Citi to Invest in More Fintechs

The walls are crumbling. In the age-old build vs buy debate the last bastions of the in-house camp are crumbling as Citi, one of the staunchest supporters of relying only on proprietary technology, is opening its gates (well, single dealer platform) to marauding fintechs.

Earlier this year Citi led a strategic investment round, together with BNP Paribas, into United Fintech, a digital transformation platform that has in its stables FairXchange and CobaltFX among others. Ayesa Latif, global head of FX products at Citi says there are more of these deals to come. “This is the first time we’ve really opened up the Velocity ecosystem to allow for external fintechs to come and access our client base,” Latif tells The Full FX in her first major interview since taking her new role in January.

Latif argues that as client needs have evolved, and due to the breakneck speed at which technology is evolving, it makes more sense to partner with specialists than to spend time and money to recreate often niche solutions. This is a major change for the US bank that at one point qualified as one of the largest technology companies in the world due to its commitment to building technology in-house. “Traditionally, if you think about Citi, we’ve always been very conservative, and we wanted to build our own tech. I think times have changed,” she adds.

Traditionally, if you think about Citi, we’ve always been very conservative, and we wanted to build our own tech. I think times have changed

After the United Fintech deal there are more of these types of strategic investments on the horizon as the US bank embraces partnerships with third-party vendors, exchanging access to the bank’s clients for quick access to technology capabilities. Latif stresses that these partnerships tend to be for smaller components of the bank’s FX business and Citi is not about to outsource the running of its core infrastructure, but for niche products that only a small subset of its clients need, Velocity is an operating system ready for external apps.

“There’s some fantastic stuff out there in the market and we will be open to partnering with other fintechs in the future,” she observes.

Velocity 3.0

As global head of FX products Latif has an extended role compared with her predecessors as, following the departure of Al’a Saeed, the bank consolidated all FX products under one umbrella. Latif is now responsible for both internal and client-facing product development and strategy, including Citi’s platforms, Velocity and FX Pulse, as well as the design, build and architecture around our core FX products within the sales and trading business. She also oversees digital strategy, gen AI implementation in FX and strategic investments.

Her appointment came after a reshuffling of senior ranks at the bank’s FX business last year, which saw Flavio Figureido take the global FX reins. She joined Citi as head of EMEA electronic FX sales in 2016 after spending eight years at Goldman Sachs.

Despite lower revenues across Wall Street banks’ markets businesses, Citi’s FX business remains a huge contributor to the bank’s revenues and profits. Markets made up 40% of Citi’s income in the first quarter of this year and 27% of overall revenues for the bank, and within markets, rates and currencies contributed 61% to the $5.79 billion generated in the first three months.

The bank’s SDP remains the main channel through which it interacts with its clients and Latif is in the process of consolidating its FX offerings (FX Pulse, Click and citi.com) into Velocity 3.0, a new and expanded version of the bank’s flagship venue, which is being rolled out across 50 local markets this year. “This is going to be the one-stop-shop for all things e-FX and requirements for clients,” she says.

Vendor Reviews are Having a Positive Impact

While other banks have recently opened access for their SDP clients to external markets and third-party liquidity, this is not a route that Citi is choosing. Latif says that while Velocity users can use Citi’s algos to tap into interbank liquidity, the platform will continue to showcase Citi’s unique pricing in markets the bank has an edge, rather than trying to compete for business that’s better suited for aggregators.

The bank has developed a single API connectivity to its liquidity as part of Velocity 3.0, however, to offer clients so-called e-gateway pricing that allows users to access a larger number of markets and currencies electronically, specifically in the onshore markets.

And despite the change of tactics regarding fintechs, Citi is very much leveraging its size and power in the market to keep vendors on their toes. In 2020 the bank started an annual vendor review that grades its providers using data. The initiative, which was launched by Saeed and Latif four years ago, came to be as the proliferation of vendors led to excessive costs for banks like Citi due to having to connect to dozens of providers using just as many protocols.

Latif says the reviews have created a dispassionate, completely relationship-agnostic view of the vendors the bank uses as all the grading that goes into the benchmark is based on quantitative feedback. In the four years since its launch, the review has had a real impact: production and support incidents fell to a multi-year low in 2023 as vendors worked hard to get good grades from the bank.

“Ultimately, what we’re trying to do is improve connectivity, improve product offering, improve stability and improve how the market is operating, because that makes it a better service for clients, and it’s also been much more manageable from the liquidity provider side,” she says.

Data Remains Highly Manual

Latif, who is a biomedical engineer by training, is responsible for the global data team as well as infrastructure, architecture and analytics. She sees data strategy as a key component of the bank’s future, as the largely electronic FX business generates enormous amounts of data across the globe. What to do with this abundance of information and how to make the best use of it remains a key focus for not just Citi but the overall industry, including clients.

“We have a lot of data and what people are talking about in the industry is how do we harness that data? I think there’s a lot more to do from that perspective,” she says.

To this end, Latif is preparing to announce a newly hired global head of FX data strategy and analytics, who will lead the push on that front. There is plenty to be done: Latif notes that despite the wide-spread electronification of the execution side of FX, data remains highly manual, with PDFs of thousands of transactions being the norm rather than the exception.

“It makes no sense, and this is why we’re working with a number of the vendors to say, I need an API, and actually I would like for you guys to standardise the way you are also looking at data.” she explains. “If you do that, it makes it much more useful for clients and for the liquidity providers. The knock-on effect to that is actually better liquidity provision, and pricing for clients. We can utilise the data in a much more scalable fashion and use it to make more informed decisions.”