Usage of New Technologies for SMB Financing Ken Kerr, Gartner Financial Services

Usage of New Technologies for
SMB Financing
Ken Kerr, Gartner Financial Services
© 2002 GartnerG2
Viewpoint
• Distances are shrinking due to technology; much of the
world’s underserved SMB market will be digitally connected
within a decade.
• New electronic technologies are extending financial services
to SMBs and reducing costs for financial providers. But
competition will keep margins from growing.
• New technology will enable developing countries to leapfrog
over infrastructure limitations in the delivery of financial
services.
• International providers will, directly and through partnerships,
expand their reach to underserved and unbanked markets.
© 2002 GartnerG2
Technology Adoption: Hype Cycle to Maturity
Visibility
“Killer” Application
Adoption Stalls
Major press
coverage
creates hype
Account
Aggregation
Drawbacks
Exposed
Possibilities
Envisioned
General Market
Adoption grows
Mature applications,
payoffs received
ATMs
Technical
Issues resolved
Technology
Trigger
Peak of
Inflated
Expectations
Trough of
Disillusionment
Maturity
Slope of
Enlightenment
Plateau of
Productivity
© 2002 GartnerG2
Strategic Importance of SMBs Grows for Banks
70%
60%
50%
More Important than 3 years ago: 80% of banks
(among largest banks: 91%)
To consumer
To corporate
40%
Default rates in LDCs no greater
than in developed world
30%
Assets
$3B+
20%
Deposits
Loans
10%
0%
Much Less The More Much
less
same
more
SMB Profitability Compared
to Other Segments
$1-3B Deposits
0
20
Loans
40
60
80
100
Relative Profitability of
Deposits and Loans to Banks
© 2002 GartnerG2
E-finance drives down costs, but also margins
Relative Bank
Processing Costs
120
E-finance Lowers Operation Costs
• automates processes
• speed credit decisions
100
• lowers profitable loan size
80
Lower Margins Also Likely
60
40
• lower cost of entry
20
• expands financing reach
0
Branch
Teller
Call
Center
E-transactions
• servicing becomes more
transparent
© 2002 GartnerG2
New Technology Applied for End Users and Staff
E-Finance in developing world: requires
technology for both customers and agents
Agents: “Portable office”--cell phones,
Bank
PDAs, wireless laptops, etc.
• As supply increases, larger customers will
demand rapid decisioning on loans
•FSPs will need automated tools to reduce
costs of decisioning and servicing accounts
Customers: “Self Service”--
Field Agent
SMB
kiosks, cell phones, Internet
cafes, Chip cards
•Access to information, anytime,
© 2002 GartnerG2
anywhere
Interaction Style: More Important Than Devices
Interaction Style
Interaction
Intent
Advice
Sales
Service
Method
Person to
Person
Live dialog
between
customer
and RFSP.
Information and
functions may
be shared.
Computer to
Self-Service
Computer
Customer accesses Customer’s computer
information and
accesses information
functions, submits
and functions,
information,executes submits information,
transactions on
executes transactions.
his or her own.
Face-to-face,
“manned”
telephone,
instant
messaging.
Brochure, mail,
IVR, ATM, Web,
PC dial-up,
wireless device,
kiosk.
File transfer, EDI
or FEDI wireless
device, Web
services.
© 2002 GartnerG2
SMEs Will Use Online Channel To Transact
U.S. SMBs Use of Online Banking
At Banks With Dedicated Small Business Sites
50%
SMB Internet Banking
40%
30%
Extends reach through
self-service
•reduces transaction
costs
•Makes some corporate
services economically
feasible for SMEs
•Anytime access to
accounts, loan info
20%
10%
0%
3Q2002
YE2003
YE2005
SMBs’ Primary Banking Channel, 2004
Among SMBs Active w/Online Financial Activity
Electronic
Banking
Traditional
Banking
33%
16%
51%
Equal
mix of
both
© 2002 GartnerG2
Access to Cash Flow is Critical
FSPs View:
Primary Factor Driving
SMB Online Channel Adoption
General
business
help
Reduce costs
(credit, transfers,
payments)
18%
Near Real-time Access to
Accounts and Cash Flow:
Critical to Your SMB Success?
Not Critical
Very
Critical
15%
30%
33%
24%
26%
Save
time
Source: GartnerG2
Faster cash
flow info
53%
Somewhat
Critical
© 2002 GartnerG2
Activities Most in Demand Online
Small Business Internet Transactional Activity (US)
Check account balances
Transfer funds
Pay bills
Invest funds
Send invoices
Stop payments
Acquire credit cards
Buy insurance
3Q2002
Planned by YE03
Positive pay
0%
Source: GartnerG2
20%
40%
60%
80%
100%
© 2002 GartnerG2
Wireless devices to drive SMB e-finance in LDCs
Mobile Device Sales in Latin
America, by type, 1998-2005
First Internet device
dictates e-finance usage
Millions
•Wired Internet world-limited mobile e-finance
demand
•Developing world-multiple use with mobile
devices creates comfort
with mobile e-finance
45
40
35
30
25
20
15
10
5
0
All mobile units
Data
Enhanced
Basic units
1999
2001
2003
2005
© 2002 GartnerG2
Immigrant remittances opens opportunities
• International remittances is a very profitable business:
Nearly $50 billion (US) annually--fees account for 10% of total
• Cards, ATMs now
being used
• Local bank brands
convey trust
• Accounts can build
other services
• Remittance services
build knowledge of
new customers
© 2002 GartnerG2
Usage of New Technologies for
SMB Financing
Ken Kerr, Gartner Financial Services
© 2002 GartnerG2