Behind Citi’s move to become a global partner bank, with Chafic Haddad

Welcome to the Tearsheet Podcast. I’m Tearsheet founder and editor in chief, Zack Miller. 

We’re in a transitional period when it comes to how banks and fintechs partner. If 2022 was the year of launching partnerships between FIs and tech firms, this year is more about fine-tuning them. Partner banks are seeing more scrutiny as more banks have chosen the route of serving fintechs. 

At Money 2020 this year, I sat with Chafic Haddad, Citi’s global head of fintech within the firm’s transaction bank. When he told me that one of the largest international banks was really trying to align and position itself as a global partner bank to top fintechs, I told Chafic he had to join us on the podcast to talk about what all that means.

Chafic shares the mandate of his new role within the firm and why non-bank partnerships have been the fastest growing segment over the past few years. We discuss what Citi offers fintechs and the challenges and opportunities in providing these firms with global transaction and trade capabilities. 

The following is my conversation with Chafic Haddad. 

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The following excerpts were edited for clarity.

The new role of global head of fintech

My name is Chafic Haddad. I was recently appointed the Global Head of Fintech, within our transaction bank at Citi, when we call Treasury and Trade Solutions or TTS.

We have a financial institutions business at Citi that is, effectively, a team that looks after both banks and non banks. And for the past six years, I was responsible for the EMEA region. And on the non bank side, it's essentially insurance companies, asset managers, and fintech entities. Our fintech business has been the fastest growing segment over the last four or five years, if not longer. It's effectively growing about 25% to 30% year on year. 

So it's presenting us with opportunities to help fintechs grow and develop into the businesses that they foresee for themselves. With that, I saw an opportunity to really develop what I had done within the EMEA region on a global scale. And so I'm effectively going to be moving into that vertical of looking exclusively after fintech. 

Turning a European foothold global

We cover both developed markets and emerging markets. Right now, we're dealing with the geopolitical event of a generation. EMEA sort of gives you that rounding, if you will, and is a good platform to go into a global role. 

Having said that, we've had a lot of success in Western Europe, specifically, referencing in markets like the UK, Germany, Switzerland, France – there has been a lot of activity in the fintech space, a lot of fintechs were born in these markets, a lot of cryptocurrency exchanges were born in that part of the world. We're looking to replicate the success that we've had in EMEA in other parts of the world. I'm not suggesting for a moment that we haven't been successful in other geographies, but we've had a bit more of a head start in Europel. And now we're seeing the emergence of fintechs literally all over the world. So I suppose it was a natural next step for me, having run across multiple FI segments, to then go and take that fintech vertical global.

Citi as a global partner bank

I enjoy working with fintechs to achieve their ambitions. But in many cases, these are global ambitions. And this is where Citi is a great partner bank. We’re present in over 90 countries and that allows us to offer our clients domestic accounts, so they can do business locally with the network that we have. We also have cross border capabilities – we’re able to help clients make payments in over 145 currencies. So there is a lot of value in doing business with Citi. I like to think of us as a one stop shop for our clients. Rather than establish multiple partnerships to achieve your global ambitions, you've got one bank that has that global connectivity through which you can leverage products and services to grow your business.

TTS and fintechs

So, you have the two T's, our trade and treasury. I'll focus initially on the Treasury part: that's effectively payments and receivables. What we're able to do is help fintechs make their payments globally either through domestic accounts (if you're looking to do business in Thailand, we have offices in Bangkok, we’re able to open accounts for you in Thai baht and allow you to make payments into that economy) or if you're a marketplace and looking to help your customers receive funds, we’re able to connect you through what we call either payer IDs or virtual IBANs, effectively virtual accounts which would allow both receivables and payments.

Now, when we talk about Treasury, we can't just talk about it from one payments lens and the other receivables lens because there's also a cash management angle. Clients can also leverage our capabilities in the liquidity management space – whether you're holding liquidity for your clients or it's so your own liquidity, we have the ability to provide clients with numerous vehicles or structures that would allow them to get a good return on your liabilities or your assets.

The decision to move into partner banking

When you think about banking clients, this isn't necessarily something new, because if you think about the correspondent banking model, where Citi has for many, many years been a key correspondent bank to many banks around the world, particularly when it comes to dollar clearing, you're effectively providing services to the end customer who is looking to make payments in dollars or other currencies. So effectively, you're taking that model, and you're creating a similar structure for fintechs where you're saying, Look, wherever you're looking to do business, wherever your customers are, we will provide you with the banking services that you need, what we're effectively calling banking as a service, which is non bank businesses integrating banking services into their own products, whether it is a payment or a card solution. 

Another offering that we have within our transaction bank is commercial cards. If you're looking to extend a card program to your customers, we can be your partner bank there. I talked a little bit about what we can do in terms of payouts, payments, and managing the liquidity that's in between and I wanted to talk to you a little bit about Trade and how relevant that is to fintech. One would assume Trade is all about import/export. It's your letters of credit and your guarantees, and supply chain. Now, increasingly, we're seeing an opportunity to leverage what we do in trade to support our fintech clients. We're doing it by financing receivables, so extending working capital. Companies and fintechs look to settle with their customers quickly. We have line of sight on those receivables. So rather than wait until those hit the account, before our fintech clients settle with their customers, we’re able to say, right, we know this is coming, we can package it, we can offer a working capital solution here, thereby helping our fintechs settle quickly with their merchants.

Targeting fintech

I don't know that I'll be able to give you a definitive answer. The reason is that there are some fintechs out there that have been around for a number of years, become unicorns in their own right, and everybody is running after them. They're the names that you really want to be putting up on your presentations. And it goes without saying that many of those are clients of ours, and we'll continue to look for other similar names to bring into our family of names that we look after. 

Nonetheless, we don't just want to play in that space of the unicorns and the already established names – we really want to work with fintechs that are starting on their journey, but have large ambitions in terms of what they want to achieve globally. And it doesn't have to be that they need to dominate the world, but want to build a business initially in their domestic market, and then look to take that product to other markets, as well. 

Now, listening to the vision that the management team has is key and crucial. If we're convinced that there's a story there, there's experience behind that story, there is capital to support the growth, then we're happy to basically take a punt, as they say, on that aim, in anticipation of a growth story. We’d like to look back three or five years from now and say, we were with them on day one, helping put the key through the door, and look at where we are today. 

We also have a commercial bank within Citi. So that usually tends to be an entry point into Citi for small to midsize fintechs that really just want to evolve at their own speed, and may not evolve beyond a certain size, if you will, but that's where they would be looked after. For those that are looking to grow and have ambitions to become unicorns, then they would come into what we call our Institutional Client Group. And we would basically help them supercharge their ambitions and leverage both our network and our capabilities.

Gearing up to be a global partner bank

We may have developed the products and solutions within the Transaction Banking business, but you need that connectivity across the organization. You want to make sure that your service organization is there and geared to support your clients. You need to make sure that you have an onboarding organization that can deliver when it comes to accounts and other types of solutions. Clients are looking for an implementation team that can quickly implement and roll out solutions. So there are a number of partnerships that need to come together. 

We also talked about the working capital side of things, underwriting the credit to support, lines that we extend. And let's not forget the initial starting point, which is typically KYC and the due diligence process that goes with that. So, it has to be an organization that is connected at every level, in order to be able to deliver. If one of these aspects or components is slightly out of line, then, as they say, you're only as strong as your weakest link. We need to make sure that we are connected throughout – from the moment that you start an initial conversation with Citi right until you've got delivery of your products, accounts, and solutions.

Geographic coverage and functional help

In country, you're typically benefiting from our domestic capabilities, what we can support, and it may not necessarily be the same from market to market. Much depends on the regulatory environment and what we are allowed to roll out versus what requires a little bit more preparation. Whereas leveraging, for example, our cross border currency platform, that typically tends to be centralized, what we call WorldLink, which is our engine. The great thing about WorldLink is that it has so many ways that you can connect into it, so many ways that you can make payments out of it. It's all about API integration for us at the moment, getting live rates for the trades or the FX that you're looking to do through Citi, but the capability on the other side to to pay into your local ACH, so that the payment goes into the local clearing scheme, or pay into instant payment schemes where they're available, or maybe even into cards and electronic wallets. 

What clients are asking for in this market

I would say the common theme is really around efficiency. It's really around being able to deliver in a timely manner. Fintechs expect us to onboard them almost as quickly as they onboard their own customers. It takes a little bit of discussion to clarify that offer: we are heavily regulated, and we have to go through certain steps before we can deliver but they have us on our toes. They've challenged us, and they're telling us that this is how they operate and they need us to basically find a way to reduce our turnaround time. 

We are living through some challenging times. There's an economic downturn, we're living in a high interest rate environment where governments are trying to curtail inflation. Yet despite all of these headwinds, I don't think we've seen a slowdown in terms of ambition, growth, and opportunity. This is great, because it really underlines that we are resourcing for the right clients, and we are preparing for an explosion, if I can say that in the positive meaning in this space. I think we're at the tip of the iceberg right now in terms of where fintechs are and what's more to come. So this is a very exciting space.

More scrutiny coming to partner banks

This is a relatively young space, and there will invariably be teething issues. We've all lived through them. We're a 200 plus year old institution here at Citi, and if anyone was to tell you we are not learning and not developing, that wouldn't be true. We're learning all the time, and the regulatory environment around us is changing constantly. So you've always got to make sure you're on top of the developments surrounding you. And the same goes for many of our clients. But what I think is great is that they are evolving, and they are becoming more aware of what the ecosystem looks like and how to navigate it. So in some ways, we're also here for them, not only as a service provider, not only as a network, but also as a trusted adviser, in terms of guiding them through what we think is realistic versus what is perhaps something worth thinking about over a longer period of time.

Partner banking tech

For the most part, we developed the technology in house. Now, we also accept that there's technology out there that for us to replicate would cost X number of dollars and so much time. And that's where you leverage that third party capability. So technology is a major component here, because you're effectively talking about connectivity. And you're talking about instant access, you're talking about APIs, and all of that requires a level of sophistication within your systems and platforms. So we're constantly evolving and upgrading. 

Leveraging the Citi ecosystem

I think it would be remiss of us not to tap into our fintech clients’ capabilities and leverage their technology. So it works both ways. They often start off as clients and become partners, or they start off as partners and become clients. Eventually, we find a way to help them, as well, in their ambitions. We do have a team within our business that's constantly looking to develop these fintech partnerships. We admit that in certain markets, it makes more sense to leverage the capabilities of a fintech that's already got a tried and tested solution than for us to go through all the regulatory steps and wait in line for the approvals to come through. This is a space where it's not only an opportunity for us to plug these fintechs into our capabilities, but for us to plug into theirs as well.

2023 goals

2022 has been an interesting year. It's sort of a first year since COVID. You know, it was great that we were all able to get together in Vegas not long ago, but it's also brought about a lot of challenges. We're looking at potential recession in the US and in Europe. So, these are difficult times. And I think that as far as 2023 is concerned, many of us will have to continue weathering the storms. Within the transaction bank, we feel that there are many opportunities to be had. And we continue to invest heavily in our technology. So there is no slowdown there. We look at our business and it’s the business that makes the world go round. It's payments, its trade, its liquidity. And that will continue in an upturn or in a downturn. 

So, for me, let's not forget about the environment in which we're in – there's no overnight fix. You've got to brace yourself for more volatility. Nonetheless, we don’t want to sit and say we're writing 2023 off, that's not at all how we see things. So I think, as the year rolls on, there will invariably be more and more opportunities for us. For Citi, we still consider this space green field with the opportunity to really take on more fintech relationships and partner with them on their journey.