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What Small Business Wants from Banking & Payments
 

What Small Business Wants from Banking & Payments

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    What Small Business Wants from Banking & Payments What Small Business Wants from Banking & Payments Presentation Transcript

    • What Small BusinessWants from Banking& PaymentsPaul McAdam, SVP, Research & ThoughtLeadershipGail Angel, SVP, Commercial TreasuryServices
    • What Small Business Wants from Banking & Payments Research Methodology & Background Relationship-based Product Packages Product Ownership & Packaging Opportunities Low Hanging Fruit: Products in High Demand Channel Usage Insights Packaging to Meet Customer Needs 2
    • Research Methodology• 51-question, online survey completed by 2,249 small business financial decision makers in November 2010• Respondents’ positions within companies: – Owners, CEOs or presidents – CFOs, controllers or treasurers – Office managers, accountants, bookkeepers• Company criteria for qualifying for this study: – Have more than one employee – Use a business checking account most often for the company business – Had less than $20 million in 2009 revenue• Survey fielded by FIS to members of a small business panel maintained by e- Rewards (Research Now) 3
    • Respondents by annual revenue and number of employees Annual Revenue Number of Employees (2009) 2 to 5 employees 21%** Under $500,000 24%* 6 to 10 employees 16% $500,000 to $999,999 19% 11 to 20 employees 23% $1 million to $1.99 million 19% 21 to 50 employees 23% $2 million to $4.99 million 20% 51 to 100 employees 10%$5 million to $19.99 million 19% 101 or more employees 6% *Read as: 24% of small businesses in the sample had less than $500k in 2009 revenue **Read as: 21% of small businesses in the sample had 2 to 5 employees n = 2,247 4 Source: FIS Enterprise Strategy, November 2010
    • Key small business lines of trade were well represented Companys Primary Business Professional, Scientific or Technical Services 13% * Retail Trade 13% Construction 10% Healthcare or Social Assistance 8% Accommodation or Food Services 7% Financial or Insurance Services 7% Wholesale Trade 6% Over 100 completed Real Estate Sales, Rental or Leasing 5% surveys withinNon-Profit, Charity, Civic, Social or Religious Organization 5% these lines of trade Manufacturing 4% Transportation or Warehousing 4% Arts, Entertainment or Recreation 3% Information 3% Administrative & Support Services 3% Repair and Maintenance Services 2% Educational Services 2% Personal Care Services 2% Agriculture, Forestry, Fishing, Mining 1% Other 2% *Read as: 13% of small businesses in the sample are professional, scientific or technical services n = 2,248 5 Source: FIS Enterprise Strategy, November 2010
    • What Small Business Wants from Banking & Payments Research Methodology & Background Factors Driving the Need for Product Packages Product Ownership & Packaging Opportunities Low Hanging Fruit: Products in High Demand Channel Usage Insights Packaging to Meet Customer Needs 6
    • Why the focus on relationship-based product packages? Reg Q repeal will unleash Bank switching is on the rise innovation and new competition 5.8 million U.S. small businesses* Customers want simplicity Product packaging enhances and a comprehensive profitability relationship *Note: There are approximately 5.8 million small businesses in the U.S. that employ more than one person. There are approximately 22 million single-employee small businesses in the U.S. Sources: U.S. Census Bureau and Small Business Administration. 7
    • Bank switching is on the rise • 15% of small businesses have requested competitive proposals for a new bank in the past 6 months • 16% of small businesses plan to issue a RFP for new banks in the next 12 months • The historical average for both is 10% Top factors driving issuance of RFPs Focus of recent RFPs A new comprehensiveDesire to reduce banking fees 50% 52% banking provider Increased capital needs 34% A new credit provider 22% A new cash management Need new products 25% 11% services provider Consolidation of banking A new international banking 19% 7% providers provider Unhappy with current A new investment banking 13% 4% customer service provider Source: Greenwich Associates, “Wanted: New Banks for Small and Mid-Sized Companies,” August 2010 8
    • Reg Q repeal will create competitive shifts in DDA as theeconomy recovers and interest rates rise• Big impact in the small business segment due to high concentration in DDA revenues (~ 75% of revenues) and mobility of these relationships due to low cross-sell of treasury management products• Significant product and price innovation in the industry – Likely to be hybrid ECR offerings to shift deposits. Could result in inflows to interest- bearing DDA from business time and savings products• Some businesses will close their sweep account if they deem the DDA interest rate competitive enough from an ROI perspective.• Small business deposits “hiding” in retail migrate to interest-bearing business DDA. – Small business accountholders keep a greater share of their funds in business DDA as a way to separate funds• Attacker players (e.g., card issuers, brokerage firms) could be looking for more than $200 billion in incremental deposits and will likely price them aggressively Source: McKinsey Payments Practice 9
    • Receptive to packages, and most owners’ business decisions parallel their personal financial decisions • 65% would consider switching to a bank that offered a bundle of financial services specifically designed to meet their business needs 1 • 39% prefer to receive financial services from several providers rather than from a single provider 1 • 51% of small businesses prefer to keep their business accounts with the same firm where they keep their personal accounts 2 When making financial decisions for your business, how similar is your decision-making process compared to how you make your personal financial decisions? 2 1 = I make financial decisions for my 2 3 4 5 = I make financial decisions for my business very differently business in the exact same way4% 5% 31% 31% 28% Source: 1 BAI, “Small Business Payment Strategies,” 2006. 10 2 Forrester Research, “The State of Small Business Banking,” 2009.
    • Relationship-based product packaging is an essential tool to escape product commoditization • More cost-effective than cross- Deposits selling the same product mix over time • More difficult for competitors to Transactions copyEmployee & Cash Related Mgmt. • More difficult for customers to comparison/price shop • Improve customer engagement and Credit longevity • More profitable Source: FIS Enterprise Strategy 11
    • What Small Business Wants from Banking & Payments Research Methodology & Background Factors Driving the Need for Product Packages Product Ownership & Packaging Opportunities Low Hanging Fruit: Products in High Demand Channel Usage Insights Packaging to Meet Customer Needs 12
    • As companies become larger and more complex, they consume more financial services Number of financial services used 12.29 11.43 Payroll Services 0.68 10.31 0.62 1.16 9.43 1.04 Employee Benefit 0.60 8.79 Financial Services 0.90 2.15 0.58 1.88 0.56 0.66 Secured Credit 0.49 1.52 6.67 1.44 1.15 2.180.39 2.09 1.95 Unsecured Credit0.230.58 2.01 1.95 1.09 1.38 0.87 1.71 0.54 0.60 Cash Management 0.25 Services 2.57 2.78 2.74 2.32 2.39 2.01 Payments 1.72 1.82 1.90 1.94 2.01 1.51* Deposits LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M *Read as: Small businesses with annual revenue less than $500,000 own 1.51 deposit services, on average n = 2,058 13 Source: FIS Enterprise Strategy, November 2010
    • Larger companies have a greater capacity to use liquid savings products Number of deposit services used 2.01 1.94 1.90 1.82 1.72 0.35 0.27 0.29 0.26 Certificate of Deposit 1.51 0.22 0.14 0.62 0.67 0.66 0.50 0.56 0.37* Business Savings or Money Market Account 1.00 1.00 1.00 1.00 1.00 1.00 Checking AccountLT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M *Read as: Small businesses with annual revenue less than $500,000 have a 37% incidence of owning Savings or Money Market Account services n = 2,058 14 Source: FIS Enterprise Strategy, November 2010
    • Adoption of ACH and wire transfer services expand ascompanies get larger (particularly at $2M+) Number of payment services used 2.78 2.74 2.57 2.39 0.50 2.32 0.55 ACH Services 0.41 2.01 0.26 0.30 0.57 0.18 0.28 0.35 0.48 Wire Transfer Services 0.63 0.21 0.53 0.52 0.40 0.55 0.59 Merchant Credit Card 0.51 Processing 0.54 0.51 0.47 0.45 0.40 Debit Card 0.40 0.68* 0.75 0.75 0.68 0.72 0.65 Online Bill PaymentLT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M *Read as: Small businesses with annual revenue less than $500,000 have a 68% incidence of owning online bill payment services n = 2,058 15 Source: FIS Enterprise Strategy, November 2010
    • Adoption of cash management services increases significantly as companies get larger ($2M is a key inflection point) Number of cash management services used 1.38 Positive Pay 0.17 1.09 0.11 0.32 Sweep Accounts 0.87 0.09 0.33 0.28 Lockbox 0.60 0.22 0.54 0.06 0.21 0.07 0.16 Remote Deposit 0.14 0.10 0.37 Capture 0.25 0.13 0.11 0.21 0.280.02 0.04 0.13 0.14 Account 0.06 0.07 0.20 0.24 Reconciliation 0.13 0.13 0.17 0.07* Processing LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M *Read as: Small businesses with annual revenue less than $500,000 have a 7% incidence of owning account reconciliation processing services n = 2,058 16 Source: FIS Enterprise Strategy, November 2010
    • Not a great deal of variation in unsecured credit use, other than in unsecured loans/lines Number of unsecured credit services used 2.18 2.09 2.01 Unsecured Short-Term 1.95 1.95 0.38 Loans or Working 0.22 0.31 Capital Lines of Credit 1.71 0.22 0.26 0.08 0.46 0.51 Overdraft Protection 0.51 0.53 0.47 0.48 0.48 0.49 0.52 0.42 0.43 Personal Credit Card(s) 0.47 0.76 0.78 0.80 0.83 0.81 Business Credit Card(s) 0.68*LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M *Read as: Small businesses with annual revenue less than $500,000 have a 68% incidence of owning business credit cards n = 2,058 17 Source: FIS Enterprise Strategy, November 2010
    • Adoption of secured forms of credit becomes much more prevalent as company size increases Number of secured credit services used 2.15 International (Foreign 0.16 Exchange, Import/Export 1.88 Letters of Credit) 0.11 0.15 SBA Loans 0.14 0.37 1.52 1.44 0.09 0.31 0.07 0.10 Commercial Property 0.11 0.39 Mortgage 1.15 0.25 0.09 0.28 0.32 0.06 0.26 Term Loans or Equipment 0.17 0.25 0.52 Financing 0.58 0.18 0.46 0.370.03 0.37 Equipment Lease 0.04 0.30 0.08 0.09 0.15 0.60 0.45 0.49 0.34 0.36 Credit Lines Secured by 0.18* Receivables, Inventory, LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M Property or Other Assets *Read as: Small businesses with annual revenue less than $500,000 have an 18% incidence of owning secured credit lines n = 2,058 18 Source: FIS Enterprise Strategy, November 2010
    • As company size increases, so does the adoption of financial services linked to employee benefits Number of other employee benefit-related financial services used 1.16 1.04 0.90 0.38 0.34 Health Savings Account 0.66 0.32 0.49 0.23 Company Sponsored 401(k), SEP or Profit 0.18 0.78 Sharing Plan 0.70 0.23 0.58 0.43 0.08 0.31 0.15*LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M *Read as: Small businesses with annual revenue less than $500,000 have a 15% incidence of owning company sponsored 401(k), SEP or Profit Sharing Plans n = 2,058 19 Source: FIS Enterprise Strategy, November 2010
    • Above $500,000 in annual revenue, there is not a high degree of variation in payroll services adoption Number of payroll services used 0.68 0.62 0.60 0.58 0.14 0.56 Payroll Cards 0.11 0.16 0.13 0.15 0.39 0.10 Outsource Payroll 0.54 0.49 0.47 0.45 0.42 0.29*LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M *Read as: Small businesses with annual revenue less than $500,000 have a 29% incidence of using outsourced payroll services n = 2,058 20 Source: FIS Enterprise Strategy, November 2010
    • Packaging opportunities: Financial services adopted by morethan 50% of small businesses $500K - $10 - LT $500K $1 - $2M $2 - $5M $5 - $10M $1M $20M1. Checking Account2. Debit Card3. Online Bill Payment4. Overdraft Protection5. Personal Credit Card(s)6. Business Credit Card(s)7. Business Savings or MMA8. Merchant Credit Card Processing9. Outsource Payroll10. Retirement or Profit Sharing Plan11. Wire Transfer Services12. Secured Credit Line13. ACH Services14. Equipment Lease n = 2,058 Source: FIS Enterprise Strategy, November 2010 21
    • What Small Business Wants from Banking & Payments Research Methodology & Background Factors Driving the Need for Product Packages Product Ownership & Packaging Opportunities Low Hanging Fruit: Products in High Demand Channel Usage Insights Packaging to Meet Customer Needs 22
    • Strong small business demand for RDC and deposit services is anticipated Projected increase in service ownership over the next 12 months (Current don’t use but plan to use minus those that plan to discontinue use) Remote Deposit Capture 11.0%* Certificate of Deposit 6.2% Business Savings or MMA 5.5%Account Reconciliation Processing 5.2% Sweep Accounts 4.6% Positive Pay 3.6% Debit Card 3.3% Wire Transfer Services 3.3% Merchant Credit Card Processing 3.1% Overdraft Protection 3.1% Lockbox 2.7% ACH Services 2.6% *Read as: The percent of small businesses that plan to start using remote deposit capture (net of the percent that plan to discontinue usage) is 11.0% n = 2,058 23 Source: FIS Enterprise Strategy, November 2010
    • Strong small business demand is anticipated for SBA loans, international services and other forms credit Projected increase in service ownership over the next 12 months (Current don’t use but plan to use minus those that plan to discontinue use) SBA Loans 6.8%*Unsecured Short-Term Loans or Working Capital Lines 5.6% of Credit (less than one year) Term Loans or Equipment Financing (one year+) 5.4% International (Foreign Exchange, Import/Export 5.2% Letters of Credit) Commercial Property Mortgage 4.1% Credit Lines Secured by Receivables, Inventory, 3.5% Property or Other Assets Equipment Lease 2.0% Business Credit Card(s) 1.5% -4.2% Personal Credit Card(s) *Read as: The percent of small businesses that plan to start using SBA loans (net of the percent that plan to discontinue usage) is 6.8% n = 2,058 24 Source: FIS Enterprise Strategy, November 2010
    • Strong small business demand is projected for HSAs and retirement/profit sharing services Projected increase in service ownership over the next 12 months (Current don’t use but plan to use minus those that plan to discontinue use) Health Savings Account 10.3%*Company Sponsored 401(k), SEP or Profit Sharing Plan 7.1% Payroll Cards 2.1% *Read as: The percent of small businesses that plan to start using Health Savings Accounts (net of the percent that plan to discontinue usage) is 10.3% n = 2,058 25 Source: FIS Enterprise Strategy, November 2010
    • What Small Business Wants from Banking & Payments Research Methodology & Background Factors Driving the Need for Product Packages Product Ownership & Packaging Opportunities Low Hanging Fruit: Products in High Demand Channel Usage Insights Packaging to Meet Customer Needs 26
    • Nearly 90% of small businesses use the branch on at least amonthly basis Number of Business Related Branch Visits in the Past 30 Days 22% 19% 18% 11%* 8% 9% 7% 6% Zero Once 2-3 4-5 6-7 8-9 10 - 14 15 times or times times times times times times more *Read as: 11% of small businesses did not visit their branch in the past 30 days n = 2,058 27 Source: FIS Enterprise Strategy, November 2010
    • Nearly half of small businesses access their business checking accounts online at least daily Number of Times Accessing Business Checking Account Using the Internet Over the Past 30 Days 33% 22% 14%* 13% 10% 7% 1%Multiple times Daily 2 to 4 Once Once every Not at all Cannot recall per day times per per week 2 - 4 weeks week *Read as: 14% of small businesses access their business checking accounts multiple times each day n = 2,058 28 Source: FIS Enterprise Strategy, November 2010
    • Reviewing account information, transferring funds and making tax payments are the most common online activities Currently Use and Plan to Continue Using in the Next 12 Months Review Balance & Transaction Activity 91%*Transfer Money Between Accounts within the Bank 73% Make Tax Payments 57% Initiate Stop Payments 43% Initiate Wire Transfers 35% Transfer Money Between Accounts at Different 35% Institutions Export Account Data into Internal Accounting 32% Systems *Read as: 91% if small businesses doing online banking review balances and transaction activity and plan to continue it n = 1,762 29 Source: FIS Enterprise Strategy, November 2010
    • What Small Business Wants from Banking & Payments Research Methodology & Background Factors Driving the Need for Product Packages Product Ownership & Packaging Opportunities Low Hanging Fruit: Products in High Demand Channel Usage Insights Packaging to Meet Customer Needs 30
    • What do small businesses really want from their bankingand payments providers? While price sensitive, they are willing to pay for Give Advice services that increase convenience or save time Help with Source: Aite Group Administration Help manage my Balance Sheet Usability = Key Help me manage Cash Flow Help me with the Basics: Save Time & Save Money Source: FIS Commercial Treasury Services 31
    • Existing product sets become solutions How could you turn your existing product sets into solutions? Give • Wealth Management • 401(k), SEP, Profit Sharing Plans Advice • Payroll Help with • Direct Deposit Administration • HSA cards • Import banking data into internal accounting systems • Investments Help manage my • eStatements Balance Sheet • Cash flow forecasting • Invoice presentment • Tax payments • Bill pay • Lockbox Help me manage Cash Flow • Corporate card with • Account Reconciliation rewards • DDA • Business eBanking, mobile Help me with the Basics: • Money Market • Line of credit Save Time & Save Money • ACH • Sweep account • Merchant capture • Merchant card processing Source: FIS Commercial Treasury Services 32
    • Thank you Paul McAdam SVP, Research & Thought Leadership 708-449-7743 Paul.McAdam@fisglobal.com Gail Angel SVP, Commercial Treasury Services 773-907-2400 Gail.Angel@fisglobal.com 33