Citi giving e-commerce players a hand to expand in Asean

Citigroup is helping e-commerce players expand their operations in ASEAN, where the potential is huge but where their progress is frustrated by a lack of infrastructure, says Melvyn Low, Citi's head of ASEAN and Singapore for Treasury and Trade Solutions.

ASEAN e-commerce is in its infancy compared to India and China, said Mr Low in a recent interview.

E-commerce has been the fastest- growing client sector for Citi Treasury & Trade Solutions' business in ASEAN in the last 2-3 years, he said.

The bank expects double-digit revenue growth for its ASEAN e-commerce business in the next three years, he added.

Citi has two key e-commerce client groups: MNCs clients coming into ASEAN; and local companies which are expanding into multiple countries.

To support the growth, the bank has been investing in operational infrastructure and building connectivity, Mr Low said.

Citigroup is the world's largest transaction banking provider, handling US$3 trillion in payments daily.

The bank's transaction banking (which it calls treasury and trade solutions) revenue in 2015 of US$7.8 billion made up more than 10 per cent of group revenue.

E-commerce players find ASEAN difficult to navigate because of a myriad of regulations and lack of common infrastructure for developing the digital economy, Mr Low said.

Settlements or payments are slow because each country has its own foreign exchange rules, for instance.

"ASEAN presents opportunities, but the infrastructure and speed is not there," he said.

ASEAN doesn't have the regulatory push like in India, where the government sets the standards for going cashless, nor is there a single player like Alibaba in China, he said.

Alibaba, the world's largest retailer, and its online payment platform Alipay with 400 million users, control just under half of China's online payment market.

"In China, nobody carries a wallet. They use Alipay to pay for coffee," said Mr Low.

But in ASEAN, where people are Internet and mobile-savvy, they shop online mainly for bigger items like booking airfares and hotels.

"Their ticket sizes tend to be larger," Mr Low said.

"There's why the e-commerce players are interested in ASEAN," he added, noting that the region has a huge middle class of 190 million who are Internet-savvy.

ASEAN, which comprises 10 countries with a population of 622 million, has 776 million mobile connections at a 121 per cent penetration.

Outside of Singapore and Malaysia, credit cards account for only 2-3 per cent of purchases, Mr Low estimates.

"Cash is very prevalent and painful for e-commerce players," he said, as it is costly and risky.

"We are helping these clients navigate the regulatory nuances of the different markets across ASEAN, collect, pay and manage their FX & liquidity risk (settlement)," he said.

"Essentially, it is no different to what we provide brick-and-mortar clients except in the speed at which we provide some of these services."

The ASEAN Six - comprising Singapore, Malaysia, Indonesia, the Philippines, Thailand, and Vietnam - is the fastest-growing Internet region.

The ASEAN 6 has an existing Internet user base of 260 million, which is expected to grow to 480 million by 2020.

ASEAN's largest e-commerce market is Indonesia but e-commerce players there use banks to collect their money, Mr Low said.

"We use our correspondent banks' network to help them with collection," he said.

The banks in turn use payment service providers (PSP) who bridge the cash problem, he explained.

"Citi works with PSPs to see how to tap their network for our e-commerce clients."

What about regional competitors like DBS Bank, which have also been investing heavily in offering transaction banking services?

Mr Low said the competition is focussed on building up their digital offerings for the consumer.

The domestic banks can't handle the speed, nor do they have the scale to process the transactions for e-commerce players which are doing 50,000 to 100,000 transactions a day, he said.

And they can't provide the support across borders, he added.

"The local banks don't have the infrastructure to support those volumes."

This article was first published on December 08, 2016.
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