I would like to thank GSMA for inviting me to this truly remarkable gathering. And I thank all of you for coming.
I have to say, I've been impressed by the energy here in these halls, and by what so many of you have achieved in the digital and mobile spaces. And I also have to say, as a banker, I'm a little bit daunted to speak to an audience like this about technology.
Yet I'm also proud of my company's record of innovation on behalf of our clients and customers and the whole financial sector. Banking has traditionally been innovative in the financial space, from inventing new products such as the credit card, to spotting transformative projects and putting our resources to work behind them. For instance, Citi provided indispensable financing to the Transatlantic Cable and the Panama Canal—both of which revolutionized communication and connectivity in their day.
And when it comes to revolutionizing our own operations, Citi has acted quickly to bring the power of technology to bear for our clients. We were the bank that pioneered the widespread use of ATMs and made them an industry standard. We continually scan the world for ideas and technology innovation—from our venturing business in Silicon Valley to our digital labs around the world—and bring to them the scale, safety and soundness required for the global banking system.
Which is why this gathering is so important to us.
Our mission is to enable progress. We do that by providing our clients with the best possible service for their financial needs … by helping individuals manage money and build assets … helping governments deliver services to billions around the world … and helping companies innovate and invest in the transformative projects of tomorrow. And to do all that, we have to stay with—and ahead of—the trends.
That's what I want to talk to you about today: how we see those trends, and how we're responding to them.
Citi's strategy is built around what we've identified as the three defining secular global trends of our time:
It's easy to see how these trends are interrelated and self-reinforcing. Digitization enables the "shrinking" of the world that fuels globalization, which in turn creates wealth that drives the rise of cities, where an expanding consumer class buys digital products and invests in technological innovation. The most pertinent issue for a bank is how digitization is changing the way everyone—businesses, governments, consumers—all handle money.
On the one hand digitization promises to change everything—to make banking more personal, more efficient, more transparent, and more accessible. But on the other hand, what's really new? Hasn't banking been digital for a long time?
Yes... and no.
My company, on an average day, moves $3 trillion in business and institutional financial flows—and $9 trillion on peak days, or more than half the entire U.S. GDP. Nearly all of that is moved electronically. In many ways, we see ourselves as a technology company with a banking license.
But these flows are dwarfed in volume, though not in value, by consumer flows, which are still mostly paid in cash. In fact, even today 85% of global consumer transactions are still paper-based. For all we've achieved in digitizing the financial sector, we've reached only 15% of the global consumer economy. That leaves a lot of room for improvement—and growth.
The projected benefits are tremendous. A study conducted by Citi and The Imperial College in London found that a mere 10% increase in the adoption of digital money would move $1 trillion in "off the books" transactions into the formal economy—with a corresponding $100 billion rise in global tax revenues. In an era when governments are struggling to meet their obligations, that's significant.
The benefits to companies can also be great—but only for those that keep up. McKinsey forecasts that the adoption of digital and mobile technologies will cause $350 billion in market share to shift among companies in the U.S. alone over the next three years. In other words, some companies will win … and others will lose. The winners will be those that embrace digital, extend their reach globally and start to exploit direct-to-consumer opportunities. As those businesses expand their horizons, we want to be the bank that they choose to partner with.
For consumers, the benefits may be the most straightforward and easy to understand. We all live with this technology every day —not just ATMs, but websites, tablet and mobile apps, and so many others. These technologies are really transformative. Today it's possible to do nearly all your banking without ever entering a brick-and-mortar branch. Soon "nearly all" will be, literally, all.
I have two children—one is 25 and the other is 21. Sometimes when they're home and a group of their friends come over, I like to ask them, "When was the last time one of you walked into a bank branch?" Most of them can't remember. One told me that he got something called a traveller's check from his grandmother and took it to the bank because he didn't know what to do with it.
But maybe the most important changes are those that impact the most vulnerable in our society. Many developing countries, when building their telecommunications network, leapfrogged landlines and went straight to mobile. We're seeing something similar in the credit card industry. Mobile adoption is extremely widespread—more than 3 billion people have mobile phones but only around 2 billion people have bank accounts. In those markets where banking is not already well established, many are moving straight to mobile payments, and skipping plastic and branch banking altogether. Having a smart phone is like having a bank right in the palm of your hand.
We estimate that a 10% increase in digital money usage would bring an additional 220 million people into the banking system —helping them save for the future and meet their financial goals. The combination of financial inclusion, economic empowerment and greater efficiency is why Citi actively promotes the transition to digital money. We're a founding partner of the not for profit "Better than Cash" Alliance, an organization that promotes the digitization of payments globally. And we're partnering with the U.S. Agency for International Development to digitize the delivery of foreign aid. This will help protect it from the corruption and graft which prevents it from reaching its intended recipients.
I think we all agree that security will perhaps pose the greatest challenge. And the risks go beyond headline-grabbing data breaches and online theft. Issues such as money laundering that banks have been wrestling with for years are amplified in the digital space. So as we look to embrace innovation and the promise that digital money holds, we must do so without compromising the industrial standards that underpin today's payment flows.
Some of the world's governments believe that limiting the private sector's ability to transfer, store, and process data across borders will somehow protect user privacy and improve security. Yet these well-meaning efforts are ultimately counter-productive. The movement of data is no less important to the global economy than the movement of money. And it's not just critical for banks but also for our clients—for any company that does business in many countries. Cross-border data flows, just like cross border financial flows, allow companies to integrate their personnel, manage their global supply chains and customer networks, and maintain the competitiveness they need to grow and thrive. The free movement of data is fully compatible with legitimate security concerns. As we know, companies try and strike this balance every day. Citi is working with other companies to help develop an international regime that does just that across industries.
Now let me, then, tell you a little about Citi's ambition to become the world's digital bank, and what we're doing to make it happen.
Our digital strategy has three core pillars.
I'll say a few words about each.
First, customer centricity.
At a rapidly increasing rate, our customers prefer to do business with us digitally. More than 60% of our interactions with our customers are now online. Just in our cards business alone, digital spending is growing at twice the rate of traditional swipe-and-pay transactions. In fact, the entire industry is consistently seeing higher customer satisfaction from people who use digital services compared to those who don't, and higher still from mobile users. And the younger a customer is, the more this holds true.
Our focus and investment in digital reflect this accelerating trend. We see digital as critical to the delivery of world-class customer experiences—and our mobile banking platform is now operational in more than 30 countries. Quite simply, digital is better, faster and cheaper for most interactions.
We've developed a platform called Citibank Express or, informally, we call it "bank in a box." It's a next-generation ATM that allows customers to access nearly all of the services available at a traditional branch—including opening accounts and applying for loans, credit cards and cashier's checks. In fact, the machines can issue a card on the spot—no waiting for it to come in the mail. The machines are also equipped with an online banking connection, and video-conferencing and biometric capabilities for identity authentication. A customer can start a transaction on a computer or mobile device and complete it on Citibank Express—and vice versa.
Corporate demand is just as significant. For instance our mobile Citi Velocity trading platform packs everything a trader needs—all the data flows, research, collaboration and real-time trading capability—into a mobile phone. In one of the most demanding technology environments—characterized by multiple monitors and content feeds with zero latency—we have launched a mobile solution that fits all this into one 4-inch screen. Built in our lab in Israel and launched in December last year, the platform is already averaging over $2 billion per week in trading flows.
Second, being globally common.
One of the challenges of running a bank that operates in more than 100 countries is to ensure that as many of our products and processes as possible are globally common. Citi Velocity is a good example. Another is CitiDirect BE Mobile, which allows companies to use our payments infrastructure to provide mobile payments anywhere. A corporate treasurer doesn't have to be at a desk to pay the company's bills. If they want, they can do it from the beach. A product of our innovation lab in Ireland, this platform is now operational in 90 countries and 16 languages, and is compatible with more than 50 devices. In its first eight months of operation, the platform moved $1 billion. Last year that number rose to $115 billion. In January of this year alone, we've already processed $25 billion in payments through mobile phones. And we've noticed that flows from our clients that use CitiDirect BE Mobile are growing at three times the rate of the firm-wide average for all our clients. Thanks largely to the success of this platform, Citi was named best global mobile bank in 2013 by Global Finance.
Third and finally, digital partnerships.
We've been active in creating new digital distribution channels in partnership with clients and in ways that meet their specific needs.
For instance, in Mexico, working with the telecom company America Movil, we created Transfer, a mobile payments product to reach the unbanked. The Government is now using the product to distribute disbursements, and Oxxo—the country's largest convenience store—has joined to allow people to cash in, cash out and shop. Launched in May 2012, we now have 1.2 million active customers, growing at 120,000 per month, 60% of whom are new to banking, and another 80% new customers to Citi. It's good for people... it's good for us... it's good for the financial system... and it's good for local economies.
On the other side of the world, and at the more affluent end of the consumer spectrum, we are equally proud of our partnership with Hutchison Whampoa's mobile subsidiary "3" in Hong Kong. Together, we launched 3 Citi Wallet, a smartphone app that provides integrated payments, loyalty programs and offers.
These efforts don't stop with consumer banking, either. For instance, we're in the early stages of formulating a payments system for Aetna, a U.S. insurance company, that holds the promise of transforming the way they, and the entire healthcare industry, bills and collects from patients.
In each of these cases, we are bringing our global banking platforms and capabilities to help create new digital ecosystems and value. However, we recognize that success requires more than Citi—it requires partnerships across the value chain, and respect for the capabilities that different institutions can bring.
I started my presentation talking about three global trends. At Citi, we believe that not only can we benefit from globalization, urbanization and digitization … but by delivering global customer solutions on common digital platforms, we're making a positive contribution to accelerate their transformative impact.
Whether on a trading floor, in the halls of government, in the treasury departments of multinational companies, or in the hands of our individual customers, our future will be global—and it will be digital.