1 / 16

Charles B. Wendel Finance Forum June 21, 2002

Financial Institutions Consulting. Winning Strategies for SME Finance. Charles B. Wendel Finance Forum June 21, 2002. Today’s Focus. Why small business is highly attractive The importance of segmentation Delivery options Minimizing costs Related key success factors.

arnoldo
Download Presentation

Charles B. Wendel Finance Forum June 21, 2002

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial Institutions Consulting Winning Strategies for SME Finance Charles B. Wendel Finance Forum June 21, 2002

  2. Today’s Focus • Why small business is highly attractive • The importance of segmentation • Delivery options • Minimizing costs • Related key success factors

  3. Why small business is highly attractive The SME segment generates above market returns U.S. Market Size and Profitability 800 Insurance Consumer Finance 200 Small Business Revenues ($Billion) 100 Mortgages Credit Cards 50 Mutual Funds 10 20 30 40 ROE (%) Source: FIC Analysis

  4. Lending is necessary, but profitability is largely deposit driven U.S. Bank Small Business Profit Distribution Small Business Profitability 100% All Others 5% Loans 10-15% Deposits 70-85% Source: FIC Analysis

  5. The deposit/loan ratio largely determines small business ROE Small Business Profitability 40% 20% 0% Bank B Bank C Bank A Small business unit ROE 1:1 2:1 3:1 4:1 5:1 Deposit-to-loan ratio Source: First Manhattan Consulting Group

  6. The importance of segmentation • Profitability • Customer • Competition • Differentiation • Resources All customers are not created equal: different customers offer different profit potential Customers want to be recognized as “different” with distinct needs The best competitors will pick-off the best customers; banks need to improve retention Decommoditizing the bank offering demands segmentation Segmentation allows banks to align the right resources with the right opportunities

  7. “If you don’t use segmentation, you are spending too much money trying to be all things to everyone.” Senior Vice President Bank One “Everyone is our customer.” Executive Vice President Retail Head U.S. Regional Bank

  8. All customers are not created equal Disguised Client Example Profit Contribution by Decile (%) Top 20% contributes 85% of total profit Bottom 30% destroys 15% of total profit Source: Bank One

  9. Different segments require different approaches; not all segments merit equal attention Illustrative Customer Segmentation Matrix Source: Novantas

  10. Segmentation examples • Zions BankWomen-owned businesses • Capital OneContractors • American ExpressWhite-collar microbusinesses • ICICILending against large company payables

  11. Delivery options Most small businesses want branch access, but use multiple channels Small Business Channel Use (%) Use Do Not Use Channel Not Available Source: FIC Customer Analysis

  12. Non-branch performance has yet to catch up with aspirations “I get great service from my branch. They are willing to help. When I use the phone, I get a lot of rules and regulations. It’s even worse online.” Small Business Owner

  13. Minimizing costs Nearly all aspects of selling SMEs should be re-engineered • Products and documentation: standardized • Underwriting, servicing, and collections: centralized • Information requirements, application process, and credit policies: simplified • Credit decisions: automated and credit scored • Portfolio management: exception-basis only 50-60% of savings One indication of impact: origination costs drop by 75%

  14. Customer contact time can double by centralizing service and support functions 100 50 0 Other tasks Other tasks Percent of time spent 54% 26% Customer contact Customer contact Before Centralization After Centralization Source: Key Bank

  15. Related key success factors • Achieving account retention • Gaining wallet share/improving cross-sell • Leveraging the branch channel • Repositioning the bank as small business friendly • Using compensation to incent a small business focus

  16. Financial Institutions Consulting Winning Strategies for SME Finance Charles B. Wendel Finance Forum June 21, 2002

More Related