In a groundbreaking deal, Citigroup Global Transaction Services (GTS) and Lloyds TSB Corporate Transaction Services (CTS) have agreed to join forces in the provision of money transmission and cash management services for each bank’s corporate customers.
“This deal is an example of our successful borderless banking approach which seeks to build win-win partnerships,” says Francesco Vanni d’Archirafi, Chief Executive Officer of Citigroup GTS in the EMEA region. “We are able to leverage the domestic strengths of Lloyds TSB, a leading financial institution, while they are able to differentiate themselves by plugging into our unparalleled international network.”
Under the arrangement, Lloyds TSB’s extensive branch network is available to Citigroup international corporate and institutional customers. In return Lloyds TSB has won the use of large parts of the US bank’s unrivalled global cash management franchise.
“Citigroup has one of the largest corporate customer groups in the world, and Lloyds TSB one of the largest in the UK,” says Peter Sargent, Director of Sales for Lloyds TSB CTS. “And by this arrangement we are able to retain our strengths while efficiently stretching our cash management reach. This is a huge advantage to Lloyds TSB Corporate as our customers can now utilise the largest cash management network in the world. But it is also an advantage for Citigroup, as they gain the strongest UK penetration at the shake of a hand.”
The intention of the partnership is to give the corporate customers of each bank access to the other’s branch network via the creation of “virtual branches” – held by Lloyds TSB on behalf of Citigroup in the UK, and by Citigroup on behalf of Lloyds TSB in the rest of the world. Cash management, withdrawals or payments can all be undertaken on behalf of the other bank’s clients, as can cheque clearing and bond and guarantee issuance. The partnership ultimately reduces the reliance both banks have on correspondent banking relationships.
“Banks have on occasion allowed other banks to use their networks, although the scale of this is groundbreaking,” says Sargent. “What the deal really shows is the possible solutions available if banks really start focussing on market efficiencies. This is a classic result of the globalisation of banking services.”
Lloyds TSB won the tender after beating several UK rivals. One element in their favour may have been the fact they are not direct competitors with Citigroup in any major geographic region. Nonetheless, the innovative creation of virtual branches for Citigroup’s corporate customers would have also played a major role.
A further aspect of the agreement is the potential for the two banks jointly to bid for new cash management business – including the international cash payment contracts from UK clients, work and pensions contracts from the UK public sector, and cross-border internet payments.
Lloyds TSB’s technology for the virtual branch innovation has been tested by a small precedent, which also leverages Lloyds TSB’s dominant UK branch network. A leading Indian bank already has a similar agreement with Lloyds TSB – allowing retail customers of the Indian bank to access their accounts in the UK, as well as transmit money home at minimal cost. The Citigroup deal, however, represents a corporate banking breakthrough – and one that Lloyds TSB regards as replicable for other overseas banks with a presence in the UK.
Another precursor to the deal is the recent merging of the cash management and trade finance units at Lloyds TSB Corporate, to form Corporate Transaction Services. The merger tapped technological advancements that are allowing trade finance techniques to be increasingly applied alongside cash management tool – efficiencies likely to be applied within the Lloyds TSB/Citigroup arrangement.