Citi Powers Fintech Effort -- WSJ

By Telis Demos 

Citigroup Inc. this week is launching a joint effort with software giants and startups to find ways to use new financial technologies to combat fraud and bribery in government services.

The initiative, called Citi Tech For Integrity Challenge, will partner Citigroup's public-sector group with tech companies including Facebook Inc., International Business Machines Corp., and Microsoft Corp., and startups globally, the bank said. The aim is to help programmers at tech firms to develop new applications using Citigroup's and the partners' software for governments to do things like detect and block illicit payments, protect financial data, or help deliver aid to poor or crisis-hit regions.

The initiative is the latest example of broadening "fintech," which has so far focused largely on new tools for consumers, like online loans or mobile payments. Banks also generate billions in revenue from corporations and governments, so finding ways to apply technology to those businesses would justify big investments.

That includes finding ways to apply technologies such as mobile payments apps, photo-recognition software, blockchain -- the networking system originally developed for bitcoin, but which banks have spent hundreds of millions trying to apply to their own businesses -- and artificial intelligence to government payments systems. These systems often use technology to manage the government's payment process, but ultimately then deliver funds in cash that isn't trackable.

"Officials elected on anti-corruption platforms told us they don't have the tools to change what's happening further down" the payments system, said Julie Monaco, global head of Citigroup's public-sector group in the bank's corporate and investment banking unit, noting that about 70% of fintech spending currently goes toward consumer usage. "We want them to talk to the fintech team and figure out how to plug in."

Citigroup may invest in some of the new initiative's applications, which could be sold to government clients, via its venture group, or partner to use them for its own services. But the bank says it is also hoping to spur investments by other partners and independent development for activities like communicating with citizens and reforming bureaucracies.

In a presentation on the initiative, Citigroup cited a Global Financial Integrity study that African countries in 2011 lost $77 billion due to illicit financial flows.

Governments including the U.S. are among Citigroup's customers in its business selling services to help move large volumes of payments and other money transfers globally, known as Treasury and Trade Solutions.

Citigroup doesn't disclose figures for government-client revenue. Public-sector transaction services revenue grew "double digits" last year, thanks in part to governments adding new technologies to their payments systems, the bank said. Overall Treasury and Trade Solutions revenue was $8.1 billion in 2016, up 4% from the prior year.

Banks are using technology to remake their businesses in the wake of post-financial crisis rules restraining risk-taking. Some firms like Goldman Sachs Group Inc. are seeking to emulate Apple Inc.'s approach , by opening parts of their systems for outside firms to build financial products.

Write to Telis Demos at [e-mail]

(END) Dow Jones Newswires

February 08, 2017 02:47 ET (07:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.