Citigroup Enters Banking's Hottest Business With New Payments Unit
March 26 2019 - 07:29AM
Dow Jones News
By Telis Demos
Citigroup Inc. is starting a consumer-payments business, joining
its biggest rivals and a host of financial-technology startups
jockeying for position in the hottest corner of banking.
The bank, already a dominant player in business-to-business
payments, is launching a new unit that will offer big merchants a
suite of consumer-payment options ranging from traditional credit
cards to new digital wallets to direct bank-account transfers.
The historically high-volume, low-margin business of connecting
companies to customers, known in the industry as "merchant
acquisition," is heating up as digital wallets and other new
payment methods proliferate. The explosion of payment options has
come with an increase in fraud and other complications, creating an
opening for banks and fintech firms to ramp up their offerings.
"Digital payments are rapidly growing, and there's a need for
bank-grade technology," Manish Kohli, Citigroup's global head of
payments and receivables, said in an interview with The Wall Street
Journal.
The global payments shake-up has set off a merger frenzy in the
business. Fidelity National Information Services Inc. last week
said it would pay about $35 billion for payments giant Worldpay
Inc. The deal came just months after Fiserv Inc. said it would pay
$22 billion to buy First Data Corp., in part to expand its payment
offerings.
Banks, meanwhile, are bolstering their own payment offerings,
especially for massive merchants such as Amazon.com Inc. U.S. banks
last year ramped up a nascent real-time payments network to move
money instantly between consumer accounts. In January, JPMorgan
Chase & Co. said it was combining its once-separate
merchant-to-consumer unit with its broader corporate-transactions
business to create a new wholesale-payments group.
Citigroup and other banks are betting that the combination of
traditional banking and payments services will allow them to
extract more business from their existing customers. For example, a
merchant that collects payments in one currency and pays out in
another could tap a bank's trading desk for those transactions.
Wholesale manufacturers looking to start selling their products
directly to consumers are among the companies banks could target
with their expanded payment services. Banks also could better
compete for the business of new internet giants, which have
traditionally worked with upstarts such as PayPal Holdings Inc.'s
Braintree, Adyen NV or Stripe Inc. but have more complex banking
needs as they grow.
Citigroup is partnering with payments firms including Mastercard
Inc. to provide some of the back-end connections and processing for
merchants. It also plans to use its banking presence in foreign
countries to offer services with payment partners in each
market.
"Nobody truly does global acquiring, and that causes problems
for a lot of cross-border payments," Mr. Kohli said. "The idea is
to effectively be a local player everywhere."
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
March 26, 2019 07:14 ET (11:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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