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Usage of New Technologies for SMB Financing

Usage of New Technologies for SMB Financing. Ken Kerr, Gartner Financial Services. Viewpoint. Distances are shrinking due to technology; much of the world’s underserved SMB market will be digitally connected within a decade.

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Usage of New Technologies for SMB Financing

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

  2. 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.

  3. ATMs Technology Adoption: Hype Cycle to Maturity Visibility “Killer” Application Adoption Stalls Major press coverage creates hype Account Aggregation Mature applications, payoffs received General Market Adoption grows Drawbacks Exposed Possibilities Envisioned Technical Issues resolved Peak of Inflated Expectations Technology Trigger Slope of Enlightenment Plateau of Productivity Trough of Disillusionment Maturity

  4. To consumer Assets To corporate Deposits Loans $3B+ $1-3B Deposits Loans Much less The same Much more Less More Strategic Importance of SMBs Grows for Banks More Important than 3 years ago: 80% of banks (among largest banks: 91%) SMB Profitability Compared to Other Segments Default rates in LDCs no greater than in developed world Relative Profitability of Deposits and Loans to Banks

  5. E-finance drives down costs, but also margins E-finance Lowers Operation Costs Relative Bank Processing Costs • automates processes • speed credit decisions • lowers profitable loan size Lower Margins Also Likely • lower cost of entry • expands financing reach • servicing becomes more transparent Branch Teller Call Center E-trans- actions

  6. 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, 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 Bank • Customers: “Self Service”--kiosks, cell phones, Internet cafes, Chip cards • Access to information, anytime, anywhere Field Agent SMB

  7. Interaction Style Interaction Intent Person to Person Computer to Computer Self-Service Advice Live dialog between customerand RFSP. Information and functions maybe shared. Customer accesses information and functions, submits information,executes transactions onhis or her own. Customer’s computer accesses information and functions,submits information, executes transactions. Sales Service Method 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. Interaction Style: More Important Than Devices

  8. SMEs Will Use Online Channel To Transact U.S. SMBs Use of Online Banking At Banks With Dedicated Small Business Sites • SMB Internet Banking • Extends reach through self-service • reduces transaction costs • Makes some corporate services economically feasible for SMEs • Anytime access to accounts, loan info SMBs’ Primary Banking Channel, 2004 Among SMBs Active w/Online Financial Activity Electronic Banking Equal mix of both 33% 51% 16% Traditional Banking

  9. 15% 33% 53% Access to Cash Flow is Critical FSPs View: Primary Factor Driving SMB Online Channel Adoption Near Real-time Access to Accounts and Cash Flow: Critical to Your SMB Success? Reduce costs (credit, transfers, payments) General business help Not Critical Very Critical 18% 30% 24% 26% Save time Faster cash flow info Somewhat Critical Source: GartnerG2

  10. Planned by YE03 3Q2002 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 Positive pay Source: GartnerG2

  11. First Internet device dictates e-finance usage • Wired Internet world--limited mobile e-finance demand • Developing world--multiple use with mobile devices creates comfort with mobile e-finance All mobile units Data Enhanced Basic units Wireless devices to drive SMB e-finance in LDCs Mobile Device Sales in Latin America, by type, 1998-2005 Millions

  12. 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

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

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