Citigroup Inc. wants to grow its payments revenue by helping other businesses grow theirs.
The company's strategy centers on a new payments unit headed by Citi veteran Paul Galant that intends to develop products to improve business-to-consumer transactions.
Galant, who last week took over as the chief executive of Citi's Global Enterprise Payments unit, said his goal is to work with government agencies, retailers and media companies initially to develop services that let them interact more efficiently with their customers, and create "incremental lending opportunities" for Citi in the process.
"You have flows that are business to business [and] business to government," Galant said in an interview Thursday at Citi's offices in Long Island City, N.Y. "We've got that covered, and we've got it covered in more than 100 countries, and it's a very large-scale business. We have covered retail banking and credit card banking in 40 or 50 countries, but the connection is really a bank to a consumer."
The goal, he said, is to bridge "the space between very large entities and consumers."
Galant, who most recently ran Citi's credit card business, has extensive experience in business-to-business and business-to-government payments. Before heading the cards business, he was the CEO of Citi's Global Transaction Services unit, which provides commercial cards, accounts receivable processing and other treasury and trade products.
While Global Transaction Services also focuses on developing payments tools, it has a distinctly different target client than that of the new unit, Galant said.
"The client for GTS is a CFO and a treasurer," he said. "We really deal in financial flows at GTS. The client of enterprise payments is the chief operating officer and a business head. We're there to enable incremental revenue growth for these companies."
Galant and his team are still working out the structure of the unit, which will have linkages to several divisions, including retail and institutional banking. The unit plans to approach target markets by looking for gaps in technology.
"If we approach it purely [as] a bank, we are going to get disintermediated," Galant said. "So we should really come at it as a technology company with a banking license and figure out what value we can bring to merchants and to governments and financial institutions. That's how we are thinking about it."
Although the operation has no specific projects in the works, Galant shared ideas for potential payments tools Citi could develop.
Expanding Citi's role in processing passport applications for the U.S. State Department is a hypothetical example of the work Galant said Global Enterprise Payments could do.
"You have all this physical paper inefficiency," Galant said. "There's not digitization until it gets into the loading dock and then we at Citi go through the exercise of digitizing it."
To improve the process, Citi could develop a program that lets a person initiate the passport process using a digital scanner or by visiting one of its bank branches.
"As someone with a balance sheet and capability and scaleable operations that wants to help with that, that's a major opportunity for us to do good" for the passport agency and consumers, and "make a fair return," he said.
Media and telecommunication companies are another target.
Because of technology advancements, there are more ways for a cable company to interact with a customer, he said.
Citi could develop an payments system "to sit in the cable company's infrastructure … to enable people to transact, which is really handy if you're watching a ShamWow commercial and you want to buy a ShamWow," he said. "You don't want to get off and go to the Internet or get on the phone. You just want to transact."
Galant stressed that the goal for any product or service the unit develops would be to expand its use globally.
"If it's not global, we probably won't touch it," he said. "I don't see my team spending a lot of time on regional or domestic solutions only because we have such excellent people that can do that already."
While Global Enterprise Payments is just getting started, analysts said Citi's focus could help it gain business that many banks have left to outside vendors to handle.
"We in the analyst community have been talking about how payments and enterprise payments are a key component of bank strategies and should be an asset that they're leveraging, but I don't think we see a lot of banks truly positioning to be" leaders in that market, said Nancy Atkinson, a senior analyst for wholesale banking at the Aite Group LLC research firm in Boston.
Citi also is in a good position to expand any new payments capabilities globally, she said.
"Citi has a presence globally and probably is the single bank with the greatest actual global footprint," Atkinson said.
But while Citi has a large physical presence, it still faces the challenge of competing with nonbanking companies that already have established themselves as leading providers of payments infrastructure, consultant George Thomas said.
"To get that back, banks are going to have to work," said Thomas, a principal with the payments consulting firm Radix Consulting Corp. in Oakdale, N.Y.
Citi's intention is not to develop all new technology in-house, Galant said, adding that it has a history of partnering with outside companies.
"I will always use a partnership model," he said. "We know [payments] very well but it would be crazy for us to say we have a monopoly on these ideas, that we have the ability to build everything in-house."
Citi also would look to license its technology to other banks as a white-label product, which would help it grow revenue faster, Galant said.
The enterprise payments team has had discussions with clients about prospective projects, but Galant cautioned it will take time before it establishes "a real significant, sustainable service business."
"This is an opportunity that is going to take some time to flesh out," he said.
In addition to charging for the products and services the unit develops, the new group could identify new lending opportunities for Citi.
"We are going to make money by creating … incremental flows and incremental lending opportunities for this bank that we're not capturing today," Galant said.