What Mastercard and Citigroup get from their global payments partnership

Benjamin Girette/Bloomberg

Payment technology firms are enticing consumers and companies by selling fast digital channels to make international payments, a trend Mastercard and Citigroup hope to counter by using their vast global networks.

Mastercard on Thursday said Citigroup is the first international bank to link to Mastercard Move, a new money transfer feature that combines Mastercard's Cross-Border Services and Mastercard Send.

Cross-Border Services supports international transactions, and Mastercard Send is the card network's foray into real-time payments. Combined, the two Mastercard products enable users to send funds to bank accounts, prepaid debit cards, mobile wallets and cash-access locations with the money available in a few seconds.

Citi has been using Mastercard Send for three years. The bank's connection to Mastercard Move will expand Citi's WorldLink Payments Solutions, adding Mastercard debit to other cross-border payment options available through WorldLink.

Both Citi and Mastercard face threats. As cross-border payments become more common among consumers and smaller businesses in an age of e-commerce, Citi faces competition from HSBC and other large banks that are enhancing their international payments strategies to add flexibility and processing speed. JPMorgan, for example, has turned to blockchain technology to make payments more "programmable," or automatically executed when certain financial conditions are met.

"There is a need for speed," said Alan Marquard, head of transfer solutions at Mastercard.

"But it's not the only thing that people are looking for. Traceability is also important. People want to know where their funds are in process."

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Through the Mastercard Send collaboration, Citi clients in 65 origination countries in corporate, financial institution, e-commerce and commercial sectors can access Mastercard Move.

"Over the years, the cross-border payments landscape has become increasingly digitized, with paying into real-time payment schemes, digital wallets, and instant payments more prominent than ever, said Debopama Sen, head of payments for Citi Services, in an email, adding the bank's cross-border payments network is integrated with foreign exchange in more than 135 currencies and 180 countries. Citi suggested insurance payouts, airline refunds, on-demand payments to freelance workers, e-commerce payments to merchants and refunds to consumers would be among the use cases.

"Citi is not alone. A handful of other banks and fintech companies have announced similar capabilities based on Visa Direct," said Aaron Press, research director for worldwide payment strategies at IDC. "At this point, it can be a differentiator, but in the longer term I expect it to be table stakes."

Mastercard Move competes with fintech products that facilitate cross-border payments, such as Ripple — which uses blockchain technology to decentralize money movement, cutting out the need for correspondent banks. Ripple initially operated the service as a rival to banks, but in recent years has partnered with banks to expand its network.

Other firms such as Tipalti and Wise are active in cross-border payments. And Visa Direct enables users to access a single connection to Visa to execute near real-time transfers, remittance, insurance claims and other transactions.

The credit card company launched Mastercard Move in March and has been trying to scale the product by adding partners. Mastercard partnered with Alipay, the Chinese digital payment app, and later signed a deal with technology firm Verituity to sell a white-label remittance and disbursement product to banks.

Other deals include a collaboration with Access Bank Group to penetrate Africa, Philippine-based RCBC to enable card-based money transfers for Filipino consumers and Paysend to offer Mastercard Move in Latin America.

"The partnerships are an accelerator," Marquard said. "Citi has a broad account reach, and there are a number of cross-border use cases for cards, including gig economy payments."

Use cases for Mastercard Move thus far have been remittances, other transfers and B2B transfers, though the card network plans to add more payment types.

"Anything that touches on money movement or money transfers," Marquard said.

Mastercard and Visa have focused on diversifying revenue streams in recent years as fintechs and regulatory moves have pressured revenue from processing transactions at the point of sale. The card networks are tapping the banks' need to adopt real-time payments and to streamline cross-border transactions.

"Both [Visa and Mastercard] leverage their respective networks' extensive set of bank endpoints and to facilitate access to cardholder accounts," said Press, adding Visa Direct and Mastercard Move are part of a trend of moving away from the Swift global payments messaging system and correspondent banking toward faster systems with more direct participants, especially for low-value payments to individuals.

"The card networks have been broadening the scope of transactions they are willing to handle with the goal of shifting traffic to their networks," Press said. "They have an inherent advantage with their extensive set of endpoints at banks and merchants and the fact that their cards are in the hands and wallets of millions of consumers worldwide."

Participating banks can offer a service with clear advantages over traditional cross-border options and at significantly reduced cost, according to Press.

But there are also challenges to the strategy. While cards have been cross-border for a long time, they haven't been used for large-value transfers due to the pricing model, and reluctance on the part of card networks to carve out exemptions for high-value payments has been a sticking point, according to Aaron McPherson, principal at AFM Consulting.

"We need to see the product in the marketplace to understand how well it ranks against what is already out there," McPherson said. "Citi deserves credit for being the first [international] bank to use Mastercard Move, but there is a lot of competition."