David_Gourlay_Presentation

Innovation Toward Financial Efficiency—A Primer Institute of Public Administration of Canada David Gourlay, Director Public Sector—Citibank Canada Victoria, B.C.

August 2011

Citi in Canada Calgary

Ottawa

 7 Global Bankers

 Newly added GTS coverage for Western Canada

 Commodities Platform with 8 sales and trading product partners

 Office covers Energy, Power, Mining, Transportation, Sector and Telecom and Media Companies, as well as the Public Sector

 Public Sector Office

Vancouver

Toronto/Montreal

 10 Private Bankers

 19 Global Bankers

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Citi s Canadian Franchise  With roots in Canada dating back to 1919, we have been in Canada continuously since the 1950's  Citi provides a full array of investment banking and corporate banking services to Canadian institutional clients and to global institutional clients with operations in Canada    

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Citi has over 3,800 employees in Canada Member of the Canadian Payments Association (CPA) Member of the Association of Financial Professionals – Ottawa Chapter (AFP-O) Member of the Toronto Financial Services Alliance (TFSA)

The Global Transaction Services Franchise Payments     

Receivables

ACH RTGS Funds Transfers WorldLink Payment Services Citi Procure to Pay

Payments

Receivables

    

Liquidity and Investments

Trade

Trade Services and Finance  Working Capital and Supply Chain Management  Global AR Discounting  Trade Services and Finance for Importers and Exporters  Export and Agency Finance

Card Solutions  Commercial Card Solutions  Procurement cards  T&E cards  One Card  Prepaid Solutions  Virtual Card Accounts

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ACH Direct Debit Electronic Check Deposit Lockbox Electronic Invoice Presentment and Payment

Liquidity and Investments Commercial Cards

Information Services Securities and Fund Services

Securities and Fund Services  Issuer Services  Fund Services  Capital Markets support and post closing servicing  Pension Services

 Custody and Clearing  Securities Finance  Middle Office Outsourcing  Investment Administration Services

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Investment Services Automated Investment Liquidity Desks Online Investment Services Notional Pooling Target Balancing

Information Services  CitiDirect® Online Banking  CFX File Services  SWIFT  Treasury Systems Integration  Treasury Solutions Group  TreasuryVision®

How Banks May Support Public Sector Goals of Achieving Financial Efficiency The banking sector is able to support the Public Sector objectives throughout the financial value chain.

We believe that banks are not just delivery mechanisms for alternate service delivery, but they can generate efficiencies in all areas where finance is involved as well as implementing financial management platforms which support longer-term reform.

Financial Objective

How? Asset Sales

Raise Finance Debt Raising Restructuring Manage Risk

Budget Certainty

Financial Manage Finance Shared Services and Drive Efficiency Pensions Market Intelligence Support Economy

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Corporate Banking Finance for Supply Chains and Trading

Mechanism Privatization of Bank and Industrial Holdings Real Estate Sovereign Bonds Infrastructure Finance Public Services Provider Finance Restructure Holdings and Contingencies Currency and Rates Hedging Commodities Hedging Financial Mgt. Systems Payments and Financial Processing Citizen Budgets Fund Administration Specialist Financial Markets Industrial Sector Advice General Banking Services

Support Raise Economy Revenue Cut Costs

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Outcome Enhance Financial Control

Improve Citizen Experience

Support Localization

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Suppliers to Government

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British-based Industrials

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A Vision—NYC’s Citywide Transformation Program

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Payments Processing Challenges in the Public Sector Public Sector entities face several challenges that limit payments efficiency.

Current Challenges Transparency and Accountability

 Lack of a centralized system that provides clear visibility into various government agencies payment processes  Absence of information intermediary to compare and benchmark the performance of various agencies against previous years or against targets

Productivity and Effectiveness

 Enhancing the quality and quantity of output without increasing funding levels

Public Sector Organizations are Looking for  Greater control and visibility  Consolidation of back office tasks

 Inability to track the effectiveness of various government programs (e.g. stimulus checks, rebate programs, disaster relief programs)

 Prevention of identity management fraud

Authentication and Eligibility

 Confirming the identity of recipients and minimizing fraud

 Ongoing process improvement

 Ascertaining the eligibility of applicants for various government programs (e.g. Medicare)

 Robust Continuity of Business Plan for Suppliers

Sustained Efficiency

 Modernization of legacy systems to streamline processes and achieve greater, sustainable efficiency  Transformation of existing payment channels to reduce waste and achieve higher levels of efficiency

Source: McKinsey & Company.

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Payments Consolidation Trends Best-in-class entities have consolidated payment providers to achieve the following key benefits.

Cost Efficiencies

 Elimination of redundant activities and infrastructure  Reduction of banking fees from decreased accounts and better pricing as volumes are consolidated  Reduction of cross-border payment costs including foreign exchange  Reduction or elimination of inter-agency payments through netting solutions  Implementation of best-in-class processes and creation of centers of excellence

Improved Processes

 Improved process through a single connectivity, efficient payment processing and rate rendition and diversity in distribution methods and standardized reporting  Streamline and in-source payments originating across various departments/agencies within the government – Streamline reconciliation, re-issuance and post issuance reporting – More efficient customer service – General control over validation  Payables consolidation with straight-through processing

Control and Visibility

 Increased control and visibility over payment activity for improved financial and operational risk management (e.g. foreign exchange exposure)  Compliance with internal policies and external regulatory reporting requirements  Re-engineer processes and build in desired efficiencies and controls

Source: Evolution Towards Treasury and Payments consolidation—Monie Lindsey, Frederick Westerling, Treasury Strategies.

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Citi s Response to Public Sector Challenges in Cross-border Payments  WorldLink is Citi’s premier Cash Management offering for overseas payments for Public sector  Last year, WorldLink executed over 13 million Public Sector payments totalling over $28 billion  WorldLink’s unparalleled reach and coverage leverages Citi’s network in over 100 countries globally  The flexibility, product range, market knowledge, global distribution and competitive pricing offered by WorldLink makes it an ideal solution  WorldLink processes 30 million payments a year and reconciles over 4,000 client issuances across 140 accounts daily  WorldLink processes $60 billion in foreign exchange across 138 currencies annually

Benefits to Our Clients Cost Reduction  Single Global provider that eliminates the need to hold local currency accounts  Provides a comprehensive end-to-end cross-border payment solution incorporating Electronic and Non-electronic payment methods  Provides the advantage of Citi s global network to deliver payments instead of using high cost correspondent bank arrangements

Control  Ability to offer single file delivery channel to support consolidated payment processing

 WorldLink’s flexible payment solution incorporates the following

 Provides an award winning Online Payments platform (CitiDirect) featuring sophisticated audit features supporting payment tracking that are Sarbannes-Oxely compliant

Funds Transfers

 135+ currencies

 Detailed pre-issuance and post-payment reporting available to facilitate reconciliation of payments

Cheques

 Remote Cheques 32 currencies

Ability to Manage Risk

 Onsite Cheques 16 currencies

 Robust Continuity of Business program to ensure uninterrupted delivery of service

 WorldLink features localized cheques that clear automatically in each jurisdiction  WorldLink allows customizable cheques with client’s logo

 Dedicated to the provision of secure connectivity and proper management of sensitive data for our clients  Cheque offering provides sophisticated fraud prevention measures  Flexible Foreign Exchange offering that enables clients to minimize FX risk

Cross-border ACH

 40+ countries

Cash

 Available in 190 countries and 220,000 locations

Account Structure

 WorldLink owns and operates accounts in multiple currencies so that you do not have to

Foreign Exchange

 Automated foreign exchange rates that can be benchmarked

 Option to avail of Cash Payments in a timely manner in local currency where a Bank account is not held  Receive full value of payments

 Tiered FX rates available by value of the payment

 Payments received on-time every time

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Enhanced Service for Beneficiaries  Option to receive electronic payments in a timely manner, in local currency, with competitive FX rates, instead of a paper instrument in foreign currency

Case Study: Payment Consolidation

 In 2005 DWP began a project to consolidate the management and administration of its Overseas Pension Services  Before consolidation, DWP used multiple Bank providers to deliver overseas payments in both local currency and Sterling drafts  Main objectives of DWP were to select a service provider to execute overseas payments in a manner that would provide – An attractive All-in Price – Robust Business Continuity and Disaster Recovery Capabilities – A solution capable of sending local currency payments to all required countries

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Benefits  DWP went from 4+ Banking providers to one provider  Increased STP rates across all countries to 99+%  Reduced Administration costs  Enhanced Beneficiary Satisfaction by guaranteeing Full Value Settlement  Implemented a single Disaster Recovery program for Overseas Payment Processing

Prepaid Cards Overview The prepaid card is a card which stores pre-funded cash. It is a mechanism which is applicable across multiple areas and levels of government, and addresses a number of public policy aims, particularly in enhancing a citizen s experience of public services while for government providing value for money and better control.

Area of Public Sector Application  By theme, e g.

– Financial exclusion – Child poverty – Social mobility and access – Civil service efficiency – Emergency management  By geography – Central or local g ment – Other provider  By Department – Social benefits and pensions

 Choice and Personalisation – Ease-of-management for citizen user – Personalised payments  Citizen Reach and Influence – Can incorporate un-banked populations – Supports public policy outcomes by influencing citizen behaviour through incentivising payments  Value-for-money and Efficiency Enhancement

– Fuel payments and discounts

– Reduction in staff, process and transaction costs

– Education and children

– Enhanced transparency and control over expenditure through simplified processes

– Treasury, tax and payroll – Subsidies and incentives  By Agency Role – Employer – Administrator – Benefits distributor

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Policy Rationale

 Service Enhancement – Reduced costs of providing payment service enables more funding to be directed towards support services

Benefits— Government  Enhanced financial management – Lower cost delivery – Eliminate fraud – Eliminate handling of uncashed cheques – Better auditing and transparency – Improved funds management 

Better delivery of payments

Benefits—Citizen  Personalised service and impact (depending on programme structure) – Potentially increased choice of service provider – Formerly rewarded for socially good behaviour  Better communication with public service provider  Improved financial management

 Reduce operational costs while increasing efficiencies

– No need to carry cash – Online card account management

 Guarantees the delivery of benefit payments

– Stepping stone to financial inclusion

 Facilitates the financial inclusion of un-banked beneficiaries  Improve ability to track and audit payments

 Some mechanisms—such as prepaid cards eliminate payment fees (such as cheque encashment) – No liability if card is lost or stolen

Pre-Paid Card Case Study—Unemployment (State of Maryland) Client Need  Over 200,000 people received UI payments in 2010  Over $1.5 billion paid annually in unemployment benefits  Unemployment rate over 7%, highest in 12 years  Program historically made 100% of payments via paper check The Solution  Rapid, turnkey program implementation and launch  Fully custom program with Citi Visa Prepaid Card  Streamlined process, easier program management  Full recipient and media communication support Key Benefits  Migrated payment process to fully electronic platform  Increased convenience, delivery speed and access flexibility for recipients  Savings projected at $1–2 per payment—over 3 million payments made in 2010  Saves 375 trees annually by eliminating paper 10

Pre-Paid Card Case Study—UK Replacing cash and cheque payments to citizens from central and local government, with electronic payments, saving money while embedding the financial infrastructure for personalisation.

Case Study: Lewisham Borough Council Prepaid Cards  Client Need: The London Borough of Lewisham wished to migrate to an electronic platform, for the weekly allowance they pay to 18-year-olds to help them continue in education – Recipients had to visit council offices once a week to collect their allowance in cash. This exposed staff and recipients to risk and required complex cash management procedures at the council  The Solution – Citi provides a prepaid card solution to enable Lewisham s young recipients to receive their money on a secure and convenient prepaid Visa® card – Prepaid cards facilitate social inclusion, since they can be used at point of sale, over the Internet, telephone, and at ATMs to withdraw cash  Key Benefits – The scheme is expected to reduce Lewisham s payment processing costs by 62% – Recipients no longer have to travel to council offices as cards are remotely reloaded – When a prepaid card is lost or stolen, money on the card can be recovered

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Pre-Paid Card Case Study—City of Bogota Modernizing payment systems and improving service to beneficiaries.

City of Bogota s Government Subsidy Program  Cost of living subsidy payments were paid to elderly citizens in person by cash at multiple locations across the city  Citizens living on the outskirts of the city had to make difficult and costly trips into the city center each month and queue to collect their payment  The distribution of these benefits was a massive burden on the city s infrastructure in terms of time, personnel and cost

Citi Prepaid Services Citi Pay Card eliminated the City of Bogota s Pain-points     

Cash Replacement—eliminated the need to manage the physical distribution of cash Streamlined Operation—single, centralized process to manage and deliver payments electronically Resource Efficiency—fewer personnel needed to administer and reconcile payments Improved Control—improved fraud detection, monitoring and protection Better Service to Beneficiaries—funds loaded for use instantly, eliminating the need to travel and queue for cash

 Citizen ASSISTANCE—CITI service agents based at benefits offices to advise citizens on the use of the card, and guide them on first time use

Outcome  The City of Bogota achieved process transformation with a paperless payment delivery process.

The elderly citizens of Bogota have a convenient, flexible, dependable means of receiving their benefits

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Supplier Finance Program: Supporting Suppliers and Delivering Efficiency Supplier Finance programs assist financially strong buyers, such as the Government, to support SME s by providing ready working capital in today s challenging credit environment.

What is Supplier Finance?

Key Benefits to the Public Sector …

 Partnership between the Government and Banks

 Meet 10-day payment target without compromising working capital

 Allow pre-agreed suppliers to sell receivables to banks in respect of goods and services delivered to, and accepted by, the Government of Canada as the buyer

 Procurement savings through pre-negotiated basis points calculation that is shared between Citi and Government of Canada

 Banks purchase the receivables, on acceptance of the invoice by the buyer, thereby providing the supplier funds at a competitive rate  Banks charge lower price, utilizing credit worthiness of the Government

 Rapid implementation achievable – Citi implemented one year $3.5 billion supplier finance scheme for US Department of the Treasury to support auto sector suppliers in less than one month  Government support for SMEs at no cost to Government

Why is this Relevant?  Provides liquidity to cash-strapped suppliers (SMEs)  Reduce cost of borrowing for those suppliers who are able to borrow  Help SMEs to compete for Government contracts 13

Supplier Finance Overview Citi offers a comprehensive supplier finance solution to help the Public Sector engage with a larger group of suppliers/vendors and manage their transactions most efficiently and effectively.

Citi s Supplier Finance is a Solution Consisting of Two Major Parts

Organization Authorizes Citi to Pay

Citi Pays the Supplier

An electronic disbursement service, between Citi and the PS buyer in which Citi is the paying agent

A separate service, between Citi and the supplier/vendor, that enables early payment to the city supplier/vendor

Canada PS

Supplier

 Additionally, Citi s innovative program can offer the city solutions to add value to the process and best meet the city s unique needs, such as – City may reduce costs by receiving a portion of the unlocked value – City may self-fund all or a portion of the program, obtaining improved cash yields

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Citi Supplier Finance: Value Proposition Buyer

Supplier

 Enhancing Supply Chain Sustainability—By offering Suppliers a new credit and liquidity source at a lower cost than their own, the Buyer is strengthening and reducing uncertainty in its own supply chain and improving its Supplier relations

 New Credit and Liquidity Source—Suppliers benefit from this program by receiving access to a new credit and liquidity source at a lower cost than their own, which improves financial stability

 Cost Reduction—The Buyer can share in the discount revenue earned by Citi, on the discounted payments to Suppliers, thereby reducing purchasing costs  Strengthen Transparency—Citi Supplier Finance provides both the Buyer and Supplier a window of visibility into invoices and their payment status  Support Small and Medium Business—Many Suppliers to large buying organizations are small and medium size enterprises, whose growth prospects are limited by their few and expensive sources of traditional financing  Reduce Transaction Costs—As payments are made electronically via EFT or Wire, there are no fees or costs charged to the Buyer. Additionally, the program typically has limited operational impact on the Buyer

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 No Balance Sheet Impact—Non recourse settlement of accounts receivable has no impact on balance sheet, as it is not debt, and thus frees up Supplier s existing credit lines  Working Capital Benefit—Suppliers accelerate cash flow by reducing accounts receivables and shortening Days Sales Outstanding  Easy enrolment and No Upfront or Ongoing Costs— No financial statements are required from the Supplier to enroll for Citi Supplier Finance, and there are no setup or ongoing costs to use the web based platform  Flexibility—Suppliers can choose to finance all invoices, a few, or even a single invoice depending on the need

Treasury Analytics—City of Chicago State of the art asset management without adding operating cost.

Office of the City Treasurer  Manages a $6 billion portfolio of investments for the City of Chicago  To promote economic development, the Treasurer s investment strategy must protect principal, maintain liquidity and earn the highest possible return for the City  Treasurer has statutory responsibility for managing investments, keeping accurate accounting records and guaranteeing compliance with the City s investment risk and return objectives

The Challenge  Monitoring and reporting on this large portfolio with hundreds of accounts spread across several municipal custodians was a time-intensive, manual process  Challenge compounded by the constant pressure to maximize operating efficiency and do more with less

The Solution  To streamline and automate fiduciary and compliance reporting, the Treasury implemented Citi s Treasury Analytics, a web-based custody and corporate cash solution that aggregates portfolio information to present from four perspectives: accounting, compliance, risk and performance  Reports are generated in a matter of minutes, with a few keystrokes and mouse clicks, instead of hours; and the ability to provide executive reporting—and a transparent overview of the City s portfolio—at a moment s notice is proving invaluable Our responsibility to the citizens and employees of Chicago demands the utmost in transparency of our investments, and Treasury Analytics has been invaluable in giving us automated and timely information to share with our public and stakeholders.

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ePayments Gateway—City of Mumbai A bank agnostic tax and fee collection gateway for the city.

Municipal Corporation of Greater Mumbai (MCGM)  Mumbai is India s financial capital and heart of the Hindi film industry  The islands support a population of 14 million  The Municipal Corporation of Greater Mumbai is the primary agency responsible for urban governance across Greater Mumbai  To bring transparency and foster collaboration across the various departments within MCGM, and for the benefit of the citizens of Mumbai, MCGM has invested in an eGovernment Portal through which most essential citizen services are delivered

Citi s NetBanking Payment Gateway  A push-based channel that is integrated with MCGM s eGovernment Portal, e.g. through MCGM s e-tendering service, vendors can access tender documents, submit bids online and pay related tender fees on the same site  A cost effective, open architecture solution that facilitates the online collection of fees and taxes from 30 partner banks and over 25,000 bank branches  Eliminates paper-based processes, and improves transparency and service to citizens and vendors  Provides citizens with a common interface for the convenient payment of property tax, water tax, establishment license fees, security deposits, etc.  Competitive bill payment charges for the payee  Ease of reconciliation with consolidated MIS for credits received from all banks

Outcome  Greater operating efficiency for the City of Mumbai; more convenient access for the citizens of Mumbai

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Thought Leadership Contact Information: David Gourlay, Director Public Sector – Canada Citibank Canada 613.796.9286 david.gourlay@citi.com

Please click the link below to read our Whitepaper Global Experience – Local Insight; Achieving Financial Efficiency for Canada s Public Sector

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