Citigroup Enters Banking's Hottest Business With New Payments Unit

By Telis Demos 

Citigroup Inc. is starting a consumer-payments business, joining its biggest rivals and a host of financial-technology startups jockeying for position in the hottest corner of banking.

The bank, already a dominant player in business-to-business payments, is launching a new unit that will offer big merchants a suite of consumer-payment options ranging from traditional credit cards to new digital wallets to direct bank-account transfers.

The historically high-volume, low-margin business of connecting companies to customers, known in the industry as "merchant acquisition," is heating up as digital wallets and other new payment methods proliferate. The explosion of payment options has come with an increase in fraud and other complications, creating an opening for banks and fintech firms to ramp up their offerings.

"Digital payments are rapidly growing, and there's a need for bank-grade technology," Manish Kohli, Citigroup's global head of payments and receivables, said in an interview with The Wall Street Journal.

The global payments shake-up has set off a merger frenzy in the business. Fidelity National Information Services Inc. last week said it would pay about $35 billion for payments giant Worldpay Inc. The deal came just months after Fiserv Inc. said it would pay $22 billion to buy First Data Corp., in part to expand its payment offerings.

Banks, meanwhile, are bolstering their own payment offerings, especially for massive merchants such as Amazon.com Inc. U.S. banks last year ramped up a nascent real-time payments network to move money instantly between consumer accounts. In January, JPMorgan Chase & Co. said it was combining its once-separate merchant-to-consumer unit with its broader corporate-transactions business to create a new wholesale-payments group.

Citigroup and other banks are betting that the combination of traditional banking and payments services will allow them to extract more business from their existing customers. For example, a merchant that collects payments in one currency and pays out in another could tap a bank's trading desk for those transactions.

Wholesale manufacturers looking to start selling their products directly to consumers are among the companies banks could target with their expanded payment services. Banks also could better compete for the business of new internet giants, which have traditionally worked with upstarts such as PayPal Holdings Inc.'s Braintree, Adyen NV or Stripe Inc. but have more complex banking needs as they grow.

Citigroup is partnering with payments firms including Mastercard Inc. to provide some of the back-end connections and processing for merchants. It also plans to use its banking presence in foreign countries to offer services with payment partners in each market.

"Nobody truly does global acquiring, and that causes problems for a lot of cross-border payments," Mr. Kohli said. "The idea is to effectively be a local player everywhere."

Write to Telis Demos at [e-mail]

(END) Dow Jones Newswires

March 26, 2019 07:14 ET (11:14 GMT)

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