The Power of Knowledge A Company Bank Products and Services for SMEs Presented by: Guillermo Kopp...
Transcript of The Power of Knowledge A Company Bank Products and Services for SMEs Presented by: Guillermo Kopp...
The Power of Knowledge
A
Company
Bank Products and Services for SMEs
Presented by:
Guillermo Kopp Director, Emerging Technology Solutions
World Bank – New Technologies for Small and Medium-Size Enterprise FinanceDecember 4, 2002
AgendaAgenda:
Business drivers
Internet banking for SMEs
Relationship strategies
Questions and answers
4
Global Deregulation Result: Consolidation, Disaggregation, & Convergence
Deregulation will reduce barriers between banking, securities, and insurance products
Happened in the UK in 1987 — in the US in 1999
Convergence allowed in some European countries, more on the way
Euro deregulation underway. . . BIG TIME
Big Bang transforming Japan
Emerging markets gradually privatizing financial sector
Convergence
Disaggregation
Consolidation
5
Drivers for Change
Deregulation & convergence create competitors:From other FSI segments with established
customer relationshipsFrom other consumer-oriented industriesFrom global service providers
Outsourcing neutralizes technology barriersLow cost and incremental pricing modelsLeading-edge technology
InternetCreates vehicle for new business modelsReduces traditional cost barriers
6
Largest financial firms in the world
$105
$269
$290
$407
$426
$446
$642
$673
$715
$817
$885
$902
$992
$1,428
Allstate
Bank One
Goldman Sachs
Merrill Lynch
Morgan Stanley
AXA
Bank of America
HSBC
JPMorgan Chase
Mitsubishi Tokyo
Detusche Bank
Citigroup
Sumitomo Mitsui
Mizuho Holdings
Selected Global Financial Institution Assets ($Billions, 12/31/00)
Source: TowerGroup
7
New revenue mix: Moving from net interest income to fee-based income
The banking industry increasingly depends on transactional, fee-based income stream
Fee-based revenue (non-interest) is growing faster than net interest revenue
Sources: FDIC and TowerGroup
56.3
203.8
152.7
14.3
1980 2000
CAGR = 1
2.6%
6.6% Dependency on Dependency on TechnologyTechnology
Is Increasing Is Increasing Non-interest income
Net interest income
Fee-based Income in US BanksCompared to Net Interest Income
($Billions)
8
FSI Competitors in Emerging Markets
$0.0
$3.0
$6.0
$9.0
$12.0
Citigr
oup
HSBCIC
BC
BSCH
BBVA
Std C
harte
red
ABN AM
ROBNP
JPM
Chas
e
Deuts
che
Barcl
ays
FleetB
oston IN
G
Revenues (2001, $Billions)
Source: Citigroup
9
Margin squeeze due to market convergence
Pressure on margins
Competition based on price
New entrants
RegulationProfit
Break Even
OldBusiness
NewBusiness
Revenue Per
Customer
Market Drivers
10
Banks focus on creating shareholder value
Levers of Value Realization
Deepen the understanding of customers and their needs to create unique, tailored products that increase the value proposition
Utilize technology to migrate customers to less expensive channels and improve internal efficiencies
Optimize efficiency of branch, call center, and self-service infrastructure through cultural, logistical, and technological shifts
Lower exposure by using technology to improve credit monitoring, communication, and operational resilience
ShareholderShareholderValueValue
Revenue Revenue GrowthGrowth
Cost Cost ReductionReduction
Asset Asset ProductivityProductivity
RiskRiskMitigationMitigation
11
The changing landscape of financial services distribution
Banking Banking Distribution Distribution
StrategyStrategy
Cost efficiency
Personalized and seamless service
Accurate information
Consistent experience across touch points
Anytime, anywhere convenience
Shift from product focus to customer focus
Rapid technology developments
Geographically dispersed markets
Limited resources
Shareholder pressure for quarterly performance
12
CUSTOMER
PARTNERS
DEPOSIT
CREDIT
PAYMENT
INVESTMENT
INSURANCE
FSIs must select optimum combination of customer, business, process, & technology
Account Servicing
Customer Service
Customer Acquisition
Process
Line of BusinessLOW
COST
TECHNOLOGY
HIGH
FUNCTION
TECHNOLOGY
PARTNERS
14
IntegrationIntegrationMiddleware, EAIMiddleware, EAI
AutomationAutomationItem processing, savings, checking Item processing, savings, checking
and loan account servicingand loan account servicing
CreationCreationRetirement, mutual fund Retirement, mutual fund
accounting, enhanced product accounting, enhanced product creation and servicing parameterscreation and servicing parameters
ContactContactBranch automation, ATMs, Branch automation, ATMs,
broker workstations, broker workstations, Interactive voice response, Interactive voice response,
online tradingonline trading
‘20s ‘30s ‘40s ‘50s ‘60s ‘70s ‘90s‘80s ‘00s
Mo
vin
g T
ow
ard
Cu
sto
mer
Moving toward self-directed interaction
15
SME business operations adopting the Internet
Typical SME uses:Financial services
Market research
Customer acquisition
Streamline business processes
Internet and Web Services leveling the playing field for Small Business:Altering the way SMEs interact with their banks
Reducing barriers to entry and transaction cost
16
SME Internet usage by firm size
52% 55%
62%63%
76%
57%
30%
40%
50%
60%
70%
80%
90%
100%
< $1M $1M-$2M $2M-$3M $3M-$5M $5M-$10M TOTALMARKETSource: TowerGroup
(SME Segments by Annual Sales, USD million – June 2002)(SME Segments by Annual Sales, USD million – June 2002)
Use increases with Use increases with company sizecompany size
17
SME business functions via Internet
3%
8%
14%
20%
23%
44%
57%
61%
64%
94%
74%
Customer Billing
Bill Payment
Sales
Customer Service
Access e-Commerce
Purchasing
Marketing & Promotion
Financial Research
Own Web Site
Competitive Info
Send e-mail
Source: TowerGroup
(Among active Internet users – June 2002)(Among active Internet users – June 2002)
On average, SMEs On average, SMEs have been selling have been selling online for over 2 yearsonline for over 2 years
Will grow to 18% in 2003Will grow to 18% in 2003
18
Types of purchases SMEs make via Internet
4%
14%
17%
22%
35%
39%
41%
65%
Other
Business Services
Other Business Equipment
Business Travel
Business Inventory
Computer Software
Computer Equipment
Office Supplies
Source: TowerGroup
Online Online Purchasing Purchasing has increased:has increased:
37% in 2001 37% in 2001 44% in 200244% in 2002
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SME usage of online banking
13%
18%
28% 26%
37%
19%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
< $1M $1M-$2M $2M-$3M $3M-$5M $5M-$10M TOTALMARKETSource: TowerGroup
(SME Segments by Annual Sales, USD million – June 2002)(SME Segments by Annual Sales, USD million – June 2002)
Total market use will grow to Total market use will grow to 24% in 200324% in 2003
20
Larger institutions lead in online banking
Midsized and smaller banks are keeping up in basic functionality, but their packages are lagging behind
Many sites are geared more toward “brochureware” marketing than toward actual functionality
Few sites offer true, value-added features that are important to small businesses.
Many sites lack effective product or online banking applications demonstrations (demos)
Most sites do not offer tiered account access and control capabilities for multiple users, which small businesses continually list as one of the most important functions.
Key Findings:Key Findings:
21Business Line / ProcessBusiness Line / Process
FS
I Fir
ewal
lF
SI F
irew
all
Within Across
Inside
Outside
MOMMOMMOMMOM
EAIEAIEAIEAI
WebWebServicesServices
Web Services driving FSI connectivity
22
Stage Stage 22
Stage Stage 44
Stage Stage 33
Stage Stage 11
Business Line / ProcessBusiness Line / Process
FS
I Fir
ewal
lF
SI F
irew
all
Within Across
Inside
Outside
Extending within and across FSI boundaries
23
Networked Financial Services Institution
Ease of use
Cost savings
Convenience
Save time
Operational efficiency
Online Banking Benefits:Online Banking Benefits:
Bank branches still are Bank branches still are the primary contact pointthe primary contact point
24
Emerging Markets
Europe, Canada, &
Japan
United States
$596$596
2002 IT Spending ($ Billions)2002 IT Spending ($ Billions)
FSI – IT spending estimates for SMEFSI – IT spending estimates for SME
Source: TowerGroup
$271$271
$46$46
25
Drivers for change
Competition in credit markets will intensify Credit scoring has commoditized access to credit Commercial lending analysis capabilitiesRelationship management
Competition for SME customers will intensifyNIB income from DDA accountsFees from DDA products and servicesElectronic bill presentment and payment (EBPP)Single Sign-On for business and owner accountFinancial management software (QuickBooks)
27
FSIs focusing on client needs
OperationalOperational& Product& Product
Solutions that Solutions that meet themeet the
client’s needsclient’s needs
Solutions that Solutions that help the client help the client
define the goalsdefine the goalsand achieveand achieve
successsuccess
UnderlyingUnderlyingBusiness GoalsBusiness Goals
ProductProduct
Customer ServiceCustomer Service
Customer-Customer-centriccentricClientClient
SuccessSuccess
28
SME loans are complex to originate
High risk and small value per loan
Credit bureau interfaces
Automated document preparationPersonal credit and assets offered as collateral
Personal financial statements
Company income statement and tax information
Company balance sheet and cash flow statement
Workflow managementMulti-channel delivery
Real-time decisions
29
Customer KnowledgeCustomer Knowledge Product ServicesProduct Services
Multi-channel customer interaction model for Banking
A way to effectively deliver the right products and services to all customer touchpoints
StrategyStrategy
TelephoneTelephone Self-ServiceSelf-ServiceInternetInternet IndirectIndirectBranchBranch
30
FSIs must choose a strategy
Monoline Bundled Full Monoline Bundled Full SpectrumSpectrum
AdvisoryAdvisory
RelationshipRelationship
TransactionalTransactional
ProductOfferings
InteractionStyle Relationship strategyRelationship strategy
offers most banks the offers most banks the greatest greatest potentialpotential
31
Wealth Management is the ultimate customer relationship
LifeCycleGoals
AssetManagement
(Save for it)
AssetManagement
(Save for it)
Liabilities (Get it sooner)Liabilities
(Get it sooner)
Insurance(Guarantee it)Insurance
(Guarantee it)
ProductsAdvice
FinancialPlanning
Wealth Management
32
Internet technology is changing cost structure and delivery channel usage
PersonalService
MassMarket
Relationship Value
TaxPlanning
Tax-Advantaged
Accumulation
Multiple-Generation
WealthTransfer
ActivePortfolio
Mgm’t
Payments
Short-TermDebt
Long-TermDebt
SimpleMortality
SimpleP&C
Short-Term Accumulation
Long-Term
Accumulation
TransactionValue
&PersonalService
ActivePortfolio
Mgmt
Tax-Advantaged
Accumulation
Long-Term
Accumulation
33
Align people, processes, & technology
Customer data consistent, accurate, and standardized
Information systems adapted to support relationship oriented sales and service culture
Contact personnel fully empowered by enterprise relationship views
Operations, policies, and procedures reward CustomerCentricity
PeoplePeople
ProcessesProcessesTechnologyTechnology
Customer Customer Relationship Relationship ManagementManagement
34
Trusted relationship managers are essential
People with strong sales culture
Focused on client needs
Credit discipline & risk management
Consistent financial performance and service
Relationship broadening (cross-sell) and deepening (share-of-wallet)
Responsiveness and quality of service
Use technology for product integration and innovation
35
Relationship building strategies differentiate
Adopt service excellence to exploit activity created by “sticky” payment products
Utilize high tech for high touch
Leverage the customer knowledge advantage Appropriate sales & service strategies
Customer profitability
Offer innovative products Packaged offerings
Loyalty pricing
Create relationship building products
36
SweepChoice
Products to strengthen the SME relationship
InsuranceInsuranceInsuranceInsurance
Mutual fundsMutual fundsMutual fundsMutual funds
OTHEROTHERFSI branding FSI branding
and SME client and SME client segmentation segmentation
MortgagesMortgagesMortgagesMortgages
Personal loansPersonal loansPersonal loansPersonal loans
Credit cardsCredit cardsCredit cardsCredit cards
OverdraftsOverdraftsOverdraftsOverdrafts
Commercial loansCommercial loansCommercial loansCommercial loans
LIABILITIESLIABILITIES
Online bankingOnline bankingOnline bankingOnline banking
PayrollPayrollPayrollPayroll
Cash managementCash managementCash managementCash management
SERVICESSERVICES
SavingsSavingsSavingsSavings
Checking Checking Checking Checking
Commercial DDACommercial DDACommercial DDACommercial DDA
ASSETSASSETS