Cross-border Payments Curriculum

Best Practices to FundCross-border Payments

Presented by:Patrick Molloy, Raj Priyadarshi and Kathy Collins

Strictly Private and Confidential

May 2009

Agenda

Welcome

Global Trends & Challenges

Best Practice Solutions

Q & A

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Cross-border Payments Curriculum

Best Practices to Fund Cross-border Payments:

Date/Time: April 28th, 10am to 11am EST May 7th, 1pm to 2pm ESTTreasury departments face numerous challenges when moving money internationally. In this educational seminar, you will hear from industry experts on proven strategies to simplify and streamline your cross-border payment processes. Many multi-national companies like yours are not only simplifying the funding of cross-border payments but are also capitalizing on competitive foreign exchange rates, cost-savings, minimized risk and a greater selection of payment types.

Going Global: Regulatory and Currency Challenges in the Cross-border Payment Market

Date/Time: May 12th, 11am to 12pm EST June 4th, 9am to 10am ESTWhen making cross-border payments, there are so many factors to consider: SEPA, IBAN, security protocols, legal requirements, currency capabilities and more. How do you make sense of it all? Our team has the industry knowledge and global experience to help you bring it all together. In this seminar, we will cover the most relevant and laborious decisions that you face in the cross-border payment market.

International Settlement Systems to Process Cross-border Payments

Date/Time: June 9th, 11am to 12pm EST June 18th, 9am to 10am ESTDid you know that there are multiple solutions to facilitate your cross-border payments? Are you sure that you are using the best settlement system for your company? Join Citi in an educational discussion on the key criteria that you should consider when choosing an international settlement system to process your cross-border payments. When facilitating your cross-border payments, there is no right solution - only the best solution for your company's operating environment.

Participate in any or all of the following educational web seminars:

Citi Team

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Raj PriyadarshiDirector, Market Manager for Payment Solutions—joined Citi in 2002

Kathy Collins Director, Payment Solutions Consultant—joined Citi in 1993

Patrick MolloyDirector, Payment Solutions Team Leader—joined Citi in 1987

Dedicated to simplifying our clients cross-border payment processes.

Simple Things Should be

Simple and Complex things

Should be Possible

-Alan Kay,an American computer scientist, known for pioneering

the concept of personal computing and inventing modern, object-oriented programming.

Global Trends & Challenges

Historic Trends

Treasury CoordinationCenters

Advisory

Consolidation

Bank relations

1980’sCoordination

Regional TreasuryCenters

Foreign exchange

Pooling/netting

Cross-border cash

Exposures and risk

Excellence center

1990’sStrategic

Central Treasury

Liquidity management

Domestic cash

Payments consolidation

EDI links

Client server TWS

Internet services

1998–2002Transition Business Treasury

Strategic focus

Shareholder value

Global Process

Enterprise systems

Straight-through Processing

Receivables mgmt

Outsourcing

Sarbanes Oxley

Continuous Linked Settlement

2000–2005Integration

Automated Treasury

Cash optimization

e-Billing/EIPP

Payment factory

Single/primary bank

Regulatory guidelines

SEPA

Leverage new infrastructure

Information flows

Shared service centers

Global Standards

2003–2007Standardization

Increasing Scale and Complexity

Incr

easi

ng B

usin

ess

Val

ue

5

Overview of Trends in Cross-border Payments

Infrastructure ChangesSEPA is now a realityClearing systems around the world are being merged and simplifiedAccount structure and legal entity rationalization

Enhanced Regulatory Focus– AML regulatory enhancements– FATF guidelines– Sarbanes-Oxley

Market Trends – Globalization of markets– Global sourcing– Common Technology – Outsourcing

The nature of international payments continues to evolve…

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The nature of international payments continues to evolve…

Customer TrendsMarket Trends

Broadening interest in alternative payment delivery methods globally

Capturing information flows that accompany payments for ease of treasury management

Increased adoption of internet banking amongst corporations

Movement towards industry standards and tools—TWIST, RosettaNet, SWIFTnet, XML

Current Trends

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Regional Trends

Euro Zone

European Payments Council BIC and IBAN resolution

EU enlargement

Single European PaymentArea (SEPA)

Emerging Market Nations (BRIC)

Upgrade of clearing andsettlement infrastructure

Movement from “cash economy”to “electronic economy”

North America

Sarbanes Oxley

US Patriot Act

Check 21

Regionalization/Globalization

Automation

Drive towards internal efficiencies

Compliance and Control

Stronger supplier relationships

Eliminating “Worst Practices”

Global Trends

Global Sourcing

Technology advancements have enabled the shift from domestic service centers to regional and global processing hubs– Current estimates are that 50% of shared service centers operate domestically, 34% regionally and

16% globally

Shift to regional and global service centers are increasing as companies take advantage of – Consistency of practices and processes– Time zone utilization– Reduced duplication of systems and processes– Potential tax advantages– Co-ordination of intra-group transactions

Sophistication in Global Trading– Global Treasury and Business Centers– Re-Invoicing and Distribution Centers or Partners

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Global Trends (Cont’d)

Global System Integration

ERPs, Treasury Workstations, E-Procurement, Expense Management, Procure-to-pay, e-Invoicing

Market adoption of standard formats for payment messaging and delivery – SWIFTNet, RosettaNet, TWIST

Outsourcing Non-core Competencies

Human Resource Functions—payroll and benefit processing

Shareholder Services

Pension Administration

Technology

Treasury Management

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Challenges in Cross-border Payments

Local Regulations and Practices: Most payment systems are based on local laws and practices which can vary between the originating and receiving country, for example– In Japan, all payments information must be provided in Japanese Katakana script– When sending Kazakhstan Tenge, the beneficiary’s 12-digit Tax ID Number is required for

every payment

Lack of Standardization: Lack of common global standards and variations between systems impairs the ability to seamlessly transfer data

Fragmentation of Processes: Different rules and systems lead to a lack of standardized and timely information. This in turn causes the processes of inquiries/reconciliation to be extremely inefficientand expensive

Constantly Changing Landscape:– Payment system changes—For example, emergence of Target II, SEPA etc.– Banks altering their correspondent relationships, leading to disruption of services– Shift towards centralization of payments processing– Evolving internal rules of oversight and control to manage operational risks

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In the absence of a single ubiquitous global payments system, some of the key challenges in the cross border payments space include:

Best Practice Solutions

Best Practices to Fund Cross-border Payments

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Reduced overall costs

Full visibility to pass audits

Leverage straight-through processing

Simplify connectivity; less IT resources

Reduced calls from suppliers looking for payments

Easy updates when country rules change or currency markets adjust

Goals when consolidating cross-border payments:

Increased control and visibility

Improved processes

Reduced resource needs and time per transaction

Enhanced cost efficiencies

Right mix of local accounts vs. non-account based payment solutions

You can realize benefits, such as:

Account vs. Non-Account Based Solutions

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There is no “right” solution. You choose the method that works best for your company.

I. Account Based Solution – Process payments from your company-owned accounts in foreign countries

Benefits:Ability to deposit/receive funds in local currenciesHold positions until needed for paymentsEasily managed by local staff

Considerations:Value of funds on deposit subject to rate shiftsNeed to reconcile, fund and maintain documentation on numerous local accountsLocal fees and compliance requirements

II. Non-Account Based SolutionProcess payments from an account your bank holds in each currency

BenefitsCentralized management of all signatories, processes, fundingBank handles compliance and regulatory issuesStandardized reporting and data exchange

ConsiderationsInvoice receipt and managementCentralized staffingCollections in local currencies

Enhanced Control and Visibility

Allows for payments that improve financial and operational management of execution risk(i.e. foreign exchange exposure)

Built in controls enhance compliance and internal policies

Reports generated from a single source, encouraging automation and standardization for meeting external regulatory reporting requirements

Benefit:

A single, operational view allows you to,– Better understand and visualize your cross-border flows, and– Reduce your “blind” spots

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Process Improvements

Enables high-quality, standardized payments processing

Single point of connectivity provides a standardized interface, file formats and information exchange protocols to leverage straight-through-processing

Downstream exception handling to payments provider

Efficient change management facilitates a more rapid implementation of processing changes through coordination with a single team

Leverages payments hub architecture to create a center of excellence for centralizing payments origination across organization

Enables training for payments hub staff and service representatives under a consistent operating model, resulting in superior customer service

Benefit:

Efficient payment processing and standardized reporting for a seamless customer experience

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Cost Efficiencies

Reduces banking fees and organization costs by consolidating volumes to obtain better transaction pricingand FX rates

Bundle payments to realize bulk pricing efficiencies on FX and fees

Benefit:

Reduced banking fees for account optimization

Improved pricing through volume consolidation

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A Key Partner Includes…

Selection of a key partner for consolidating cross-border payment activity is critical. Think of these items asyou decide:

Safety and soundness with full and multiple redundancy of processing infrastructure

Distribution scale—the number of different payment methods and geographic reach of distribution points

Nature of the distribution network—Proprietary vs. a series of correspondents

Continuing innovation to help meet changing requirements of clients

Ability to integrate and implement with minimal change to internal operating processes

Size of business—value and volumes of payments and customers, the P&L and the strategic fit within the providers overall business. These have an important bearing on the appetite for continued investment to stay ahead of ever evolving markets

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Best Practices: What your company should know?

Centralize and Outsource: to a shared service center or 3rd

Party

Optimize Payment Flows: Perform benchmark studies, a/p analysis and ROI analysis

Use a single window model: a single internet gateway to access multiple countries and payment types around the world, and Migrate to common file standards

Self-finance your payment processing: Introduce supplier finance options and procurement cards with rebates

Best Practices: What your company should know?

Rationalize accounts by asking “Do we really need to maintain accounts all

over the world?”

Reduce Counterparty Risk by dealing with fewer counterparties

Diversify: Consider receiving invoices and settling in local currency

Avoid Currency Fluctuation by using non-account based payments systems or via hedging strategies (e.g., 7 day forward contracts)

efficiency, renewable energy & mitigation

In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this important issue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other carbon-emission reduction activities; (b) committing to reduce GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (c) purchasing more than 52,000 MWh of green (carbon neutral) power for our operations in 2006; (d) creating Sustainable Development Investments (SDI) that makes private equity investments in renewable energy and clean technologies; (e) providing lending and investing services to clients for renewable energy development and projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.

Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.

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© 2009 Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.

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