WWB innovation brief. Citigroup: Creating Innovative Remittance Products and Services at the Global Level

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1 WWB innovation brief Citigroup: Creating Innovative Remittance Products and Services at the Global Level Commercial banks are aggressively developing strategies to move into the microfinance sector in a way that truly serves the needs of underserved people, especially microentrepreneurs. One of these needs is for products and services linked to remittances that enable immigrants working abroad to send money swiftly and securely to relatives back home and that offer the receivers alternatives for the productive use of the remittances. Remittances are critical to the lives of millions of people in developing countries. Nearly 200 million people live outside their home countries, 1 and estimates of official remittances to the developing world now total USD 93 billion per year, making them the second most important resource of external funding in developing countries, 2 ahead of capital market flows and external funding for developing countries. 3 Remittance products, therefore, are an important part of the range of products and services including credit, savings and insurance that financial institutions are beginning to offer to the immigrant population. Remittance Products and the Underserved Commercial banks actively cross-sell products to their clients in order to expand their client base as well as their portfolio. For the unbanked, the first point of access to financial services is often a remittance service. That service becomes the entry-point through which additional products and services can be offered to the client. In the past, money transfer organizations (MTOs) have traditionally been market leaders in the highly lucrative money transfer business. The formal banking sector has realized only Chronicling the Ways Commercial Banks Offer Innovative Products and Services to Microentrepreneurs

2 WWB Innovation brief Citigroup: Creating Innovative Remittance Products and Services at the Global Level Migration and international remittances are an integral part of the world economy today. in the past few years that remittance services are a driver of new accounts as well as a value-added service for those immigrants who already have a bank account and a means of reaching their families across the borders. Citigroup is one of the key global banks that has recognized that these innovative products and distribution channels broaden and increase outreach to this new client sector. Remittance Innovations in the Formal Sector Migration and international remittances are an integral part of the world economy today. The remittance market is evolving quickly given changing technology, new market players and increasing competition. As transfer volumes, profits, and operators continue to increase, greater transparency on the costs and services of money transfer operators will be required. 4 Meanwhile, banks will continue to innovate in remittances and remittance products as part of the array of financial services reaching both the immigrants and the families back home leading to new cross-border partnership models. Citigroup Targets the Underserved In recent years, Citibank has been leveraging its own worldwide presence and quick, affordable remittance products to reach the underserved. Citibank has taken several steps to market new products to senders and beneficiaries in the United States and Mexico. The Citibank Global Transfers service allows a Citibank client to send a real-time remittance transfer to a Banamex account in Mexico for only USD 5. Also, for only USD 5, the customer can send funds that the beneficiary can access with a Banamex TriColor card (Tarjeta TriColor), which can be purchased at Banamex branches in Mexico. The card can also be used for electronic purchases. This card also increases security for the beneficiary, as he or she can withdraw the funds as needed, instead of carrying around large amounts of cash. For USD 8, the funds can also be picked up in cash at any Banamex branch. This service offers highly competitive pricing, since the average cost of wiring USD 300 in money transfers from the United States to Mexico only recently dropped from about USD 28 in 1999 to about USD 10 in 2005.

3 Building on the success of the Mexican initiative and seeking to innovate across regions, Citibank Global Transfers introduced a Money Card in 2005, through which overseas Filipino workers send money to loved ones at home. Citibank Global Transfers offers Filipinos a fast, convenient and secure way of sending money from overseas to Citibank branches and affiliates in the Philippines. Five years ago, Citibank launched a Global Indian Account for non-resident Indians (NRIs) that offers a host of facilities of dollar and rupee checking accounts, enabling NRIs to meet their financial requirements in India and overseas. To take advantage of this program, non-resident Indians need to have an account based in their country of origin and in the country where they reside. Both accounts can be operated through Internet banking, ATM, Citiphone or Citibank NRI centers located around the world. In 2006, Dubai-Citibank United Arab Emirates (UAE) and Citibank India, both members of Citigroup, developed the Citibank NRI service or Dirham/Rupee checking account (RCA) consisting of two different accounts at Citibank UAE and Citibank India, respectively. The target customers for the Twin UAE-RCA account relationship are Indians working outside their home country (NRIs) who need to remit money to India through a banking relationship in the UAE. 5 Clients of Citibank India will be able to apply for personal loans or auto loans and will be able to use the funds remitted as a repayment source. A Starter Account for Untapped Markets The Citibank Access Account provides customers a transaction account with a debit card for a minimum monthly fee, which is waived if the client uses direct deposit or recurring savings deposits. The service also includes unlimited bill payments through Citibank Online, without any additional charges, and low-cost remittances and funds transfer options to friends and family in Asia, Latin America and Europe through Citibank Global Transfers. The Citibank Access Account can also be offered with a secured credit card feature that allows customers to build their credit history. Citibank Links its Remittance Products with Other Financial Service Needs of the Underserved In 2004, Citigroup launched the Citigroup Microfinance Group to expand access to financial services to the unbanked and underserved. The group actively partners with Citigroup s Corporate and Investment Bank, Consumer Bank and Wealth Management businesses on a global basis, and also engages leading microfinance institutions, For the unbanked, the first point of access to financial services is often a remittance service. That service becomes the entry-point through which relationshipbuilding starts and additional products and services can be offered to the client.

4 WWB Innovation brief Citigroup: Creating Innovative Remittance Products and Services at the Global Level A regular flow of remittances from abroad can become a reliable means for a client to repay a loan or build a savings account. microfinance networks and investors as commercial partners and clients. 6 According to Microfinance Matters, a publication of the United Nations Capital Development Fund, the creation of the Citigroup Microfinance Group moves microfinance from being a purely philanthropic activity into the domain of Citigroup s global business, a huge step in promoting microfinance as a viable business concern for the largest financial institution in the world. 7 In 2005, the Citigroup Microfinance Group and Citibank North America launched a new program with Banco Solidario, a microfinance institution in Ecuador, to provide a United States-to-Ecuador remittance product. The program allows Citibank North America customers to send remittances at participating Citibank financial centers in New York, New Jersey, Connecticut, Florida, Texas, California and Washington D.C. The customers can send up to USD 3,000 per day to Ecuador, either directly to a Banco Solidario account, for as low as USD 5 per transaction, or for cash pick-up at Banco Solidario s distribution network, for USD 8 per transaction. 8 Lowering the product s cost for account-to-account transactions is meant to promote more account acquisition in Ecuador, thus helping to lower the number of unbanked on both the sending and receiving ends. Once the recipient receives the remittances, the funds can be used to access many of the assetbuilding products of Banco Solidario, including housing loans, working capital loans and savings accounts. 9 Thus, a regular flow of remittances from abroad can become a reliable means for a client to repay a loan or build a savings account. Most Money Transfer Organizations (MTOs) that transfer funds from the United States to Ecuador charge 4% of the transfer as a fee, and since the Citibank-Banco Solidario service was launched, Delgado Travel, a leading MTO, lowered its rate to 3% of the value of the transfer. 10 As a result of the alliance, 11% of the remittances received are paid into a savings account; 5% of the beneficiaries have opened bank accounts while they previously did not use the formal financial system; 85% of the clients started their banking relationship with Banco Solidario as a result of the remittance transfer, and additional promotions have continued to increase the integration of clients into the financial system. 11 Challenges and Opportunities Some remittance senders have negative perceptions of banks because of prior experiences in their home countries. Citigroup has the opportunity to meet these challenges by increasing financial literacy among the unbanked population. As an important step in this direction, in 2004, Citigroup and the Citigroup Foundation launched a USD 200 million, 10-year Financial Education program to support and promote financial education worldwide. 12 Through 2005, Citigroup has provided USD 52 million to support financial education in 68 countries. 4

5 The Citigroup Foundation has made a $5.3 million commitment so far to support financial education for MFI clients through the Financial Education for the Poor Project. 13 The need for such tools grows more acute as the microfinance industry matures and is proliferated with service providers and a diverse range of products. Microfinance Opportunities and Freedom from Hunger, in collaboration with seven partner organizations, 14 have developed the Financial Education for the Poor curriculum to teach good money management practices in the financial areas of earning, spending, saving and borrowing. The program enables low-income people to better manage their resources, understand their financial options and improve their financial well-being. The core curriculum is currently being disseminated through regional and country workshops. Additional curricula are being developed on new topics relevant to diverse market segments, including insurance, remittances and consumer protection. At the client level, Citigroup must take into account issues such as the awareness, habits, and perceptions of the low-income population both senders and receivers of remittances with regard to commercial banks. Cross-border payments are sent through a wide variety of channels, including MTOs, post offices, banks and couriers. Most remittance clients are in the habit of using wire transfer services or neighborhood money transfer agents. Hence, one challenge is to increase awareness of the fact that banks offer remittance services and to design financial products and services that will encourage recipients to take the first steps toward saving for the future and accessing other services that will enable them to build assets for their businesses and their families. The Financial Education for the Poor Project enables low-income people to better manage their resources, understand their financial options and improve their financial well-being. Citigroup s Future Plans Through pilot research and the introduction of more innovative products and services for this target market, the next step for Citigroup is one of replication and scale. As Citigroup targets low-income clients in new countries, it plans to partner with local institutions and organizations to offer products that meet the needs of customers. Citigroup will continue its expansion into developing countries, particularly in Asia and Latin America. Implications for Institutions Offering Microfinance Services Commercial banks interested in offering products and services for remittance senders and receivers can look to Citigroup as an example of how to reach the target client segment. They can, for example: Penetrate the market segments of receivers of remittances, including those for whom remittances are a source of income for subsistence,

6 WWB Innovation brief Citigroup: Creating Innovative Remittance Products and Services at the Global Level The next step for Citigroup is one of replication and scale. Develop savings and risk-mitigating products for the receivers of remittances, Provide financial education for the senders and receivers of remittances, Design branding in order to achieve recognition among the underserved population, and Develop strategic partnerships with local institutions in rural and remote areas to reach new client segments. Sharing Best Practices in Microfinance Women s World Banking (WWB) has been chronicling the best practices that have been developed through the experiences of key microfinance organizations and banks through the Global Network for Banking Innovation (GNBI). Citigroup is a founding member of the GNBI of Women s World Banking. The GNBI consists of 24 leading banks and regulated MFIs that are retailers, wholesalers and specialized institutions in microfinance. The GNBI is part of the wider WWB global network of microfinance institutions and banks that operate in Asia, Latin America, Africa, Eastern Europe and the Middle East. GNBI members have consistently served as valuable resources in WWB s efforts to collaborate with the Federation of Latin American Banks (FELABAN) in order to promote the responsible entry of commercial banks into microfinance. Citigroup, among GNBI members, has been an active partner in disseminating lessons learned and success stories within the industry. ENDNOTES 1. International Migration, Remittances & the Brain Drain, World Bank, International Migration, Remittances & the Brain Drain, World Bank, Crafting a Money Transfers Strategy: Guidance for Pro-Poor Financial Service Providers, CGAP, Crafting a Money Transfers Strategy: Guidance for Pro-Poor Financial Service Providers, CGAP, Page 3, Citigroup 2005 Annual Report. 7. Microfinance Matters, UNCDF, September, Foro Interamericano de la Microempresa 2006, Ecuador Negocios Emigrantes Principales Resultados y Estrategias. 12. Page 11, Citigroup 2005 Annual Report Pro Mujer (Bolivia), Teba Bank (South Africa), Al Amana (Morocco), Equity Building Society (Kenya), SEWA Bank (India), CARD Bank (the Philippines) and the Microfinance Centre (Poland)

7 Citigroup (NYSE: C) Citigroup, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, insurance, securities brokerage, and asset management. Major brand names under Citigroup s trademark red umbrella include Citibank, CitiFinancial, Primerica, Smith Barney and Banamex. Additional information may be found at Women s World Banking (WWB) WWB builds financial systems that work for the low-income majority with a focus on women. Established in 1979, WWB is a leading non-profit network comprised of over 50 microfinance institutions and banks in Asia, Latin America, Africa, Eastern Europe and the Middle East. WWB s global team, based in New York City, works hand-in-hand with the network members to develop business strategies, strengthen their local organizations, and create innovative services and products that respond to the needs of low-income women and their households. WWB acts as a catalyst to shape financial sector policies and regulations worldwide making them more effective in addressing the needs of the poor.

8 GLOBAL NETWORK FOR BANKING INNOVATION WWB Innovations Briefs WWB Innovation Briefs are a series of publications that highlight the innovative approaches in microfinance products and services of Women s World Banking s network members and other industry players, updating the industry on current global innovations and microfinance practices. Our goal in disseminating the latest information and market insights is to make an impact on the industry by highlighting strategies that the members of the wider WWB network and the industry as a whole are developing to address the needs of lowincome entrepreneurs. The Citigroup Innovation Brief is the seventh in the GNBI innovation brief series that was started in To date, the briefs have discussed various themes, including remittances for microfinance and recommended strategies for commercial banks to enter the microfinance arena. Acknowledgements: WWB would like to acknowledge the following people at Citigroup for their contributions to this innovation brief: Bob Annibale, Global Director, Microfinance Group; Sandra Reilly, Director of Products and Services, Microfinance Group; Leslie Meek, Senior Program Officer, Citigroup Foundation; Marcela Ramirez, Director of Remittances, Citibank North America; Francisco Perales, North America Sales Integration, Citibank; Miguel Quiroz, Program Manager, Microfinance Group; Thien Tran, Business Development Manager, Microfinance Group, and Dara Duguay, Director, Citigroup s Office of Financial Education. Contacts at WWB/GNBI Publications: Mercedes Benavides, mbenavides@swwb.org Petra Tuomi, ptuomi@swwb.org Robin Francis, rfrancis@swwb.org This Innovation Brief was written by Mercedes Benavides, Manager of the GNBI, and David Kachoui of the WWB Remittances Group with editorial support from Robin Francis, Petra Tuomi and Kristin Helmore.