Unlocking the Future of Payments in the Global Digital Economy · Unlocking the Future of Payments...
Transcript of Unlocking the Future of Payments in the Global Digital Economy · Unlocking the Future of Payments...
Paul Galant
CEO
Global Enterprise Payments
Citi
April 2011
Unlocking the Future of Payments in the Global Digital Economy
Agenda
1 Prevailing Trends in the Digital Economy and Consumer
Payments
2 Implications to Consumers and Institutions
3 Emerging Business Models
Payments is a large and profitable global industry…
Over $900B in revenues globally; larger than most industries
High‐margin, annuity business with accelerating growth and profitability as payments electronify
Significant regional and local variance in growth rate and maturity
770
296
186164 157 132
99
Banking Payments WirelessTelcom
Hotel Pharma Airlines Film andMusic
$ Billions, 2009
Global payments revenue: ~$900BTypical pre‐tax margins: 20 – 25%
…and the global competitive landscape is highly
fragmented
Today no firm is capturing more than 5% of the payments industry
–
Citi is a leader, however, we
capture only ~4% of this market
globally including Global Cards,
Retail Banking and Transaction
Services
Banking market has been historically local, brick and mortar
Beyond the mega banks, competition comprised of:
–
Thousands of smaller banks
–
Technology‐driven companies
Where are the flows? Where are the revenues?
Source:
McKinsey Global Payments Map; Citi financial data
Consum
erGovernm
ent
From
Busine
ss
ToIndustry global revenues ($B)
Consumer Business Government
71
Online transfers, gift
cards, remittances
Bill payments, credit
cards, debit cards (~40T)
Tax payments, fees,
transit payments
Payroll, rebate/reward/
promotion cards
Payables, receivables, P‐card, trade finance
(~309T)
Tax payments, fees,
licenses
Tax refunds, electronic
benefits, public
pensions
Payables Government transfers
(e.g., federal to state)
39
482
249
18
25
5 6 4
In 2009, global flows of $477T generated revenues of $899B
Bulk of payments dollar volume (>60%) comes from B2B flows
…however…
Bulk of revenues and historic profits are concentrated in C2B flows (>50%)
Strong organic growth in payments
revenues, driven by non‐US marketsElectronic migration enables us to:• Intermediate transactions• Create services‐based businesses
Payments industry experiencing growth and electronic
transformation
Total ~900
Latin America 2
55%
21565%
64
66% 34%
75%
Asia Pacific
Rest of World 2
North America
224
60% 69
Europe
32675%
Institutional 1ConsumerGlobal payments revenues
$ Billions, Percent (2009)
Source:
McKinsey Global Payments Map
1
“Institutional”
revenues do not include interbank clearing and settlement2 “Latin America”
includes Mexico; “Rest of World”
includes Africa, Russia, Turkey, and the Middle East3 “Paper”
is defined as cash and check payments, and includes both consumer and institutional transactions
CAGRPercent (’09‐’14)
1‐3%
8‐11%
5‐7%
12‐14%
6‐8%
10‐12%
Share in paper 3
% of transactions
66%
98%
80%
97%
93%
92%
A 1% Change
from Paper to
Electronic
delivers $30B
of Revenue
Three disruptive macro forces
Driving major change, particularly for Banks, Telcos, Cable and
Software Companies
“It is not the strongest of the species that survives…
…Nor the most intelligent that survives…
‐ Charles Darwin
…It is the one most adaptable to change!”
Transformational change: Ubiquitous Connectivity
Transformational change: Growing Digital Economy
Transformational Change: Consumer Empowerment
The decreasing cost of technology is reducing the
“digital divide”
and driving growth in digital
commerce
~$6,000
1981 1994 2011+
Cost ~$2,000 $25‐501%Penetration 10% 75%
PCMedia / device Laptop / Internet Phone
The last three decades have witnessed tremendous progress in global digital connectivity and ubiquity
A large proportion of the un‐/underbanked
global population now has mobile
connectivity
Commerce is increasingly shifting to digital channelsWorldwide ecommerce retail revenues
2 ‐
3 billion un‐/underbanked mobile users
+19% p.a.+19% p.a.
$572B
2013
$963B
2010
Cell Phones: The New Local Bank?
Source: Yankee Group, Financial Access Initiative
In developed countries approximately 81% of adults are banked vs. 28% in
developing in countries
There are ~5 billion cell phone users worldwide but only 1.8 billion bank accounts
US
‐ 91.0%
‐ 84.7%
Brazil
‐ 43.0%
‐ 82.9%
UK
‐ 91.0%
‐ 92.4%
Russia
‐ 69.0%
‐ 94.5%
India
‐ 48.0%
‐ 56.2%
China‐ 42.0%
‐ 53.4%
Africa
‐ 20.0%
‐ 48.0%
Gap Narrowing Gap Widening
2 – 3 billion underserved1.8 billion bank accounts4.8 billion mobile phones6.9 billion people
The convergence fueling the digital revolution is
rapidly evolving to include bank‐grade payments
For billions of people worldwide and the institutions that serve
them, this
convergence provides a ticket to inclusion in our increasingly global, digital economy
Branch Banking
Card Issuance
Deposits
Lending Payments
Cash Management
Smartphones
Social Networking
e/mCommerce
Connected Devices
Digital Gaming
Location‐based Services
Global Digital
Economy
The payments industry is experiencing robust growth,
a trend that will accelerate as digital transactions
open the door to adjacent markets
Global�payments
2015
1,700‐1,900
1,200‐1,300
500‐600
Today
~900
400‐500
Global revenue$ Billions
6‐8%p.a.6‐8%p.a.
… fuels underlying payments growth and expands
the addressable market for payments firms
Addressable revenue
5‐6%p.a.5‐6%p.a.
80
60
40
20
iPod (2002)
DVD Player (1997)
PC (1977)
Cumulative unit salesMillions
Years since launch
The increasingly rapid pace of consumer
adoption in the digital economy …
iPhone (2007)
iPad (2010) 1
1
iPad units sold in year 2 and year 3 estimated by eMarketer (December 2010)
2 Info‐based services include marketing and decision analytics
1 2 3 4 5
Info‐based
services2
…and information is creating new revenue
opportunities
Consumer Value Chain Retailer Value Chain
Tomorrow TomorrowToday
$900B payments revenue
Tomorrow: $400 – 500B global spend on consumer
marketing and decision analytics
Payment instrument
Deposits
Lending
Treasury Services
Financing
Private‐label cards
Behavior‐based marketing
Location‐based offers
Broader financing options
New customers and increased wallet share
Improved risk management
Supply chain optimization
Citi’s Vision: To be the World’s Digital Bank
Bringing together:
Global payments business
Our clearing licenses
Our brand
Strengths in regulatory and risk management
Global
Enterprise
Payments
Leveraging:
Electronic information to deliver unique value propositions to clients
Global infrastructure
Collaborative working models
Citi has created a ‘Global Enterprise Payments’
business to
provide services to institutions whose clients are consumers
Various business models are emerging
Bank Payment
Model
Payment InfrastructureRegulatory KnowledgeRisk ManagementCustomer Service
Digital Network
Model
Content / Communications InfrastructureRetail Distribution
Connected Households and ConsumersCustomer Service
Operating System
Model
Consumer OperabilityDepth of Advertising Experience
Analytical ExcellenceContent / Data Management
Bank Payment Model
May be less focused on social inclusivity
Moving to a “digital wallet” with the same underlying business model may not create new value for a consumer
Focus on regulatory and compliance rules with consumer experience sometimes taking a backseat
Need to articulate a payments business model in an ecosystem that requires MNOs, Operating Systems, and device manufacturers
Extensive payments expertise and highly reliable infrastructure
Bank‐grade processes are optimized for availability, fraud prevention, privacy and security
Instills trust in consumers
Subject to multiple levels of regulatory oversight
Largely bank‐centric approach that extends existing payments capabilities into
connected devices
Advantages Limitations
Operating System Model
Model may position Banks and Carriers as “dumb pipes”
Customer service and implementation is less scalable and more people intensive
May underestimate the complexity of regulations. May prioritize simplicity and ease of adoption over anything else
Need to articulate a payments business model in an ecosystem that includes Banks, MNOs, and device manufacturers
Focus is on adding services such as search, offers, comparison shopping and loyalty programs
May allow lower merchant fees due to higher revenue from ad sales and other offers services
Consumer‐friendly interfaces by applying experience to design of payment products
OS providers incorporating mobile payments as a platform to extend
advertising and introduce other consumer oriented services
Advantages Limitations
Digital Network Model
May view banks as pipes and relegate them to the role of wholesale providers
May drive revenue by charging banks to place payment products in network sponsored digital wallets
May be less focused on providing new consumer value‐added services
Underestimate the regulatory complexity and emerging requirements
Need to articulate a payments business model in an ecosystem that includes Banks, OS, and device manufacturers
Control existing distribution networks and have established direct customer relationships
Digital networks can be used to send payments information and to support additional value added services
Vast network of physical retail stores and service centers which can be leveraged as customer on‐boarding sites for digital payment accounts and for converting cash into digital currency
Emerging trend of digital network owners such as mobile carriers
and cable
systems wanting to use their networks to facilitate payments
Advantages Limitations
The ‘Straw‐man’
Solution
Cooperation between players in the ‘digital ecosystem’
is needed to reach
ubiquity and have the new digital economy reach its full potential
Financial Institutions
Payment systems that are scalable, secure and deliver consumer privacy
Expertise in on‐boarding consumers and monitoring transactions in a way that complies with existing and emerging compliance requirements
OS / Tech Providers
Design new payment products with consumer behavior in mind
Deliver compelling, enticing functionality and user interfaces
Drive new revenue and value through expertise in presenting ads to consumers
Network Operators
Powerful networks enabling payments connectivity
Leverage vast distribution to onboard consumers to mobile payments
Working together to build large scale, industrial strength and socially inclusive mobile
payment solutions that make payments as easy as phone calls and deliver tremendous value
to merchants and consumers
In Summary
The convergence fueling the digital revolution is rapidly evolving to include bank‐
grade payments
The proliferation of mobile connectivity is creating enormous new opportunities
for underserved populations to enter the formal banking infrastructure
Power is shifting to the consumer
New business models are emerging
All need to think differently about technology, infrastructure, access and value‐
added informational services
We need to architect a new business model that will succeed in driving mass
consumer adoption and will create net new revenue pools for consumer digital
payments
The future is now!