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
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