” Kohli said. “We’re developing payment ubiquity.”

JPMorgan Chase, for example, acquired WePay to bolster international payments for online communities and small merchants. And banks have gradually embraced technologies they once shunned, such as blockchain, to improve on cross-border payments.

Citigroup will use its breadth of financial services to differentiate its new payment service, which will go live early next year.

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In this way, Citigroup will rely on the huge, ready-made ecosystem of its treasury business and the international merchant reach of its partner in the project, Mastercard.

“These technology companies only provide monoline services. We are taking a holistic approach and there was a white space that we needed to fill,” Kohli said. “We do banking, we do payments, we do cash management, we do lending — we didn’t do a particular aspect of the transaction flow.”

Citigroup’s B2B business has an international reach that the bank will apply to consumer payments and merchant acquiring. It will work with hundreds of local technology providers and acquirers to build a system that can handle payments in multiple currencies, tied to other merchant and financial services.

These partners will be ready when the consumer payment service goes live, Kohli said.

Citigroup has long worked with technology developers that are focused on pain points in payments. For example, Kohli mentioned Citi’s 2018 strategic partnership with HighRadius, a software company that helps power Citi’s Smart Match.

Citi uses HighRadius’ artificial intelligence and machine learning to increase efficiency for matching invoices to payments. Citi Ventures also made an investment in HighRadius.

Citigroup will have plenty of competition in the race to provide a broad menu of payment and financial services. FIS recently agreed to acquire Worldpay, and Fiserv made a deal to buy First Data, to accomplish similar goals of providing quick strike e-commerce tools on top of an existing global network of card issuers and merchant acquirers.

“With the big acquisitions … this highlights the focus in the space for full end-to-end service provision, as well as the growing levels of competition in the market,” said Gilles Ubaghs, a senior analyst at Aite Group.

The fintechs have also not stood still. Stripe and Square have both added services well beyond their digital merchant acquiring roots, with Stripe getting into card issuing and Square attempting to get a bank license.

“Smaller fintechs have done really well here in the last few years, and have blossomed into quite major tech unicorns,” Ubaghs said. “If anything I’m surprised it took the big players so long to get more on board with the market.”