Access to Finance: Building Inclusive Financial Systems May 30-31, 2006 Session III: Infrastructure: How Can it Support Outreach? Multifaceted Role of Banks in the Remittances Ecosystem Presented by Bharat Sarpeshkar Managing Director, Global Payments Citigroup Corporate and Investment Banking May 30, 2006

2 Global Remittances – An Overview nGlobal Remittances are an important source of family income in many developing countries nIn some cases, Global Remittances are a significant % of GDP of receiving countries nOver 60% of Global Remittances flow from the Top 5 country sources nFour major areas for improvement noted –Price –Speed –Convenience –Reliability Source: World Bank Reports; Committee on Payment and Settlement Systems

3 What’s a Typical Consumer Profile? nDeveloped country nAway from home and family Needs nDependability / trust nConvenience nMinimal paperwork nLow cost nConfirmation payment has reached nCustomer service on transaction initiation and funding nEmerging market nLiving at home with other family members Needs nQuick funds availability nConvenience on receiving nNo hassles or paperwork nNo fees nCustomer service on funds arrival and access Remitter Beneficiary

4 How Are We Doing? nBanks –Dependable and trustworthy –Branches concentrated in urban areas –Many access channels not linked to remittance services –Staff not well trained on remittances, extensive paperwork –Funds availability reliant on national payment systems and correspondents –Little customer service due to lack of process transparency –Ineffective on outreach nOther Remittance Service Providers (e.g. MTO’s) –Dependable and trustworthy based on remittance service reputation –Convenient agent locations –Staff may not be exclusive to financial services –Innovative instant instruction authorization and funds availability –Service pricing varies – relatively expensive –Customer service less important due to instant funds availability –Good track record on outreach –Dependent on Banks and 3 rd party providers for delivery

5 Macro Issues With The Remittance Infrastructure nRegulatory compliance –Not consistent across banks and non-banks –Banks discouraged from offering remittance services (concerns about AML) –Central Banks in some receiving countries create excessive paperwork nNational payment systems –Short working hours –No access by smaller institutions –Lack international standards for formatting nLack of universal instruction format for remittances –No worldwide account number format –Codes for payment purpose/method

6 Consumer Banking Account Services Checking Accounts, Savings Accounts, Local Payments, Financing and Credit Cards Information Service, Exception Handling, Process Tracking Global Distribution Account credit Cash Check/draft Card Core Processing Convert funds to destination currency Calculate foreign currency spread Transfer funds Traditional Teller operation ATM Call center Innovative Internet banking Telephone IVR Traditional Account debit Cash over counter Innovative Card (debit/credit) ACH via Internet Planned/Recurring Global Remittance Value Chain Remittance Value Chain DISTRIBUTION FOREIGN EXCHANGE AND FUNDS TRANSFER FUNDING REGISTRATION AND ORIGINATION END-TO-END CUSTOMER SERVICE

7 Banks Can Play Many Roles In The Value Chain nDirect Interface with remitter nOriginating institution of transaction nCollection agent for transaction funding nCore processor of foreign exchange nSending agent of funds nReceiving agent of funds nDirect Interface with beneficiary

8 Where Can Banks Innovate? Four broad areas: 1.Customer interface 2.Core processing 3.Packaging products 4.Remittances ecosystem

9 Areas Where Banks Can Innovate 1.Customer interface nTarget market expansion – extend service to “un-banked” nImproved Teller operations nIntegration of remittance capabilities with other front-end applications nForeign language capabilities

10 Areas Where Banks Can Innovate 2.Core processing nReduce repair rates nGlobal network for cash to match the needs of beneficiaries nImprove process transparency for better customer service nProvide for payment finality nReal-time instruction management for faster processing nEliminate charge beneficiary and lifting charges for remittances

11 Areas Where Banks Can Innovate 3.Packaging products nDeposit services, cards and remittances nSecuritizing remittance flows nInsurance on remitter

12 Areas Where Banks Can Innovate 4.Creating a Remittances “ecosystem” nCreate and empower more “remittance service providers” nFacilitate wholesale access to national and cross-border payment systems nTechnology providers nDistribution agents

13 In Conclusion nBanks can play many roles along the remittance value chain –Relationship builder –Core processor –Wholesaling services nDriving innovation is key to improving overall service & cost levels for consumers and extending outreach –Remitters and beneficiaries need us to help them have a better life nCore competencies can be leveraged by non-bank remittance service providers through a spirit of cooperation and competition: coop-etition

®2006 Citigroup Inc. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.