Citi bridges verticals to streamline cross-border B2B payments

Large banks’ embrace of PSD2-influenced open banking has often been reluctant. Not so for Citigroup.

The New York-based banking company says it’s found a way to tie its existing network to emerging payments technology to manage complex international supply chains. Its offering, Citi Global Connect, is a collaboration between Citi’s Treasury and Trade and Foreign Exchange units.

By tying traditional bank functions such as local payment processing, FX tools and account management services with its incremental collaboration with AI software developers, Citi hopes to compete in a B2B market in which blockchain-powered challengers and consolidated payment processors are playing a larger role.

Daniel Acker/Bloomberg

“We’re relying on our network, which gives us the ability to provide payments where we have a presence,” said Manish Kohli, global head of payments and receivables for Citigroup. “We can leverage our proprietary technology and the technology that our partner (HighRadius) provide.”

HighRadius is a Houston-based software company that is powering part of Citi Global Connect. HighRadius will provide a digital invoicing platform to automate parts of the B2B workflow, such as international billing, currency selection, automated payment and reconciliation.

“The payer can pay as if it’s a domestic payment,” Kohli said. “We have clients who are increasingly expanding globally and have to collect receivables across jurisdictions. That can be cumbersome today since there is a lot of friction.”

The new cross-border B2B service’s fee structure will likely be transaction-based. “The clients’ buyers and payers are located across geographies, and want to pay in their local currency,” Kohli said.

Citi Ventures is an investor in HighRadius, which has also provided artificial intelligence and machine learning to improve efficiency in matching invoices to payments. The ongoing strategy at Citi is to build out a broad mix of consumer and B2B payment products, using partnerships with large incumbents such as Mastercard and technology developers to combine B2B and other functions such as merchant acquiring.

The strategy leans on cooperation with fintechs and relatively smaller developers. Large banks are broadly seen as opposed to PSD2 and other efforts to streamline connections between fintechs and banks, though Citi’s Kohli sees room for cooperation.

“Banks and fintechs have a tremendous opportunity to collaborate,” he said. “Banks bring an ability to operate at scale, are regulated, enjoy a trusted advisor status with enterprise clients together with a robust understanding of risk management.”

Other large banks have made moves to accommodate open banking and gird from potential revenue loss from third party financial services providers. HSBC, for example, has launched a single-view portal for all account information. And Citi and Kabbage are founding members of a consortium to secure data that’s part of PSD2’s data sharing requirements.

“These are complementary capabilities that will allow collaboration to flourish, and open banking is no exception,” Kohli said. “Banks will succeed in solving problems for clients if they believe in partnerships and accessing talent across the ecosystem, including with fintechs.”

Numerous competitors are drawn to the category of cross-border B2B payments. The large payment processing mergers of the past year were partly designed to address global gaps among the mix of merchant acquirers and bank technology companies — enabling the consolidated firms to support a network for “own currency” supply chain payments in different markets.

Blockchain companies such as Ripple have also emerged as a force in international B2B payments. Ripple was initially a rival to banks, though it has more recently partnered with banks, and has collaborated with the bank-supported R3 blockchain network.

Citigroup has invested in blockchain companies, including the R3 consortium.

“We continue to experiment with blockchain in various parts of our business,” Kohli said. “We have supported clients that have implemented blockchain-based solutions by building bridges between these blockchain-based systems and current [traditional currency] payment systems to support settlement of transactions.”

Banks that don’t embrace fintech collaboration risk losing ground, even as the technology companies hone in on traditional financial services.

Writing for PaymentsSource, Paul Wilmore, chief marketing officer of Barclays U.S. consumer business, says, “While it would appear to be a competition with the clash of cultures, fintech collaborations have made the banking landscape stronger.”

The balance between banks and fintechs is a “complicated situation,” according to Steve Murphy, director of the commerce and enterprise payments advisory group at Mercator.

“There isn’t enough applicable talent at financial institutions in order to develop products using the latest generation of technology,” Murphy said. “Most of the banks other than the largest ones don’t have tons of budget either.”