Citi helping grow SL innovation

By Madushka Balasuriya

Sri Lanka is on the cusp of an explosion in innovation, and legacy brands and companies need to prepare for a shift in the way business transactions take place if they are to survive, says Jan Metzger, Citi Asia Pacific’s Managing Director & Head of Telecommunications, Media & Technology (TMT) Corporate & Investment Banking. Metzger believes that this inevitable change is down to the uniqueness of the age that we’re in.

“I think we’re living in the second most interesting time in mankind right after the steam age, this is the biggest-ever unparalleled change we have ever seen since that time,” he states, with not a hint of hyperbole. Elaborating on his view of global disruption, he explains that disruption caused by technology will see revenues gained through traditional channels collapse.

“When was the last time you paid for a CD?” he asks me rhetorically (2006, in case you were wondering). “The music industry has been fundamentally changed by downloads. This disruption is going to hit many industries, from retail to banking. 

“What is also interesting is that companies are growing faster than ever before; Alibaba did $ 500 billion in GMV (gross merchandise volume) on its platform last year. The GDP of Sri Lanka is $ 85 billion. So a company went from zero to $ 500 billion volume in about 12 years, which is a speed no company in history has ever grown. And that’s all been facilitated by the huge availability of technology to bring things to consumers very, very quickly.”

“For Citi as a whole we will embrace this change, but for society at large things will become a lot more efficient and there will be a lot more options available to people over time”

Metzger, who was speaking to Daily FT having flown into Sri Lanka to meet the bank’s clients and address an American Chamber of Commerce luncheon, drew on examples from a variety of industries to further illustrate his point: 

How on-demand car service has redefined the economic value of a car (“your car is parked 96% of the time. If you take that car parking down from 96% to 60%, it’s a huge release in economic value. What’s going to happen with that is that there’s going to be less need for car ownership”); how in China general practitioner (GP) consultations are done over the phone, with over 1000 doctors being hired specifically to diagnose people through chat applications (“the thing in China is, you have many places with hospital infrastructure but not many with GP infrastructure, so what happens is, if you have an old lady with terrible stomach pains she may rush to a hospital and use very expensive resources”); or how Lending Club, a US company which specialises in peer-to-peer lending, is shaking up the banking industry (“If someone needs to borrow $ 1,000 these consumers will lend him the money, but the loan will be broken up into $25 chunks. So even if multiple people I’ve lent to default, my portfolio is somewhat protected through diversification because I’ve only ever lent in $ 25 chunks”).

This last example has the potential to completely disintermediate the banking industry as newer technology platforms give individuals direct access to consumer loans in a diversified manner, something which used to be the sole purview of a bank. If a lending structure such as Lending Club were to become common place in the future, Metzger believes it would completely take away “massive amounts of business” from banks. However in the case of Citi, embracing change seems to be the chosen path forward.

“We at Citi see all of this as an opportunity, it’s part of our heritage,” he says of the company that invented the ATM and the credit card. “We are partnering with a lot of FinTech (financial technology) companies and embrace it, we sponsor hackathons and we invest a lot in FinTech companies. 

“We are trying to make it part of our DNA because our industry will continue to change. For Citi as a whole we will embrace this change, but for society at large things will become a lot more efficient and there will be a lot more options available to people over time.”

“There will be drastic changes in the way the world works. It’s never been cheaper to set up a company”

And this ever-changing technological landscape is already removing some of the more traditional barriers to entry into many industries. For less than $ 5 a newly formed company can set up an email server with its name on it, something that would have cost in excess of $ 20,000 a little over 20 years ago. Once you set up the server, it’s only a matter of using one of the plethora of services on offer, such as Amazon web services or Google SQL to build a database infrastructure. This then puts in place, according to Metzger, an “infinitely scalable” infrastructure only limited by the size of the cheque you’re willing to write.

“There will be drastic changes in the way the world works. It’s never been cheaper to set up a company. That is a phenomenal thing that has never existed before; you can get a serviced office now, you can get an outsourced IT infrastructure off everything, you can hire freelancers all over the world at a push of a button, and you can have the same access to resources that much larger companies have. That will create a vast amount of innovation like we’ve never seen before.”

And Sri Lanka, Metzger says, has a “huge” opportunity for innovation at the moment as a result of the increasing number of avenues young entrepreneurs are blessed with to grow a business, which is in stark contrast to historical trends.

“If you think about Sri Lanka’s economic industrial set up, the top 10 companies have probably been in the top 10 for 50, 60, maybe even 100 years. So what you’re seeing now is that you can see companies pop and grow very fast.”

“Car ownership is not that high in Sri Lanka, it has an opportunity to never be high because it can go straight to a transportation on-demand service”

This is down to a phenomena he terms as the “leapfrogging” of technology, where a country with the advent of technology progresses beyond a traditional market in areas where infrastructure may not be as well developed. Metzger uses the example of China, which leapfrogged into an e-commerce world, leading to its e-commerce market being nearly double ($ 700 billion) that of the United States in the last year. 

“We have had 300 years of retail development in the US. In America there’s 2.5 square meters per capita retail space, in China there is 30 square centimetres per capita. There was nothing there, so China leapfrogged to an e-commerce world. But right now in the US you have a lot of options; you want to get some stuff, you want to get a fishing rod, you just get in the car and drive to Walmart. You live in a tier 6 city in China and want to buy a fishing rod? You go online.”

Sri Lanka, he says, has the opportunity to do the same, which will allow the younger generation to innovate newer and better services to adapt to the always changing global landscape.

“Car ownership is not that high in Sri Lanka, it has an opportunity to never be high because it can go straight to a transportation on-demand service. If you think about e-commerce, why ever build a huge mall in Trincomalee? You could go straight to e-commerce.

“If you’re a rice farmer up by Mannar you wouldn’t know the price elsewhere. But with a mobile phone you might be willing to travel a bit to sell at a better price. It will bring an unbelievable wave of innovation to Sri Lanka.”

“At Citi we have a unique set of capabilities in corporate and investment banking and the idea is to use that capability to bring a very unified set of products to our clients and to help our clients navigate technological disruption”

For this to happen successfully in Sri Lanka though, certain criteria need to be satisfied. First is an increase in smartphone penetration, which will give all citizens an access device to the internet. This is something that is already taking place with smartphone usage growing rapidly on an annual basis in the country, even though the use of mobile broadband, while moving in the right direction has much room for improvement. 

The second factor is fast internet, where Metzger says the government needs to encourage the use of high speed internet in the country; at present SLT (Sri Lanka Telecom) has begun rolling out fibre optic internet, while mobile 4G has been around for some time as well, this however needs to be offered at a rate affordable to all citizens. Which segues into Metzger’s third and final point, a friendly regulatory environment, which he believes will aid in Sri Lanka’s efforts to reverse the country’s brain drain.

For their part, Citi aims to help their clientele cope with this fast changing global technological landscape in as thorough a way as possible. Through the use of Country, Industry, and Product experts Citi supports its clients through a cohesive three-pronged approach, always on-hand to introduce their corporate clientele to a wide array of tech clients and new technology. 

And while Metzger admits that their lack of a retail presence in Sri Lanka leads to reduced visibility when it comes to the “man on the street”, Citi is still extremely keen to grow its market share in the country where it has a large institutional business that can support Sri Lankan firms globally in the bank’s 100 country global network or help international companies invest in Sri Lanka.

“We want to grow our market share like everybody else has done. The real thing that I want to focus on is, at Citi we have a unique set of capabilities in corporate and investment banking and the idea is to use that capability to bring a very unified set of products to our clients and to help our clients navigate technological disruption.”

Having spoken to the top 60 Corporates in Sri Lanka, Metzger, who has lead and executed a number of industry-defining deals such as the largest ever IPO in history – Alibaba’s $ 25 billion US IPO – has a positive outlook on their readiness for the change that is fast approaching. 

“Large companies often aren’t as nimble as younger companies. Access to talent is a stumbling block. Also deciding on what to work on is difficult. But a lot of guys are very thoughtful and are doing a lot of things. I actually think large Sri Lankan corporates want to engage on this and it shows that they are actually thinking about it. Sri Lanka you will find will be actually quite an innovative country.”

And according to Metzger Citi is uniquely placed to help Sri Lankan corporates achieve these goals, due to the bank’s blend of corporate and investment banking that enables them to function in a smaller environment such Sri Lanka.

“Because we are a large global bank, we are actually in a better position to deliver this. If you look at other large US banks that have the kind of expertise that we have, they cannot maintain a presence in Sri Lanka. In Sri Lanka we run a very profitable business where we can afford to have someone like me come and help Sri Lankan corporates, something you would not normally get from pure investment banks. 

“The strength of our business allows us to invest in the long run building up of our strategic relationships which may not bear fruit in the short term. We’re really uniquely placed at Citi to be the world’s leading global institutional and retail bank with a strong digital strategy. Citi is unique because we have both.”