BNP Paribas : Deep Dive Corporate and Retail Payments – Transcript

BNP Paribas Deep Dive - Corporate and Retail Payments

Wednesday, 26th June 2024

Edited Transcript

BNP Paribas Deep Dive

Corporate and Retail Payments

Wednesday, 26th June 2024

BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
Edited Transcript

Introduction

Bénédicte Thibord

Head of Investor Relations, BNP Paribas

Good afternoon. We are delighted to welcome you to our first Deep Dive Call dedicated to Corporate and Retail payments. The objective of this new initiative run by BNP Paribas Investor Relations team is mainly to help you understand the value of BNP Paribas' diversified and integrated model. I now pass on the mic to Lars.

Overview

Lars Machenil

Group CFO, BNP Paribas

Thanks, Bénédicte, for the mic. Good afternoon, fine ladies and gentlemen. Together with Thierry and Yann, we are going to focus on corporate and retail payments. But let me start by introducing Yannick Jung, Head of Global Banking; Pierre Fersztand, Global Head of Cash Management, Payments, Trade Solutions and Factoring; and Aurelia Normand, Head of Global Transaction Banking CIB. And this, to take you on a journey through BNP Paribas' payments activities.

We will present to you our vision of the market opportunities, our key strengths, as well as our unique positioning and strategy. At the end, we will be pleased to take your questions. I now hand over the floor to Thierry to take you through the key elements.

Key Elements

Thierry Laborde

Chief Operating Officer, Head of Commercial, Personal Banking & Services, BNP Paribas

Payments & Flows - A strategic initiative leveraging on our leadership positions

A full range of solutions

Thank you, Lars. Let us move to slide three. A few words on payments and flows at BNP Paribas before deep diving in our topic of the day, payments. These activities cover all solutions from trade and working capital financing to cash management and cards, serving all our client franchises from wholesale clients to retail customers, including individuals and SMEs.

These activities are valuable for the bank, at the core of client relationship, while being profitable and a source of granular deposits. BNP Paribas is among the few banks able to provide comprehensive and global cash management services and has consolidated its position over the years, as we saw several banks retrenching from this activity. Today, our transaction banking solutions, including cash management and trade activities for corporate and institutional clients, are available in 52 countries globally, with local capabilities and on-the- ground teams.

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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Strong market positions and continued market share gains

Today, we are a leader in Europe. We are tied number one in transaction banking in EMEA in revenue terms from large corporates and number 1 too in terms of large corporate market penetration in Europe for both cash management and trade and, more specifically, on cash management in the countries where we have a retail network.

Across all geographies

Our footprint is not as deep in other regions, notably Americas, where the strongest banks in cash management worldwide have a natural presence.

Consider, however, that it is difficult for new entrants to become relevant in Europe with this fragmented payment landscape. We are one of the few banks in Europe to invest in industrial capabilities and the fast-evolving acquiring market, with acquiring capacities in 25 countries in Europe. Beyond a strong position in cash management, we have indeed the ambition to be among the large European acquirers. This highly digital business has a strong growth potential, as we can see in current market valuations.

Finally, we are the only international bank combining in the same industrial approach, transaction banking, merchant servicing, and retail payments all together. This is a key edge in this market where interactions between client bases intensify and industrial capabilities become more poignant. Our innovations, for instance, are rather co-created with our clients to answer specific use cases than developed on a standalone basis for marketing purposes.

Considering all this, the Group has set high ambitions for these activities as part of its GTS 2025 plan.

Payments & Flows - upgrading our GTS plan revenue target

Let us now move to slide four. BNP Paribas had announced an initial objective of €600 million additional revenues in 2025 compared to 2021 from our Payment and Flows activities. As mentioned by Lars and announced in our first quarter results, this target has been exceeded two years in advance, with contribution from all products and client segments.

Based on this strong performance, we have set new targets of additional revenues at €800 million, €200 million more than our initial objective. Note that this number does not include the net interest margin on deposits derived from our Cash Management businesses. Globally, in 2023, the Payment and Flows initiatives represented about €6 billion in revenue, so roughly 13% of our Group revenues, including net interest margin on Corporate deposits.

Payment and Flows activities across all client franchises and geographies will contribute to this new target, thanks to market share gains and underlying market evolution. This ambition is being delivered while sticking to a strict risk approach in line with BNP Paribas policy. For example, commodities, trade finance, and correspondent banking activities, which the Group decided to strictly limit, are not part of this initiative.

For today's session, we will focus on payments activities for both corporate and retail clients, which include Cash Management for corporates, merchant services, and retail payments. Beyond the mentioned 800 million additional revenues in 2025, this activity has strong potential for future value creation on a longer-term basis and fits well with our integrated model and further described in the next slide by Yannick. To you, Yannick.

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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Payments Overview

Yannick Jung

Head of Global Banking, Corporate & Institutional Banking, BNP Paribas

Payments - A value creation engine at the core of our integrated model

A value creation engine

Well, thank you, Thierry. So I invite you to move to page number five. I will first tell you how Payments taken in the broad sense of Cash Management, Merchant Services, and Retail Payments are indeed a very powerful value creation engine for the Group. I will then try to explain to you how Payments fit squarely right at the core of our integrated model. So in what ways are Payments creating value for us?

Well, first, Payments are the cornerstone of the banking relationship at the very heart of our clients' daily business and serving the entire client franchises of the bank. It is about addressing the daily banking needs of our clients. It is about paying employees and suppliers. It is about collecting customer payments. It is about managing and safeguarding liquidity. It is also about moving money around the world.

Second, thanks to our payment activities, we gain a deep understanding of our clients' flows and specificities. We can then better address their specific needs and improve risk management. Payments are, in fact, a formidable source of data, which helps us offer value- added services to our clients. A good example of that is how we improve fraud detection by identifying unusual payment patterns.

Now, a third important point in terms of value creation is that payments are a source of recurring fees that are actually linked to the volume of transactions. Such fees are generated by more than 70,000 corporate and institutional clients worldwide. In other words, this is a highly granular source of fee income for us. Payments are also a very sticky business with high barriers to entry and low churn. Average cash management mandates' duration are long, up to eight years for corporates on average. Finally, Payments are a source of granular and stable deposits that are providing quality funding to the Group and attractive margins with limited capital consumptions.

At the core of our integrated model

Now, onto the right-hand side of this page five. As mentioned earlier by Thierry, Payments are at the core of BNP Paribas' integrated model in several ways. Our Payment activities are fully leveraging the Group's client franchise as well as our global network.

Now, two data points to illustrate this. 80% of the European Corporate clients of CIB have a cash management relationship with us. Second data point, 60% of our Cash Management customers generate cash management revenues in at least two different countries.

Now, Payments also offer a unique opportunity for us to cross-sell the bank. Another couple of data points, if I may, to illustrate that. First, 90% of CIB Cash Management clients are active with at least another business line of the Group. Second data point, cross-regional cash management revenues earned from multinational client service by CIB have grown on average by 30% per year over the past five years.

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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On a broader level, Payments contribute to the overall cross-sell generation within BNP Paribas, which represents close to a third of the Group revenues back in 2023. I hope I gave you a good sense that Payments and Flows are a genuine source of value creation on a long-term basis for BNP Paribas.

Cash Management - confirming our leadership positions over the years

Now, if you care, let us move to the next page. I will take a minute now for a quick close-up on Cash Management, which is one of our strongest businesses. Our Cash Management solutions are available in close to 50 countries, with dedicated teams on the ground and access to the local trading systems. We serve both corporates and institutional clients from payments and collections to liquidity management and short-term investment solutions.

Our Cash Management franchise has experienced substantial growth over the years on the back of the bank's wider investments and expansion of its client franchise and of its corporate platform as a whole. As you can see on the chart, we are the undisputed leader in Europe in terms of market penetration for the large corporate segment with a massive acceleration in recent years. The continuous and significant market share capture that you see at play there was facilitated by two factors.

First, the constant drive from our clients to rationalise their banking relationships; and second, the fact that some competitors have been withdrawing from the cash management market from certain geographies. As we look ahead, we are fully confident that we will continue to gain market share, thanks notably to the continuous investments in our global Cash Management platforms and to our key differentiating factors.

Aurelia will now elaborate on all of these aspects.

Cash Management Platforms

Aurelia Normand

Head of Global Transaction Banking, Corporate & Institutional Banking, BNP Paribas

Thank you, Yannick. Let us now move to slide seven.

Cash Management - Leveraging on our industrial platforms to grow at marginal cost

One of our main strengths is indeed our industrial capabilities. Over the years, we have made significant investments to build resilient, secure, and scalable in-house payment engines. These engines meet the highest technical standards. They enable us to cover the needs of both corporate and individual clients and to handle large volumes.

For account-to-account payments, we have today pan-European industrial platforms for SEPA credit transfers, direct debits, credit transfers instant payments, and for international payments. Altogether, these mutualised platforms processed more than 4 billion transactions in 2023. The most recent one, our instant payment engine, runs on BNP Paribas' Cloud, providing both agility and high security standards. This places us in a great position to capture the expected significant growth of instant payment volumes. Volumes processed on our platform have already been multiplied by three from 2021 to 2023.

An important part of the investments in our payment platforms is dedicated to controls and security. This is a critical part for any institution in the payment industry, and it requires

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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continuous investments in technology and data. This is the case for anti-money laundering, financial security, as well as cybersecurity and fraud, in which we have continuously invested, using the latest technology standards.

Our payment engines are enriched by a European Payment Data Hub, which covered more than 7 billion events on payments in 2023, allowing notably 24/7 real-time monitoring of transaction flows as well as fraud detection enhanced capabilities.

Finally, we are continuously crafting the strategy of tomorrow for global payments to be fast, seamless, and cost efficient. We have been at the forefront of innovation and change through various collaborative industry initiatives, such as SWIFT GPI and ISO 2022. Today, we are piloting new use cases with SWIFT-connected corporations across the world to achieve seamless traceability and control on corporate payments.

To conclude on our industrial payment platforms, I would really insist on three points. The first one is that they are resilient and secure. Second, they are fully adaptable to evolving market standards, like real-time, instant. And third, they are scalable and future-proof, and therefore they allow us to grow at marginal cost.

Cash Management - differentiating factors beyond the industrial platforms

I now invite you to move to slide eight. As just mentioned, our industrial capabilities are one of our key differentiating factors on which we will capitalise to continue to grow at marginal cost. Leveraging on these strengths, we have built comprehensive capabilities across geographies to process payments and receivables, including the most complex and sensitive ones.

Just to give you a few examples, if we look at utility companies, we are able to simplify their collections from millions of customers through industrial processing of direct debits in one go, tapping into data analytics to optimise successful collections. We also provide to corporates high-value treasury transfers with competitive cut-off times and large liquidity provision across currencies and countries.

We are a trusted partner of digital payment companies and provide them access to efficient payment rails. We also facilitate and monitor sensitive payments in case of mergers, acquisition, and deal closing where the payment is on the critical path of high-profile business transactions. Finally, we offer the capability to pay internationally in more than a 100 currencies with end- to-end transparency.

A tailor-made solution design

Our value proposition to both corporate and institutional clients also relies on our ability to act as a trusted advisor to our clients, taking our clients' objectives and needs into account to build the most suited solutions. We have notably developed a co-creation approach with some of our key clients to ensure that our product developments address their exact needs today and tomorrow. This is the case, for example, when we developed a tailor-made Virtual Account solution for a large shipping company.

Virtual Account, they enable our clients to optimise cash centralisation, cash flow forecasting, and reconciliation management. This flexible and scalable offer will accompany them in their centralisation journey to implement payments and collections on behalf at group level for their

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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Euro flows. The key differentiator here for BNP Paribas was the ability to tailor the solution to the specific needs and operational setup of the clients.

A multi-local model

Another key differentiator is our multi-local presence, with teams on the ground and in-depth local capabilities, combined with global and standardised solutions, such as our connectivity or cash pooling solutions. What that means is that we have both the capabilities to deal with local payment specificities, such as bills of exchange in France or RIBA in Italy, and the ability to help our customers rationalise their global treasury setup.

As an illustration, we can mention the recent mandate we obtained from the Belgian government to become their payment provider, supporting more than 2,000 accounts and 50 million payments in Belgium, including all corporate cards, payment terminals, and bulk instant payments. This demonstrates our ability to act as a true local player, offering the full range of payment solutions.

And on the other side, we have also proven our ability to accompany our large MNC clients in their treasury rationalisation projects on a global scale. One example is a large European pharmaceutical company with a turnover of €40 billion, which we have been accompanying for the last 15 years: first in Western Europe and now covering 22 countries in EMEA and APAC for their cash management needs.

They chose BNP Paribas last year to be their strategic partner in the reshaping of their in-house bank. This was a transforming project on the client's side and a strong testimony, not only of our global capabilities, but also of our advisory approach.

An integrated offer

Our cash management offer is also fully integrated with the group wider solutions. For example, we offer a fully automated and competitive solution for cross-currency payments leveraging on our Global Markets FX solutions, which is embedded into our international payment platform. This solution is available across the Group to corporate and institutional clients. And we have seen a significant take-up in the past year, with cross-currency payment volumes through this solution growing at a +12% CAGR in the last two years.

Cash Management solutions are also closely linked to our wide range of investment solutions, from deposits to money market funds. We have liquidity advisors working closely with Cash Management sales and Asset Management partners to offer best-in-class investment solutions.

A lean digital journey

Finally, all those solutions from cash management to FX and deposits are embedded in our Group digital platform, Centric. Centric, which also includes market insights, trade and working capital applications, is a key component of the digital client journey, including self-servicing capabilities and access to NOA, our AI-powered virtual agent. Centric also supports cross-sell. 56% of our Cash Management clients are using at least two digital services applications on top of that transactional application.

Last but not least, a key component of our digital offer to support a lean customer journey relates to KYC and onboarding. Our Welcome app, which is also available through Centric, supports paperless onboarding in KYC and is now available in 23 countries.

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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Let us now move to our Merchant Services and Retail Payment businesses with Pierre. Pierre, the floor is yours.

Merchant Services & Retail Payments Update

Pierre Fersztand

Global Head of Cash Management Payments, Trade Solutions & Factoring, BNP Paribas

Thank you, Aurelia. So let us move now to slide 9.

Merchant Services & Retail Payments - a unique positioning across the payment value chain

In terms of Merchant Services and Retail Payments, BNP Paribas has a unique positioning in Europe covering the entire payment value chain. BNP Paribas has indeed been investing in both issuing and acquiring. Therefore, we have, first, a full-fledged offer for merchants; second, an issuing offer for our individual clients; and third, in between, a major role in domestic schemes and clearing systems.

This is a clear competitive edge, a key strength in the European fragmented market. Being on both sides of the payment, with a deep knowledge of usage, we are very well positioned to implement regulations, to improve fraud detection tools, to optimise acceptance rate for merchants, and to adapt our offer in order to provide a seamless payment experience. Our major role in domestic schemes, in card clearing systems, is also key to provide a competitive offer on a wide range of payment means. On both sides of card payments - individual, issuing, merchant, acquiring - we will leverage on our industrial platform, as Thierry will explain to you in the next slide.

Industrial Platform Update

Thierry Laborde

Chief Operating Officer, Head of Commercial, Personal Banking & Services, BNP Paribas

Merchant Services & Retail Payments - announcing a major step forward for our card processing platform

Thank you, Pierre. Let us move to the slide ten, which is about our latest news. On 13th June, we announced, together with our long-time partner in Payments, Groupe BPCE, a new project to strengthen our positioning in card payments in Europe. This new partnership will consist in the creation of a common processor for card payments, with a platform at the highest technical standards. This project will allow us to embrace evolutions in the payment landscape.

Digital payments are growing so fast, and we believe this trend will last for at least a decade. This market is based on cards, but also dematerialisation, with volumes expected to increase strongly and intensify technological evolutions. With this partnership, we will reach significant volumes estimated at €17 billion for Groupe BPCE and BNP Paribas altogether by 2029. With this critical size, we will be in the capacity to meet our whole client base expectations while anticipate market trends with constant innovation and maintain high security standards.

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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BNP Paribas and Groupe BPCE have chosen to build this mutualised processor in a dedicated company with a common governance, but with its own management and independent technology. This platform will allow for both cost reduction and increase in innovation capacity at a European scale. We consider opening this platform to third-party operators at a later stage. In a nutshell, this industrial and strategic partnership is a strong move in terms of payment sovereignty in Europe with the ambition to become the leading processor in France and among top three in Europe.

And now, focusing on the Merchant side of our payment value chain, I will turn over to you, Pierre.

Merchant Services Update

Pierre Fersztand

Global Head of Cash Management Payments, Trade Solutions & Factoring, BNP Paribas

Thank you, Thierry. Let us move to slide 11, dedicated to Merchant Services.

Merchant Services - a differentiating end-to-end offer

While some competitors have decided to withdraw from the acquiring business, and while some fintechs are growing in this market, we at BNP Paribas have been regularly investing in acquiring merchant services. There is one reason for that. We believe that a bank cannot be a banking partner of a merchant without helping him to be paid.

Merchant services require building end-to-end offers. This is not only processing flows. This is also bringing added value through point-of-sale terminals in the shops or digital screens on the merchant's website or app. It is probably the more innovative and data-driven part of cash management.

Just having in mind, France is the main country for card usage in Europe and, historically, by the way, the country of birth of chip cards. Our large client base in France, our good knowledge of the French Cartes Bancaires, is a strong asset at a European level. In Europe, we can manage card payments everywhere, covering 25 countries, growing our market share in Continental Europe, as well as in the UK. We have one umbrella brand for our pan-European global offer, AXEPTA BNP Paribas. This brand includes all the value chain.

We deliver our clients end-to-end solutions, including enriched reporting through our unified real-time merchant portal, or Buy Now Pay Later solutions through our fintech FLOA. As you can see, the barrier to entry in this fast-growing and innovative business is high, and BNP Paribas is leveraging on its strong position as a key player in Europe. As an illustration, let me present now three recent innovations from BNP Paribas.

Three innovations

First one, our marketplace solution. Today, most merchants are offering online, not only their products, but also the products of other merchants or even second-hand products. You have probably yourself experienced it. When buying a product on a website or on an app, you discover that this product is not sold by the website owner, but by another merchant acting as a partner.

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BNP Paribas Deep Dive - Corporate and Retail Payments	Wednesday, 26th June 2024
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The capacity to provide marketplace offers, including onboarding and management of several partners as merchants, has become key for the acquiring business. That is why we have decided one year ago to build our own fintech dedicated to marketplace offer. It is called 1POINT6. 1POINT6 is already live with its first client being already onboarded.

Let me give you a second example. In France, we are among the first ones to propose to small merchants to transform their iPhone into a payment terminal, accepting not only Visa and MasterCard, but also the French Cartes Bancaires. For small merchants, they will avoid buying a specific terminal.

Lastly, a third example is our partnership with Microsoft to embed payments in Teams. This offer is especially adapted to professionals like coaches, doctors that sell services on Teams and will be paid in an integrated manner.

In a nutshell, we are one of the few European banks investing, at all European levels, in merchant servicing. Our pan-European, innovative end-to-end offer is a key differentiator. Leveraging on our strong corporate client franchise, on our proximity with local and European chains, being able to deliver not only card solutions, but also all means of payment, we can differentiate also from non-bank competitors.

Moreover, PSP, which are the fintech providing payment services to merchants, are not only competitors, they are also very often our clients. Indeed, we have developed a dedicated cash management offer for this payment service provider, this fintech, in Europe. When merchants choose a non-bank as a partner to process their flows, quite often we are, at the end, processing the flows of this non-bank fintech.

In conclusion on this subject, leveraging on this powerful setup, our ambition is quite clear. With a target volume of processed card transactions, as you can see in the slide, of 4.2 billion in 2025, more than 60% above the level of 2021, and as you can see, we are well on track to reach this objective.

Retail Payments - capitalising on our strengths in a fast-evolving market

Let us now move to slide 12, dedicated to Retail Payments for individuals.

In Western Europe, 90% of consumer-bank interactions are payment related. BNP Paribas has invested to offer individual clients the best-in-class digital journey. Again, the European mutualisation and, tomorrow, our industrial card processor are a competitive advantage. Our goal through our payment offer is to attract more clients, address fintechs or neo bank competition and improve client satisfaction.

As you can see on the slide, our action plan relies on five pillars.

Leading role in European initiatives

First, we play a major role in the European payment landscape. For instance, we are launching in Europe with other European banks, the wallet Wero, the company is called EPI, to allow this year 2024, person-to-person payments; and next year, e-commerce digital payments in a large part of Europe.

Further digitise services

Second pillar, further digitalisation of services. Digital self-care is key for client satisfaction and for cost reduction.

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