TECHNOLOGY AT WORK

26
Citi GPS: Global Perspectives & Solutions February 2015
The adoption of digital money can help 220
million individuals enter the formal financial
sector, moving $1 trillion from the informal to
the formal sector
Citi’s Digital Strategy Team in its recent report Digital Money: A Pathway to an
Experience Economy estimates a 10% increase in the adoption of digital money can
help an estimated 220 million individuals enter the formal financial sector. This
translates to an additional $1 trillion moving from the informal economy to the formal
economy. The Centre for Economic and Business Research (CEBR) estimates that
the cost of cash works out to be about 2.8% of the total cash takings by retailers.
Based on this forecast, Citi estimates the adoption of digital money can result in
over $125 billion in cost savings from cash handling.
Figure 11. Commercial bank branches per 100,000 adults
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 % Chg
Spain 98.2 100.1 102.7 105.2 104.9 100.3 97.1 89.6 85.1 74.5 -24.1%
Italy 63.5 64.1 65.4 66.7 70.3 67.6 66.5 66.0 64.4 62.0 -2.4%
Switzerland 57.4 56.8 55.6 55.3 53.9 52.7 51.8 50.2 48.8 48.0 -16.4%
Belgium 57.2 53.7 53.4 51.4 49.7 47.9 45.0 43.4 42.4 41.5 -27.5%
France 45.9 44.8 44.5 41.9 41.5 41.2 38.8 38.7 -15.6%
United States 32.5 33.1 33.8 34.6 35.0 35.8 35.4 35.2 35.3 33.9 4.2%
Japan 34.6 34.4 34.1 34.0 33.9 33.9 34.0 33.9 33.9 33.9 -2.1%
Australia 30.7 30.6 31.2 31.4 31.6 31.5 31.3 30.9 31.8 30.7 0.2%
Denmark 50.1 50.2 50.5 51.9 50.5 45.8 40.9 38.7 34.3 30.3 -39.6%
Canada 24.6 24.6 24.5 24.1 24.0 24.1 24.4 24.4 -0.6%
United Kingdom 29.1 28.4 26.5 26.5 26.2 25.6 24.9 24.2 22.2 -23.5%
Hong Kong 23.6 23.2 23.0 23.3 23.6 23.3 23.6 23.7 23.5 23.1 -2.1%
Ireland 35.9 34.6 34.0 33.4 34.1 34.9 28.7 27.7 25.0 23.0 -36.0%
Sweden 23.6 23.6 23.7 23.6 24.0 23.0 22.5 21.7 21.8 21.7 -7.8%
Netherlands 33.7 28.1 27.7 28.6 27.6 25.2 23.0 21.3 19.6 17.4 -48.3%
Germany 21.3 20.2 16.7 16.3 16.3 15.8 15.7 15.5 13.9 14.7 -31.1%
Finland 13.2 14.4 16.9 16.1 16.1 15.0 15.5 15.1 13.6 12.3 -6.9%
Singapore 11.7 11.5 11.1 10.7 10.3 10.2 10.2 10.0 9.8 10.2 -13.4%
Norway 13.1 12.1 12.0 12.3 11.6 10.9 11.0 10.7 9.9 9.1 -31.0%
Source: IMF
Automation in trading is continuing, leading
to headcount reductions and improved
operating margins
The biggest hindrance to wider e-trading
adoption is standardisation…
Post-crisis, both regulation and slumping returns have forced banks to take a hard
look at each of their trading businesses to look for ways to minimise costs and
maximise efficiencies. We believe these forces quickened the pace of automation in
both the fixed income and equity markets. While market disclosure is limited, after
speaking with industry participants we believe the product automation timeline is
quite wide, with cash equities and treasury futures almost fully electronic and cash
bonds at the early stages of electronification and still largely voice traded. Below we
lay out the percentage of the market that is electronically traded by product,
according to a joint report done by McKinsey and Greenwich Associates 54 (see
Figure 12). As more trading moves towards a fully automated market, we would
expect to see continued headcount reductions and improved operating margins.
After speaking with market participants, we believe that the biggest hurdle for more
markets to move towards automated/electronic trading is the lack of standardisation
among products. For example, investment grade and high yield bonds remain
largely voice traded, despite significant attempts to create electronic trading
platforms. We believe this is largely due to bond market structure, which lacks the
standardisation needed to complete a match-based, electronic market like equities.
54 McKinsey & Company and Greenwich Associates. Corporate Bond E-Trading: Same
Game, New Playing Field. Rep. N.p.: n.p., 2013. Web.
© 2015 Citigroup