Bank Products and Services for SMEs

1. Bank Products and Services for SMEs Presented by: Guillermo Kopp Director, Emerging Technology Solutions

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 As the largest single market in the world HR10 represents a significant event. Foreshadowed by Travelers / Citibank merger it will increase the level of competition over the next 3 - 5 years Similar events have occurred in other countries with important results The UK is one of the most competitive consumer FSI markets which is continuing to change and attracting new competitors from the general retail space. Some countries in Europe have had deregulated markets for a number of years. EURO will open these markets further and allows cross border competition. Significant changes within countries have happened over the past 2-3 years. Cross border events starting to happen. US style disaggregation starting Japan is currently in the midst of a deregulation caused credit problems Finally emerging markets are stabilizing and privatizing. This is unleashing private investment and investment from international banks: Spanish banks in Latin AmericaAs the largest single market in the world HR10 represents a significant event. Foreshadowed by Travelers / Citibank merger it will increase the level of competition over the next 3 - 5 years Similar events have occurred in other countries with important results The UK is one of the most competitive consumer FSI markets which is continuing to change and attracting new competitors from the general retail space. Some countries in Europe have had deregulated markets for a number of years. EURO will open these markets further and allows cross border competition. Significant changes within countries have happened over the past 2-3 years. Cross border events starting to happen. US style disaggregation starting Japan is currently in the midst of a deregulation caused credit problems Finally emerging markets are stabilizing and privatizing. This is unleashing private investment and investment from international banks: Spanish banks in Latin America

5. Drivers for Change Deregulation & convergence create competitors: From other FSI segments with established customer relationships From other consumer-oriented industries From global service providers Outsourcing neutralizes technology barriers Low cost and incremental pricing models Leading-edge technology Internet Creates vehicle for new business models Reduces traditional cost barriers

6. Largest financial firms in the world

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

8. FSI Competitors in Emerging Markets

9. Margin squeeze due to market convergence Pressure on margins Competition based on price New entrants Regulation

10. Banks focus on creating shareholder value

11. The changing landscape of financial services distribution

12. FSIs must select optimum combination of customer, business, process, & technology

13. 3 Gold Mines of Opportunity

14. 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

17. SME business functions via Internet

18. Types of purchases SMEs make via Internet

19. SME usage of online banking

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.

21. Web Services driving FSI connectivity

22. Extending within and across FSI boundaries

23. Networked Financial Services Institution Ease of use Cost savings Convenience Save time Operational efficiency

25. Drivers for change Competition in credit markets will intensify Credit scoring has commoditized access to credit Commercial lending analysis capabilities Relationship management Competition for SME customers will intensify NIB income from DDA accounts Fees from DDA products and services Electronic bill presentment and payment (EBPP) Single Sign-On for business and owner account Financial management software (QuickBooks)

26. Customer Relationship Management

27. FSIs focusing on client needs

28. SME loans are complex to originate High risk and small value per loan Credit bureau interfaces Automated document preparation Personal credit and assets offered as collateral Personal financial statements Company income statement and tax information Company balance sheet and cash flow statement Workflow management Multi-channel delivery Real-time decisions

29. Multi-channel customer interaction model for Banking Ideally, multi-Channel delivery ... how a bank or other financial institution can ... effectively deliver ... all it�s products and services across ... all it�s delivery channels.Ideally, multi-Channel delivery ... how a bank or other financial institution can ... effectively deliver ... all it�s products and services across ... all it�s delivery channels.

30. FSIs must choose a strategy

31. Wealth Management is the ultimate customer relationship

32. Internet technology is changing cost structure and delivery channel usage

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

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. Products to strengthen the SME relationship

37. Questions�