Large banks may eventually look at lending to small entrepreneurs as e-commerce integrates them with complex supply chains, Rajesh Mehta, MD and region head, Asia Pacific, Trade and Treasury Solutions, Citi, told Shritama Bose. Edited excerpts:
Technology is transforming banks and how they do business.
How is Citi transforming fixing problems using technology?
If you look at the kind of technologies that we know and love, such as blockchain, cloud, mobility and the internet, they have led to four changes. First, our clients' businesses are getting disrupted. The second is regulators are generally taking advantage of technology to raise inclusion, anti-corruption, transparency or improve tax compliance around the world, which is then leading to new payment systems. The third is the change in the competitive environment. You have tech-enabled competitors doing things they weren't before. The last is, there are new business models.
For us, the big change is how we are looking at this evolution. We are hugely focused on forward compatibility of what we do and what we want to be in this environment. We want to be the financial ecosystem for our clients in the digital economy. Earlier, we were on the cost side of the company and had options to operate along the entire value chain, which was fairly expanded. Typically, we would service the big blue chip company, and, one step down.
Now, the entire value chain has shortened and the large blue chip is catering to the customer directly. So, what used to be a B2B business now has a two-legged/consumer counterparty one way (on the supply side) or the other (on the sales side). Clients want their bank to partner with them in this brave, new world.
What are you doing with the fintechs? Partnering with fintechs is the future for banks?
Last year, we polled clients on their burning issues and shortlisted seven problem areas. Then, with the help of an accelerator, we identified and shortlisted, through a pitch day, eight fintechs that were interested in helping us solve those problems. We partnered with three. For our second Citi FinTech Day, we took the approach to the next level. We are not just focused on our clients, we are talking about solving problems for the entire ecosystems in which they operate. We went to the fintechs with three such ecosystems - 1) the consumption economy; 2) subscription economy, 3) connected economy. The Citi Ventures team invests in start-ups, pilots new technologies and tests new solutions and business models. We are evaluating making an investment in one fintech and we will also partner with two or three fintechs.
How are you approaching the payments piece?
The West built e-commerce on credit cards. In Asia, except for places like Singapore and Hong Kong, not many people have a credit card. Asia-wide, there are about 900 people without a bank account and about 1.8 billion with a bank account, but no plastic attached to it. So, here are people from the middle class who have the money but don't have the means to pay in an instantaneous way. For the about 900 million people, the world gave rise wallets. For the 1.8 billion, there were other means such as IMPS and UPI, etc. If you connect that to what I said about the two legged participant in commerce - the consumer - it means we are no longer just efficiency enablers but are helping clients sell more. The consumer will choose how they want to pay. Tapping into an expanding payments landscape that is changing the way our institutional clients engage and do business with end-consumers, we announced the upcoming launch of Spring by Citi - our digital consumer payments business earlier this year.
Leveraging the Mastercard payment gateway, Spring by Citi will offer institutional merchants the ability to collect from a wide range of payment methods including cards, e-wallets and new and innovative bank transfers, giving our clients' end-customers access to a wide variety of payment methods of choice.
So, the modern supply chain consists also of very small merchants, some of whom may actually be selling through e-commerce from their homes. Will you ever look at financing them?
There are two levels here. For the big players, there is a fairly mature supply chain market. But the non-financial procurement process of approving the invoice for payment is still painful. Crunching that time is one problem to solve. The second problem is that financing for the deep tier is not happening very well. If it is happening, it is with the NBFCs and the unorganised sector.
We are also seeing now that with the combination of GST and e-invoicing, there is huge potential for us to go to the next level because of transparency and data. We probably would not be able to finance a supplier working from their home, but if we have a history of data in the form of invoices, orders, and GST being paid, there is a possibility for this to happen in the organised financial system in the future.