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Cross-border Payments Curriculum
Best Practices to FundCross-border Payments
Presented by:Patrick Molloy, Raj Priyadarshi and Kathy Collins
Strictly Private and Confidential
May 2009
Cross-border Payments Curriculum
Best Practices to Fund Cross-border Payments:
Date/Time: April 28th, 10am to 11am EST May 7th, 1pm to 2pm ESTTreasury departments face numerous challenges when moving money internationally. In this educational seminar, you will hear from industry experts on proven strategies to simplify and streamline your cross-border payment processes. Many multi-national companies like yours are not only simplifying the funding of cross-border payments but are also capitalizing on competitive foreign exchange rates, cost-savings, minimized risk and a greater selection of payment types.
Going Global: Regulatory and Currency Challenges in the Cross-border Payment Market
Date/Time: May 12th, 11am to 12pm EST June 4th, 9am to 10am ESTWhen making cross-border payments, there are so many factors to consider: SEPA, IBAN, security protocols, legal requirements, currency capabilities and more. How do you make sense of it all? Our team has the industry knowledge and global experience to help you bring it all together. In this seminar, we will cover the most relevant and laborious decisions that you face in the cross-border payment market.
International Settlement Systems to Process Cross-border Payments
Date/Time: June 9th, 11am to 12pm EST June 18th, 9am to 10am ESTDid you know that there are multiple solutions to facilitate your cross-border payments? Are you sure that you are using the best settlement system for your company? Join Citi in an educational discussion on the key criteria that you should consider when choosing an international settlement system to process your cross-border payments. When facilitating your cross-border payments, there is no right solution - only the best solution for your company's operating environment.
Participate in any or all of the following educational web seminars:
Citi Team
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Raj PriyadarshiDirector, Market Manager for Payment Solutions—joined Citi in 2002
Kathy Collins Director, Payment Solutions Consultant—joined Citi in 1993
Patrick MolloyDirector, Payment Solutions Team Leader—joined Citi in 1987
Dedicated to simplifying our clients cross-border payment processes.
Simple Things Should be
Simple and Complex things
Should be Possible
-Alan Kay,an American computer scientist, known for pioneering
the concept of personal computing and inventing modern, object-oriented programming.
Historic Trends
Treasury CoordinationCenters
Advisory
Consolidation
Bank relations
1980’sCoordination
Regional TreasuryCenters
Foreign exchange
Pooling/netting
Cross-border cash
Exposures and risk
Excellence center
1990’sStrategic
Central Treasury
Liquidity management
Domestic cash
Payments consolidation
EDI links
Client server TWS
Internet services
1998–2002Transition Business Treasury
Strategic focus
Shareholder value
Global Process
Enterprise systems
Straight-through Processing
Receivables mgmt
Outsourcing
Sarbanes Oxley
Continuous Linked Settlement
2000–2005Integration
Automated Treasury
Cash optimization
e-Billing/EIPP
Payment factory
Single/primary bank
Regulatory guidelines
SEPA
Leverage new infrastructure
Information flows
Shared service centers
Global Standards
2003–2007Standardization
Increasing Scale and Complexity
Incr
easi
ng B
usin
ess
Val
ue
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Overview of Trends in Cross-border Payments
Infrastructure ChangesSEPA is now a realityClearing systems around the world are being merged and simplifiedAccount structure and legal entity rationalization
Enhanced Regulatory Focus– AML regulatory enhancements– FATF guidelines– Sarbanes-Oxley
Market Trends – Globalization of markets– Global sourcing– Common Technology – Outsourcing
The nature of international payments continues to evolve…
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The nature of international payments continues to evolve…
Customer TrendsMarket Trends
Broadening interest in alternative payment delivery methods globally
Capturing information flows that accompany payments for ease of treasury management
Increased adoption of internet banking amongst corporations
Movement towards industry standards and tools—TWIST, RosettaNet, SWIFTnet, XML
Current Trends
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Regional Trends
Euro Zone
European Payments Council BIC and IBAN resolution
EU enlargement
Single European PaymentArea (SEPA)
Emerging Market Nations (BRIC)
Upgrade of clearing andsettlement infrastructure
Movement from “cash economy”to “electronic economy”
North America
Sarbanes Oxley
US Patriot Act
Check 21
Regionalization/Globalization
Automation
Drive towards internal efficiencies
Compliance and Control
Stronger supplier relationships
Eliminating “Worst Practices”
Global Trends
Global Sourcing
Technology advancements have enabled the shift from domestic service centers to regional and global processing hubs– Current estimates are that 50% of shared service centers operate domestically, 34% regionally and
16% globally
Shift to regional and global service centers are increasing as companies take advantage of – Consistency of practices and processes– Time zone utilization– Reduced duplication of systems and processes– Potential tax advantages– Co-ordination of intra-group transactions
Sophistication in Global Trading– Global Treasury and Business Centers– Re-Invoicing and Distribution Centers or Partners
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Global Trends (Cont’d)
Global System Integration
ERPs, Treasury Workstations, E-Procurement, Expense Management, Procure-to-pay, e-Invoicing
Market adoption of standard formats for payment messaging and delivery – SWIFTNet, RosettaNet, TWIST
Outsourcing Non-core Competencies
Human Resource Functions—payroll and benefit processing
Shareholder Services
Pension Administration
Technology
Treasury Management
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Challenges in Cross-border Payments
Local Regulations and Practices: Most payment systems are based on local laws and practices which can vary between the originating and receiving country, for example– In Japan, all payments information must be provided in Japanese Katakana script– When sending Kazakhstan Tenge, the beneficiary’s 12-digit Tax ID Number is required for
every payment
Lack of Standardization: Lack of common global standards and variations between systems impairs the ability to seamlessly transfer data
Fragmentation of Processes: Different rules and systems lead to a lack of standardized and timely information. This in turn causes the processes of inquiries/reconciliation to be extremely inefficientand expensive
Constantly Changing Landscape:– Payment system changes—For example, emergence of Target II, SEPA etc.– Banks altering their correspondent relationships, leading to disruption of services– Shift towards centralization of payments processing– Evolving internal rules of oversight and control to manage operational risks
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In the absence of a single ubiquitous global payments system, some of the key challenges in the cross border payments space include:
Best Practices to Fund Cross-border Payments
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Reduced overall costs
Full visibility to pass audits
Leverage straight-through processing
Simplify connectivity; less IT resources
Reduced calls from suppliers looking for payments
Easy updates when country rules change or currency markets adjust
Goals when consolidating cross-border payments:
Increased control and visibility
Improved processes
Reduced resource needs and time per transaction
Enhanced cost efficiencies
Right mix of local accounts vs. non-account based payment solutions
You can realize benefits, such as:
Account vs. Non-Account Based Solutions
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There is no “right” solution. You choose the method that works best for your company.
I. Account Based Solution – Process payments from your company-owned accounts in foreign countries
Benefits:Ability to deposit/receive funds in local currenciesHold positions until needed for paymentsEasily managed by local staff
Considerations:Value of funds on deposit subject to rate shiftsNeed to reconcile, fund and maintain documentation on numerous local accountsLocal fees and compliance requirements
II. Non-Account Based SolutionProcess payments from an account your bank holds in each currency
BenefitsCentralized management of all signatories, processes, fundingBank handles compliance and regulatory issuesStandardized reporting and data exchange
ConsiderationsInvoice receipt and managementCentralized staffingCollections in local currencies
Enhanced Control and Visibility
Allows for payments that improve financial and operational management of execution risk(i.e. foreign exchange exposure)
Built in controls enhance compliance and internal policies
Reports generated from a single source, encouraging automation and standardization for meeting external regulatory reporting requirements
Benefit:
A single, operational view allows you to,– Better understand and visualize your cross-border flows, and– Reduce your “blind” spots
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Process Improvements
Enables high-quality, standardized payments processing
Single point of connectivity provides a standardized interface, file formats and information exchange protocols to leverage straight-through-processing
Downstream exception handling to payments provider
Efficient change management facilitates a more rapid implementation of processing changes through coordination with a single team
Leverages payments hub architecture to create a center of excellence for centralizing payments origination across organization
Enables training for payments hub staff and service representatives under a consistent operating model, resulting in superior customer service
Benefit:
Efficient payment processing and standardized reporting for a seamless customer experience
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Cost Efficiencies
Reduces banking fees and organization costs by consolidating volumes to obtain better transaction pricingand FX rates
Bundle payments to realize bulk pricing efficiencies on FX and fees
Benefit:
Reduced banking fees for account optimization
Improved pricing through volume consolidation
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A Key Partner Includes…
Selection of a key partner for consolidating cross-border payment activity is critical. Think of these items asyou decide:
Safety and soundness with full and multiple redundancy of processing infrastructure
Distribution scale—the number of different payment methods and geographic reach of distribution points
Nature of the distribution network—Proprietary vs. a series of correspondents
Continuing innovation to help meet changing requirements of clients
Ability to integrate and implement with minimal change to internal operating processes
Size of business—value and volumes of payments and customers, the P&L and the strategic fit within the providers overall business. These have an important bearing on the appetite for continued investment to stay ahead of ever evolving markets
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Best Practices: What your company should know?
Centralize and Outsource: to a shared service center or 3rd
Party
Optimize Payment Flows: Perform benchmark studies, a/p analysis and ROI analysis
Use a single window model: a single internet gateway to access multiple countries and payment types around the world, and Migrate to common file standards
Self-finance your payment processing: Introduce supplier finance options and procurement cards with rebates
Best Practices: What your company should know?
Rationalize accounts by asking “Do we really need to maintain accounts all
over the world?”
Reduce Counterparty Risk by dealing with fewer counterparties
Diversify: Consider receiving invoices and settling in local currency
Avoid Currency Fluctuation by using non-account based payments systems or via hedging strategies (e.g., 7 day forward contracts)
efficiency, renewable energy & mitigation
In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this important issue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other carbon-emission reduction activities; (b) committing to reduce GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (c) purchasing more than 52,000 MWh of green (carbon neutral) power for our operations in 2006; (d) creating Sustainable Development Investments (SDI) that makes private equity investments in renewable energy and clean technologies; (e) providing lending and investing services to clients for renewable energy development and projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.
Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.
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