Weekly 10-Q: Can incumbent FIs digitize?: 3 questions with the Global Head of Sales at Citi, Steve Elms
- Citi's Steve Elms on how Citi helps grow businesses in a high-tech environment, the impact of fintech on financial services, and the challenges for incumbent banks in 2022.
- Goldman Sachs losses from consumer push may exceed $1.2 billion this year, if the dwindling macro economy forces the firm to take more lending loss provisions.
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Challenges of digitization across incumbent FIs: 3 questions with the Global Head of Sales at Citi, Steve Elms
Thinking about the idea of digitization for incumbent banks, I spoke with Steve Elms, Global Head of Sales, Citi Treasury and Trade Solutions for Corporate, Commercial, and Public Sectors – about topics revolving around how Citi helps grow businesses in a high-tech environment, the impact of fintech on financial services, and the challenges for traditional banks in 2022.
What challenges do traditional banks face in 2022?
Steve: The landscape we find ourselves in is complex: Companies are going global at record speed; many of our clients are born global these days. Digitization is creating the need for massive scale and greater agility. Business and geopolitics are so intertwined that they're creating an entirely new paradigm for multinationals. At Citi, we have embarked upon a transformation to become the preeminent banking partner for institutions with cross-border needs, a global leader in wealth management, and a valued personal bank in our home market. We're working hard to build a modern, simpler, and more efficient bank. To get that done, we're strengthening our risk and controls, industrializing our operating model, and flattening our organizational structure. Traditional banks are challenged to modernize to meet the demands of the digital economy with people, processes, and infrastructure that is resilient and robust. Our exiting of consumer banking in 13 markets and our cementing on being a global institutional bank and a consumer bank in the US have enabled us to focus on a strong culture of compliance and risk management.
How does Citi help businesses fast-track digital growth in the (almost) post-pandemic world?
Steve: Citi’s platforms are digital doorways to our banking network as clients need global digital solutions to transact across many countries -- avoiding the complexity of using multiple banks across regions. We are actively investing to meet the evolving needs of both “digital natives” as well as our traditional clients that are also embracing digital. We continue to invest in these global digital platforms to help companies grow by providing market access to instant payments, cross-border payments, and leveraging API technology. Additionally, we’ve expanded our Cross Border Payment solutions by adding Instant Payments and Alternative Payments Methods to meet the needs of our clients with the gig economy, business-to-consumer, and direct-to-consumer (D2C) models. We are live with digital wallets (including PayPal) across 100+ countries with Alipay and UnionPay International launching this year in China. We are thinking like a tech company, versus a traditional bank -- we are also involved in the issuance of central bank digital currencies – and are working with other governments to launch their own central bank currencies.
What is the effect of fintech on lending to SMBs?
Steve: Fintechs are enabling lending to the underserved segment and helping to bridge certain capability gaps in the market. For example, while not having the same level of regulatory scrutiny as a large bank, fintechs can be more efficient in areas such as onboarding of new clients and the origination of loans via their platforms, thereby reducing time to market. They also look to access various vast data sources to enable data-driven credit underwriting and fraud prevention approaches that are producing acceptable default rates; although models are yet to be proven through a full credit cycle. Banks themselves need to evolve their thinking around extensions of credit to consider such approaches and at Citi, from a Trade and Working Capital perspective, we have a considerable focus on partnering with fintechs to accelerate lending to SMBs, especially in the e-commerce space.
Top stories of the week
Barclaycard guaranteed customers a seamless transaction amid an error affecting cards
Barclays Bank was alerted by its customers over an error that was preventing them from using the contactless Barclaycard. On coming across several filed complaints, the bank sent out a message to its customers reassuring them that the problem would be fixed quickly – and that they could continue to purchase by manually inserting their pin. (Chronicle Live)
CashApp users can now opt to invest spare change in a stock or Bitcoin
Block, the umbrella company for Square merchant business and the Cash App mobile wallet, rolled out a new feature, which would let Cash Card users top up the amount of any purchase and opt for the balance to be invested into a preferred stock or Bitcoin. Block has enabled this option in a push to make investing more approachable to its users. (MarketWatch)
Is Coinbase racing to keep pace with rivals like Binance, FTX, and Crypto.com?
Coinbase is seeking licenses among various European countries that include Spain, Italy, France, Netherland,s and Switzerland, in a move to expand outside the US – while having a functional presence in the UK, Ireland, and Germany. This push is fueled by the current crypto winter which led to Coinbase laying off 18% of its workforce, in addition to the recent news of Coinbase Pro permanently closing down by year’s end. (CNBC)
Coinbase shares “geo-tracking data” with ICE
Coinbase is selling Immigration and Customs Enforcement a suite of features used to track and identify cryptocurrency users -- ICE can now track transactions made through nearly a dozen different digital currencies, including Bitcoin, Ether, and Tether on the blockchain. (The Intercept)
It is FedNow over Fedwire, for the Fed
The Fed has decided to postpone the execution of upgrades in its Fedwire Funds Service until March 10, 2025 -- the move comes as the Fed is committing to administer the new real-time-payment network first, known as FedNow, which is scheduled to kick off in 2023. (PYMNTS)
Goldman Sachs losses from consumer push may exceed $1.2 billion this year
Goldman’s internal balance sheets forecast accelerating losses for its consumer business, amounting to more than $1.2 billion this year. The second quarter burn rate in the unit coincides with those predictions -- and the number may increase if the challenging macro economy compels the firm to take more lending loss provisions. (Bloomberg)
Marqeta adds enhancements to its credit platform
Marqeta has expanded its credit platform by adding a new dashboard and more than 40 credit APIs that will help customers to design, test, and launch differentiated credit card experiences. The modified credit platform leverages First National Bank of Omaha (FNBO)’s program management and banking capabilities. (Bloomberg)
Mastercard and Paysafe extend partnership with Mastercard Send
Mastercard and Paysafe are expanding their tie-up to bring the Mastercard Send service to Paysafe’s payments platform in the UK and EU. Users can send money quickly to a range of destinations, including cards, bank accounts, and mobile wallets. (PYMNTS)
New PayPal cashback business credit card for SMBs
PayPal has expanded its suite of credit offerings with the new cashback business card in collaboration with Mastercard. The product will better meet the financial needs of SMB owners – with zero annual fees and 2% cashback on all purchases with unlimited cashback. (Finovate)
NEW YORK COMMUNITY BANK
Circle partners with New York Community Bank for custody, underserved, and unbanked
This marks the first for a community bank – New York Community Bank will act as a custodian for some of the reserves that back the Circle USDC stablecoin. The two companies will also work on low-cost financial solutions for underserved and unbanked communities. The move comes as part of Circle's efforts to include underrepresented financial institutions in the digital asset market and allocate a share of its reserves to minority-owned depository institutions. (CoinDesk)
FTX denies talks to buy Robinhood
Crypto exchange FTX says the report of a Robinhood acquisition is speculation. FTX CEO Sam Bankman-Fried did purchase a 7.6% stake in Robinhood by acquiring more than 56 million shares in the company – a deal worth $482 million. FTX says it is weighing its options and hasn’t cemented any decision regarding pursuing an official deal with the platform firm. (Bloomberg)
Robinhood almost cratered during the Gamestop meme madness, report says
The House Committee on Financial Services released a report on the frenzy around Robinhood last year. According to the report, Robinhood was surprised by the elevated interest from the first big “meme stock” after Redditors and other retail investors united around $GME to send its price up -- just before Robinhood famously froze trades around GameStop and some adjacent hot stocks. (TechCrunch)
Shopify invests in Sanity
Shopify has made a new kind of move by investing in content platform, the Sanity Connect app. The action comes to bolster customer retention, gain potential customers, and build experiences between brands/merchants and customers. (Sanity)
Upstart shares downgraded in poor lending market
James Faucette, an analyst at Morgan Stanley, lowered his rating on Upstart shares to Underweight from Equal-Weight – and cut his target for the price to $19 from $88. Faucette earlier saw potential for Upstart to shoot up its market share but now he fears Upstart may be on the danger line of share losses if it ends up paying more for funds to lend out. (Seeking Alpha)
Visa puts $600 million into litigation escrow account
Visa announced a $600 million deposit into its litigation escrow account, a move that equates to repurchasing its stock -- which means the value of its class B shares, which are held exclusively by US financial institutions and their affiliates, are subject to dilution through a downward adjustment to the conversion rate of the shares of Class B to Class A shares. (Seeking Alpha)
Wells Fargo is trying to bolster its credit card marketing
Wells Fargo is rolling out the Autograph Visa card – a no-annual-fee credit card that offers 3X points on restaurants, travel, gas stations, transit, streaming services, and phone plans. The Autograph card will enable Wells Fargo to put up a healthy rivalry with issuers that offer rewards-heavy cards – like Chase's Freedom Flex card. (Business Insider)
Wise CEO faces investigation for tax infringement
Kristo Kaarmann, CEO of £3.9 billion ($4.8 billion) fintech firm Wise, is being probed by the UK regulators after tax authorities gained sufficient information on him failing to pay a tax bill worth over £720,000. Additionally, tax officials have penalized him for £365,651. (CNBC)
Tweets of the week
Charts of the week
1. Competition posed by challenger banks accelerate drive for cloud adoption
2. Banks are digitizing finance
JPMorgan Chase will cover travel expenses of workers traveling to states that allow legal abortions (CNBC)
Morgan Stanley, Goldman Sachs, BofA, and Wells Fargo hiked their dividends after they cleared their annual stress test exercise last week (Reuters)
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