Vision 2014: Trends in Commercial Card and Small Business Lending

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This question-and-answer session with Michael Kortering, Senior Vice President of Commercial Cards and Small Business Lending for PNC, will focus on the state of the commercial lending industry and forward-looking trends.

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Vision 2014: Trends in Commercial Card and Small Business Lending

  1. 1. ©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Trends in commercial card and small business lending Michael Kortering PNC Bank Dan Meder Experian #vision2014
  2. 2. 2©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  What is going on with small business?  Key trends: ► Small business loan demand ► Small business cards ► Consumer-to-business cross-sell ► Portfolio benchmarking  Next steps Agenda
  3. 3. 3©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Small business loan demand
  4. 4. 4©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Which do you see?
  5. 5. 5©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. The uneven road of small business optimism Source: March 2014 NFIB small business survey
  6. 6. 6©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. The U.S. Economy has been growing at a moderate rate for the past three years *Data is from the St. Louis Federal Reserve FRED database and is in 2009 dollars, seasonally adjusted.  The economy has been growing since 2010  The inflation-adjusted GDP growth rate has been around 2.3% since 2010  The post WWII average has been 3.3% U.S. GDP* Annual change in U.S. GDP $12.0T $13.0T $14.0T $15.0T $16.0T $17.0T -4% -2% 0% 2% 4% 6%
  7. 7. 7©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. $0.00T $0.50T $1.00T $1.50T $2.00T $2.50T $0.51T $0.54T $0.57T $0.60T $0.63T $0.66T $0.69T Large commercial loan portfolios are growing faster than smaller commercial loan portfolios * Data is from the FDIC.gov website database. Commercial loans include both C&I and CRE loans.  U.S. commercial loans greater than $1M have grown from $1.6T in 2010 to $2.1T in 2013 (+33.2%)  But, commercial loans less than $1M have fallen from $0.65T to $0.59T over the same period (-10.2%) Commercial loans > $1M +33.2% -10.2% Commercial loans < $1M
  8. 8. 8©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. -80% -60% -40% -20% 0% 20% 40% 60% 80% 2000Q1 2003Q1 2006Q1 2009Q1 2012Q1 Federal Reserve Senior Loan Officer Opinion Survey Netpercentage of domestic banks reporting stronger demand for C&Iloans from small firms Netpercentage of domestic banks increasing spreads of loan rates over banks'cost of funds to small firms Netpercentage of domestic banks tightening standards for C&Iloans to small firms The Senior Loan Officer Survey shows increased demand and competition for small C&I loans *Data is www.federalreserve.gov. Despite shrinking balances for small C&I loans, the Federal Reserve senior loan officer opinion survey shows increased demand, decreased lending standards, and shrinking margins
  9. 9. 9©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Making the most of small business credit cards
  10. 10. 10©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Small business credit cards… An attractive alternative for small businesses Improved cash flow Vacation Saves time Extend payments Earn rewards Convenience
  11. 11. 11©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. The market continues to move from checks to electronic payments Data Source: 2013 Federal Reserve payments study 0 20 40 60 80 100 120 140 2003 2003 2009 2012 $B's Non cash transactions by payment type ACH Checks Debit Prepaid Card Credit Card 45.8% 14.9%
  12. 12. 12©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  Checks are declining at a 9.3% per year rate, despite total non cash payments increasing by 4.4%  Business card payments are the third fastest growing category, following private label and prepaid Business card payments are growing at 14% per year Growth rates of non cash payments 2009-2012 CAGR 2009-2012 Inflation Rate Credit Card Business General Purpose 13.9% Private Label 4.6% Total Business 11.9% Consumer General Purpose 5.9% Private Label 26.0% Total Consumer 6.9% Total Credit Card 7.7% Prepaid Card 16.0% Debit 7.8% Checks -9.3% ACH 5.0% Total 4.4% 2.3% Data Source: 2013 Federal Reserve payments study
  13. 13. 13©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. $0.50T $0.55T $0.60T $0.65T $0.70T $0.75T Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Commercial Loans<$1MM Credit Card Change in Loan Balances: Commercial Loans<$1MM vs. Credit Card Credit card balances declined slightly in 2011 and 2012 but increased slightly in 2013 *Data is from the FDIC.gov website database. Commercial loans include both C&I and CRE loans. U.S. consumer credit card balances declined slightly from $0.70T to $0.69T (-1.5%)
  14. 14. 14©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Cross-selling the business owners in your consumer portfolio
  15. 15. 15©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Consumer repository Source data Principal information Business information Business contact link candidates Consumer link candidates Commercial repository Match and link process B2C links Business owners are consumers too… Cross-sell to consumers who are business owners Links are established based and maintained over time based on updates from public records, trades, and other sources
  16. 16. 16©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Entity linkage service Sample Consumer Contact Data Client input: Jane Doe 341 White Pond Drive, Akron, OH 44320 Businesses linked to Jane BIN:778954433 Business Name: Westwind Imports Affiliation: Current Title: Owner BIN:757689433 Business Name: Green Door Cafe Affiliation: Current Title: Co-owner BIN: 723998123 Business Name: Burke Hardware, Inc Affiliation: Previous Affiliation dates: 8/2009-1/2011 Title: President Input Jane’s CID is linked to currently and previously affiliated BINs B2C links Jane’s CID (Customer Identification Number) Linkage process is bi-directional (B C). In other words, linkage can be established for consumer or business input files
  17. 17. 17©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  It is difficult to get business owner PII on prospects  Some banks have this information on existing business banking customers  The result is that 95% of business card direct mail is ITA Most business card direct mail is ITA 0% 20% 40% 60% 80% 100% 2010 Q1 2011 Q1 2012 Q1 2013 Q1 Business Card DirectMail by Offer Type ITA PA *Data is from Comperemedia.
  18. 18. 18©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 0% 10% 20% 30% 40% National Bank #1 with Business Banking National Bank #2 with Business Banking National Bank #3 with Business Banking National Issuer #1 National Issuer #2 Others Direct Mail Offer by Issuer Percent PA DM Market Share Banks with business banking use pre-approved more than other banks Comperemedia and is from 2010-2013 Banks with business banking customers have a higher percent of PA DM Issuers without business banking customers rely almost entirely on ITA Much of the business card direct mail volume is concentrated in three issuers
  19. 19. 19©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Why portfolio benchmarking?
  20. 20. 20©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Portfolio benchmarking and “fact-based” decisions
  21. 21. 21©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  Link small business performance to peer group metrics  Identify the good, the bad and the ugly  Incorporate observations into treatment strategies The “payoff”…  Better informed decision making  Improved allocation of resources  Healthier financial results Portfolio benchmarking enhances small business decision making Cash cows Stars Dogs Market growth Question marks Relative market share 24 21 18 14 11 8 2.0 1.6 1.2 0.8 0.4 0.0 Dorian Pentrix Xantax Longal Energan Bendac Braviton Eviron Lotran Zodial
  22. 22. 22©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Portfolio Distribution by Industry Industry Bank Portfolio benchmarking allows management to evaluate portfolio distribution vs. the industry *Industry data is from Experian’s business bureau files; bank data is illustrative. This portfolio is lower risk than average, with few assets in missing, construction, and retail industries
  23. 23. 23©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Under 1 Year 1 Year 2 Years 3 to 5 Years 6 to 10 Years Over 10 Years Portfolio Distribution by Time in Business Industry Bank Many other attributes can be evaluated such as time in business This portfolio is lower risk than average, with few assets in newly opened businesses *Industry data is from Experian’s business bureau files; bank data is illustrative.
  24. 24. 24©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 0% 5% 10% 15% 20% 25% 30% 35% 0 - 20 21 - 40 41 - 60 61 - 80 81 -100 Missing Portfolio Distribution by Intelliscore Industry Bank Score comparisons are a key part of portfolio benchmarking *Industry data is from Experian’s business bureau files; bank data is illustrative. This portfolio is lower risk than average, with fewer assets in lower score businesses SM
  25. 25. 25©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. In the next 60 days, you should:  Examine your consumer portfolio and determine how many of them are small business owners  Take what you’ve learned today, and begin to apply some of the portfolio metrics to your small business portfolio Next steps
  26. 26. 26©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. For additional information, please contact: Dan.Meder@experian.com Hear the latest from Vision 2014 in the Daily Roundup: www.experian.com/vision/blog @ExperianVision | #vision2014 Follow us on Twitter
  27. 27. 27©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Visit the Experian Expert Bar to learn more about the topics and products covered in this presentation.

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