Efma Article

COVER STORY

SMErelationship management
The future of
banking

■ Next cover stor y ■ N° 226 October / November / December 2010 ■ Cards & payments ■

OTP BANK Benefit from knowing your customers p. 52 /
SWEDEN More or fewer segments? p. 56 /
SURVEY Winning model for small business p.60 /
PORTUGAL Adjusting the commercial approach to customers p. 64 /
UBIBANCA Developing relationship management performance p. 68 /
SURVEY Why spend money on relationship management? p. 72 /
SUB-SEGMENTATION Capturing granular growth opportunities p. 86 /

July / August / September 2010 - N° 225 Efma journal | 51

Cover Story ❘ SME banking

OTP Bank

Benefit from knowing
your customers
More than ever before, during the crisis period, we have
realised that customers are the bank’s most important asset and
the value of the bank is the value generated by existing and
future clients. Starting from this perspective, we have decided
to focus on understanding how to improve the bank’s value to
customers and how to optimise the value of client relationship
in order to retain clients longer, grow them into bigger customers
and make them more profitable.

W
Roxana Maria Hidan ith fact-findings showing that it is always easier and
Deputy director, product less expensive to sell additional products and
management directorate
OTP Bank România
services to existing customers than to acquire new
roxana.hidan@otpbank.ro
ones, especially in a market where the economic
conditions are not as good as they were
previously, we wanted to understand where we
stood and found out which of our clients offered the best opportunities
for growth. In this respect, we initiated a segmentation analysis to obtain
more information about our customers, for example: average number of
products typically used, profitability per client, frequency of transactions,
history of relationship with the bank, etc.
For the purpose of segmentation, a scorecard was designed and points
were attributed to clients based on the behavioral patterns and on the
value of these customers to the bank. The weights allocated to each
variable were determined by ranking different variables using specialised
decision-making software. The expert scorecard model helped us to
define how the various behavioral and customer value variables would
play out against each other and which would be more important to define
the type of customer that we want to have more of. A final score was
calculated for each client using both the benchmarks and the scorecard
variables weights. Based on the distribution of final scores, the customers
were separated into four main segments:
− Green –the most profitable clients. This segment represents 23% of the
total number of SME clients who generate more than 85% of the
revenues.
− Potential green –registering a good cross-selling ratio, these clients are
the main providers of liabilities within SME segment.
− Orange –the largest SME segment, carrying out 40% of the clients.
The product usage within this segment is sporadic, and the income
contribution is not covering the operational costs.

52 | July / August / September 2010 - N° 225 Efma journal

SME banking ❘ Cover Story

Customer distribution

9% Green
23% Potential green

Orange
28%

40% Red

− Red –inactive clients.
In addition to the four segments identified by the data mining exercise,
the newcomers and start-up businesses will generate a fifth segment.
The second phase consisted in a quantitative research conducted within
the first two most profitable client segments. The purpose of this research
was to gain additional insights about the profile of the clients in the
identified segments, what were the sources of satisfaction/dissatisfaction,
and what were the motivational triggers and the opportunities for new
products and services.
The research revealed the following facts:
• 78% of “green” and “potential green” clients consider OTP as being
the main bank and 59% are performing more than 80% of their
transactions through the accounts open with OTP Bank Romania;
• the good relationship with the staff of the bank is “the core” feature for
48% of the “green” and “potential green” customers;
• the proactive approach of the bank representatives and good “word
of mouth” are very important criteria when choosing a bank. 43% of
the companies started their relationship with OTP Bank because a
bank’s representative visited them, and 39% because they received
good references from their business partners. Only 28% paid a visit
to the bank without being previously visited by a bank representative
or without receiving good references regarding OTP Bank.
As the interviewed customers were part of the most profitable SME clients,
one of the most important aspects of the research was customers
satisfaction. This part of the research was conducted by an independent
research agency. The matrix used to rank customers’ satisfaction
confirmed that the aspects registering higher importance and higher
satisfaction are:



> I- “Friendly approach/kind personnel”;
> R- “Very well trained personnel”;
> S - “Electronic and on-line services”;
> F - “Short waiting time”;
> J - “Professional (financial) counseling”.

HIGH SATISFACTION HIGH SATISFACTION
AND LOW AND HIGH IMPORTANCE
IMPORTANCE
SATISFACTION

LOW SATISFACTION LOW SATISFACTION
AND LOW AND HIGH IMPORTANCE
IMPORTANCE

IMPORTANCE

At the opposite side, D - “bonus points for loyalty” recorded the highest
level of attractiveness but the same time the lowest level of satisfaction.
The low level of satisfaction is given by the absence of a “bonus points
for loyalty” concept for the SME moment. The idea was proposed to
research together with six other new products (loans, deposits, package,
etc.), and it resulted that the “bonus points for loyalty” is “the missing
piece of the puzzle”.

Conclusions. The information acquired in the first two phases (data-
mining and research) led us to design profitable strategies for
each segment.
For the “green” and “potential green” segments the strategy will be to
increase service level and customer satisfaction in order to build loyalty
and clients retention (almost certain by implementing a “bonus points for



loyalty” scheme). These two segments are the most profitable for OTP
and probably the most desired by the competition as well. Keeping these
clients is essential, and ensuring a positive banking experience will
increase OTP’s brand awareness through “the word of mouth”.
The aim for the “orange” and “red” segments will be either to up-scale
the clients to more profitable segments by implementing a retention
strategy with a low operational cost through standardised services, or to
reduce the bank’s operational costs by closing inactive accounts.
With regard to the “newcomers”, the approach will be to on-board the
clients using a strategy which will impede them from becoming
“Red clients”.
The assessment of customers has to be a continuous process in order to
fully understand where the best opportunities for growth are, and how
we can increase the probability that they will do more business with us
and that when they call for a product or service, “it is ours they choose.”
Creating win-win circumstances is the only way to profitable growth! ■

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Sweden

More or fewer
segments?
In order to make the most out of the potential of the market for
small-and medium-sized enterprises, SEB started a drive in
2003. As a result, the bank has received several awards, many
new customers and increased market shares in the strategically
important SME segment. One part of the success has been clear
segmentation. The question is whether there is a need of even
further segmentation in this market.

S
Stefan Andersson EB’s persistent drive to improve services and consulting
Head of SME, retail banking for Sweden’s small-and medium-sized enterprises has
SEB
been successful. It is with great pride that we have in
stefan.p.andersson@seb.se
the latest years have accepted the award of Small
business bank of the year in Sweden, even though SEB
his known to be a bank for large businesses. The
number of SME clients has increased with over 50% during the last
five years, which has also given a considerable increase in
revenues.
The global financial crisis has hit Sweden hard but has still been
much milder here than in many other European countries. A lot of
this is due to the fact that the banking system learned from earlier
crises during the 1990s. This has been a contributing reason to
why SEB has not tightened the credits to small businesses. On the
contrary, we have developed new fast and flexible financing
solutions for the smallest businesses and marketed these even when
things looked the worst on the financial markets during 2009.
Now, the future is looking brighter for the Swedish small
businesses, and SEB continues the drive with unchanged force.
The SME Segment is very important to SEB. Here, there is an
untapped market potential where many banks often have a little
less focus on the quite sprawling target group. It consists of
companies in hundreds of different business areas, part-time
entrepreneurs, one-person businesses, start-ups, growing
companies and organisations. What they all have in common is
that they often include the private business of owners, management
and employees, which makes the SME companies an excellent
recruitment base for new private customers. Another argument for
backing SME is that the bank can gain large cost coverage for
products and services developed for slightly larger companies.



Furthermore, most of the big businesses have been small at one
point. Tomorrow’s corporate banking clients are for this reason
probably to be found among retail’s SME clients.

Less than 30 minutes. SEB applies a similar segmentation
model for both private and corporate markets. Simplified, the
customers are segmented according to small, medium or large
turnover or complexity. But it is always the client who decides
which segment and which offer is the most appropriate. The central
support follows the model that small clients have a stronger central
support while the larger SME clients are mostly handled through
the branches. We have focused very hard on securing that our
promises are fulfilled. This has gradually transferred to securing
the quality of our offers, ensuring that they are interesting and
create value for the clients. This is one of the driving forces behind
SEB’s sales training programme that is going to be carried out
during 2010 for everyone working with SME clients,
including managers.
SEB’s concept for the smallest enterprise clients is built on a By using the Internet office,
package of the most common bank services that is both easy to the business owner can take
buy for the clients and easy to sell for our co-workers. In less than care of his/her business, but
30 minutes the business owner will have access to the services that also separate the private
he or she needs to start making business. The package contains economy from the business.
accounts, payment services, Internet-banking and even financing.
By using the Internet office, the business owner can take care of
his/her business, but also separate the private economy from the
business. Free-of-charge economic advice is included when
necessary, and everything is favourably priced. We have also
decided that all tellers will be able to handle the smallest
companies’ needs, including opening package solutions. In this
way we can help the client with the company’s basic needs and
most things concerning private economy at the same time.

External partners. For certain target groups among small
enterprises, we have found a need to develop our service and our
offer. One example is start-ups –a target group that is steadily
increasing thanks to economic upswing, but also as a result of a
changed social structure where individual realisation, increased
demand of services and streamlined big businesses are important



driving forces. SEB’s start-up offer guides the new entrepreneur
through the most important stages on the road from business idea
to fully functioning company; everything from the registration of
the company, free of charge counselling for new companies and
simple bank package solutions, to counselling and help with
financing and insurance solutions. We have also developed a
number of favourable offers from external partners in, for example
bookkeeping, marketing, administration, office supplies, e-business
and collection services.
Other subsegments are female entrepreneurs and entrepreneurs
with a foreign background. SEB does not have any special offers
for women, but we do try to adjust our market communication so
it suits all target groups. With immigrant entrepreneurs, it is more
a matter of attitudes and knowledge or understanding of different
cultures and business patterns. An activity we recently realised in
collaboration with Swedish authorities is an interactive training
programme for bank counsellors, where the participant gets to
travel to different countries and meet local clients. The training
programme is now mandatory for office co-workers in SEB, but
also open and free of charge for all banks.

Private economy and business enterprise go hand in
hand. When it comes to larger businesses within retail that border
to the corporate division segment, we have regional business
centres that support both the local offices for larger businesses and
more demanding customers, and have their own client

Focus on SEB Group
SEB is a North European financial group serving some 400,000 corporate
customers and institutions and 5 million private customers. SEB offers
universal banking services in Sweden, Germany and the Baltic countries:
Estonia, Latvia and Lithuania. It also has local presence in the other Nordic
countries, Ukraine and Russia, and a global presence through its
international network in major financial centres. On March 31, 2010, SEB
Group’s assets under management totalled SEK 1.382 bn. The group has
about 21,000 employees. Read more about SEB at ww.sebgroup.com.



responsibility. The work method and our offer is here similar to the
one we have for larger clients within corporate banking, but with
the advantage that we have tied the private business close to the
SME teams. In owner-lead businesses, the private economy is often
strongly related to the corporate economy.
So, do we need more segments for SME? I do not believe in SEB does not have any special
increased segmentation, but I do believe in aiming the CRM and offers for women, but we
certain activities at certain target groups. For example, new do try to adjust our market
entrepreneurs, immigrant entrepreneurs, property owners and communication so it suits all
larger SME clients. However, my experience is that it is best to target groups. With immigrant
secure the basic segmentation and delivery of possible client entrepreneurs, it is more a
promises before going too far in the subsegmentation. The most matter of attitudes and
important thing is to have a plan for which “breaks” to develop in knowledge or understanding
the CRM, and to not hope for too much. “Keep it simple” is often of different cultures and
a more successful method. business patterns.
The lesson we have learned from working with developing the SME
business in SEB is, among other things, that private economy and
business enterprise go hand in hand, that the leaders play a crucial
part of the outcome, and that there is an advantage of having a
small team in the mapping, and strategy and tactics in the building
phase. However, a small team is often a limitation when it comes
to implementation. I think we have managed to balance this at
SEB, which is one of the reasons behind the success of our small
enterprise business. ■



Survey

Winning model for
small business
Small-business banking has become an even more challenging
but critical activity for retail banks since the economic and
financial crisis. To thrive, banks must get much closer to their
customers while more actively managing the risks, according to
research from the new report from Capgemini, UniCredit
and Efma.

S
Bertrand Lavayssière mall-business banking has long been a core segment for
Managing director, global
financial services
retail banks, but the systemic effects of the financial crisis
Capgemini mean that banks will need more intimate knowledge of
their customers’ operations and better risk-management
systems to serve the segment effectively and profitably
going forward.
“Small-Business Banking and the Crisis: Managing Development and
Risk” is the seventh edition of the World Retail Banking Report. It draws
on an extensive market survey and interviews with 58 large retail
banks in 21 countries to demonstrate why the small-business market
is attractive and strategic –but risky– for retail banks today, and it looks
at ways in which banks can outperform competitors on both
developing the business and managing its risks.

To win, retail banks will need to Strategic significance of small-business banking is rising.
develop two critical areas: the The economic and financial crisis has raised the stakes in small-
role of the relationship manager business banking in several key ways:
and the efficacy of credit risk • By raising the macroeconomic and social profile of small
management systems. businesses. Small businesses make up 99% of all companies in
Europe, Japan, and the US, and employ 51% of people working in
the private and non-financial sectors. Considering the importance
of small businesses to national economies, most governments have
a strong interest in supporting this fast-growing market, and as such,
banks have added pressure to make development a top priority.
• By making the economics of small-business banking
even tougher. With small-business clients going through hard
times, there has been less demand for banking products, mainly
credit, because of investment freezes and, to a lesser extent, the use
of alternative financing such as associative networks and public
funds. The crisis has led to higher costs of financing. As a result, for
the first time since 2005, European bankers expected a decline in



their revenues from the small-business market Weight of the small-business
in 2009.
• By increasing the risks. Small-business
market in retail banking
banking is inherently risky. Small businesses
are more vulnerable than larger enterprises,
because they tend to have, for instance, low
-
levels of capitalisation, no or weak credit
ratings, and high bankruptcy rates –and
these factors make them especially
-
vulnerable during economic slowdowns. In
fact, our research shows small businesses
account for 27% of net retail banking
income, but 46% of total retail risk-weighted -
assets (see figure 1). At the same time, the
increased cost of risk was said by 86% of

Fig. 1
surveyed bankers to be a major threat to
Source : Capgemini analysis from bank interviews 2010
their business resulting from the crisis. In fact,
51% said it was the single most important
threat caused by the crisis –more so than declining demand (31%),
pressure on prices (10%) or better-armed competitors (8%).
For banks, then, the small-business segment currently represents an
important but risky revenue stream that has significant potential to
develop further, especially since governments are urging banks to
expand their small-business propositions. However, the greatest
opportunity for banks –and the biggest challenge– arguably lies in
becoming a small business’s main banker, capturing as much of the
flows, credit, and savings as possible through cross-selling and up-
selling, while actively managing the associated risks. Managing those
challenges in the post-crisis landscape will force banks to adapt in
order to succeed.
Banks will certainly need to better discern the varying needs and risks
of their small-business customers, which are a highly heterogeneous
group whose behaviours and needs tend to be part mass-market, part
corporate. Bankers will therefore need to develop an approach that
mixes elements of both standardisation and customisation– while
managing the associated risks.

The “winning bank” model. Given the evolving demands of the
small-business segment, the “winning bank” model involves two key



elements: shifting the role of relationship managers (RMs) –to bring
them closer to clients and to empower them on credit-risk management–
and implementing complete and fully integrated credit risk-management
systems (figure 2).
More specifically, banks will need to move along two dimensions to
become a 'winning bank':
1. Pushing relationship managers to develop a deeper understanding
of each client’s line of business, needs and expectations, while
empowering those RMs to manage credit risk.
To build robust client relationship, banks need to give their RMs the
time they need by limiting the number of clients each RM manages or
limiting the breadth of products and services each must handle. Banks
can also give RMs more time to act as bankers by providing
institutional support. For example, they can lighten the administrative
and non-commercial workload of RMs by reinforcing middle-office
positions, such as sales assistants.
To empower RMs on risk, banks will need to grant them more authority
and responsibility in the decision process as well as in credit
underwriting, credit portfolio management and loan rescheduling.
The “winning bank” Banks can provide additional support by continuously improving the
model credit process, offering
dedicated coaching resources to
help they manage sales and
credit decisions, and
establishing rigorous
governance of RMs and their
decisions. Notably, all these
measures are likely to make the
role of RMs more empowered
and attractive, increasing the
likelihood that RMs will remain
in their jobs for longer –making
customer relationships more
robust.
2. Implementing efficient and
comprehensive credit risk-
management systems that can
Fig. 2 accommodate the highly
specific and complex risk-



Small Business Banking and the Crisis:
Managing Development and Risk.
A survey by Capgemini, UniCredit and Efma.

management needs of the small-business market, including appropriate
governance, fully integrated credit risk-management processes, and
complete and seamless supporting information systems. This “winning
bank” model will enable banks to outperform their competitors on both
development and risk management by:
• Accelerating business development by increasing client satisfaction
and loyalty, and enhancing the bank’s ability to cross-sell successfully,
thereby supporting revenue generation despite increased cost-of-risk
pressures.
• Mastering risk, based on wider usage and sophistication of rating-
based scoring tools, strengthened proactive management of
performing credit portfolios, and an improved credit collection
process with “soft” (amicable) collection processes that aim to return
financially deteriorating client relationships to “normal” without the
bank losing money or an important customer relationship.

Conclusion. The “winning bank” model positions retail banks to To empower RMs on risk,
outperform competitors by unlocking the potential of the small-business banks will need to grant
market –while also meeting growing calls from governments around them more authority and
the world to better serve these businesses, which are a key driver of responsibility in the decision
economic growth. process as well as in
To win, though, retail banks will need to develop two critical areas: credit underwriting, credit
the role of the relationship manager and the efficacy of credit risk- portfolio management and
management systems. And to achieve sustained success, each bank loan rescheduling.
must define a transformation strategy that is based on its starting point
as it relates to market position (retail versus corporate), culture and
organisation, as well as the existing role of RMs and the current state
of credit risk-management systems.
To navigate this transformation effectively, banks will also need robust
change-management approaches to achieve alignment with the bank’s
overall strategy, support from senior management, and buy-in from
employees. It will be an important journey.
For each bank, the ability to effectively serve small businesses is crucial
not only for its profitability, but also for its reputation and legitimacy.
To be successful with small businesses, banks must stabilise RMs,
continuously invest in their competence, bring innovations to the credit
process, establish a smooth multichannel interface and gain the trust
needed to address the personal and savings dimensions of
the entrepreneur.■



Portugal

Adjusting the commercial
approach to customers
The current economic and financial landscape is leading banks
to adjust their commercial approach, especially regarding the
market for small-and medium-sized companies (SMEs):
traditionally oriented towards credit concession, the strategy is
now shifting towards a more diversified offer, stronger customer
relationships and an increased focus on profitable, value-added
services.

T
Jose Araujo he new focus must be on margins, on capturing customer
Director of SME marketing funds and liquidity, on maximising cross-selling and cross-
Millennium bcp
networking levels, while maintaining rigorous risk
assessment policies through effective and simple
planning.
Moreover, in this climate of uncertainty, it is fundamental
to increase the number of customer visits and contacts in order to
establish a comprehensive understanding of the SME business
evolution, preventively detecting any sign of difficulties, presenting
solutions that protect the sustainability of the SME and the
relationship with the bank.
In that sense, a new model of approach to customers is needed...
one that increases the commercial team’s proactivity through
training sessions, with the proper management tools and involving
all of the bank’s hierarchy.
The main goal of this new commercial programme is to define a
systematic approach towards the SME market, through the
implementation of a series of actions:

A new commercial plan
Current context New focus for 2010
• Economic recession Rigorous management of credit
Increase profitability (spreads,
• Lack of liquidity on financial fees, managing product “mix”)
markets, leading to an increase Better Collateralization
Redefinition of
in funding costs
Review exposure levels at worst
commercial
• Capital restrictions / credit credit risks
shortage
Strategy Capture of SMEs funds and liquidity
Increase cross-selling & cross-
• More regulatory pressure networking levels

New program -> “ Closer to the customers”



1. establish groups of customers, according to predefined criteria;
2. define a commercial policy for each group;
3. adjust support tools to ensure the correct implementation of these
policies;
4. implement initiatives at several levels (training, monitoring and
commercial events) to help achieve the expected results.

Customer classification. To best focus the commercial action,
the customers have been classified according to specific predefined
criteria:
• customer’s risk grade » to best support the credit analysis;
• economic income » enabling the visualization of the customer’s
contribution to the bank’s profit & loss account (deducted from the
cost of capital and expected loss);
• any previous credit incidents.
Following this classification of customers and in order to direct the
action of the commercial area, a group of generic and specific
guidelines were established, providing relationship managers with
the proper way to approach each customer regarding
their portfolio.

Generic
Group guidelines Specific guidelines Mission

A
- Customers with a ratio “Direct Credit/ A Maintain fidelization
Funds” 20%

B and
- Customers with a ratio “Direct Credit/
Funds” > 20% and a risk grade <= 7 Applicable to B improve profitability
all customers
C
- Customers with credit and risk grade 8 or
9
C Protect the credit risk

D
- With credit & risk grade of 10, 11 or 12
- Order to demobilize/Reduce credit exposure D Reduce exposure
- Payment’s behind or litigation in the last 3
months

E The relationship manager can either, include
- With credit and no risk grade these customers in one of the previous groups
- With risk grade >= 13 or simply decide to exclude them
- Without credit

Define a specific commercial policy per group. The generic
guidelines reflect the global strategy established by the bank to
approach the SME market and the main areas of action:



• Capture deposits (via the placement of value-added products)
Customer funds • When granting credit (mostly through state sponsored credit lines)
Treasury
negotiate treasury or value-added products as a trade-off
Costs
• Increase the transactional banking relation, via the Internet-banking site
• Capture of time deposits
• Focus on the placement of state sponsored lines and mutual guarantees
for credit concession (remembering the trade-off with treasury and insurance)
Credit • Credit oriented to short-term operations, namely commercial credit and guarantees
Margin
• Medium/long-term financing: use mainly leasing solutions
Costs
Fees • Pricing:
- New operations: apply spreads according to defined ROIC and liquidity
premiums, and standard fees;
- Existing operations: check the possibilities for adjusting spreads and/or fees
• Promote documentary operations and increase international transactions
Trade finance (in or out), via the Internet-banking site
• Focus on foreign guarantees, namely for Millennium bcp customers with
international operations
Cross-selling • Placement of products with a high potential for generating fees
& cross- (insurance, cards, interest rate or change coverage solutions,
networking investment banking products) as well as referral from other banking areas.

As for the specific guidelines, they present the commercial area with the
policy that should be taken into account in the day-to-day relation:

• Support SMEs in their investment projects, internationalisation and
Group A + B consolidation in the current business sector;
Maintain loyalty • Increase cross-selling to an average of 5 products per customers (currently 4);
& improve profitability • Establish a close connection with customers with reduced use of credit lines,
in order to reinforce share of market for treasury services.

• Reinforce collaterals
Group C • Adjust the credit exposure, eventually reduce to customers with
Protect the credit risk a high credit market share
• Maximise cross-selling and cross-networking levels;
• If treasury market share is inferior to credit market share, increase
treasury market share or increase credit pricing

Group D • Reduce credit exposure or increase collaterals
Reduce exposure • Replace financial with commercial credit

Support tools to help implement the new commercial plan.
The implementation of the commercial action plan is based on a group of
support tools and constant monitoring, in order to evaluate the results
obtained and identify the need to redirect the set of actions. The commercial



action plan of each classified customer is registered by the relationship
manager in this support tool which reflects:
- The defined approach strategy for each customer.
- A document, summarising the generic and specific guidelines.
The process is completed with a solution that provides all levels of the
commercial area (branch manager, commercial director, network
coordinator) with the monitoring capabilities to ensure the completion of
the defined strategy…

Training and commercial events. The success of the commercial In this climate of uncertainty,
action plan rests on a series of key drivers, designed to ensure that the it is fundamental to increase the
relationship managers have full knowledge of strategic products and number of customer visits and
improve the connection between bank and SMEs, which is even more contacts in order to establish a
essential in these troubled times. For this reason it’s fundamental to include comprehensive understanding
training sessions in the global plan, empowering RMs with more of the SMEs business evolution.
information to consolidate knowledge about the strategic products, and
adding value by a live exchange of experience between commercial
managers from different branches, representing various regional markets
and sharing best practices. The training sessions include the presence of
commercial directors, branch managers, RMs and assistants from several
branches, in order to discuss “best and worst practices”, debate solutions
on specific products (trade, cards and insurance) and close with a general
debate, presenting suggestions for improvement and key commercial
guidelines. Finally, a very important component of the new commercial
action plan is to strengthen the bonds between the commercial area and
the SMEs, in order to:
- establish a closer connection with the customer;
- provide the RM with a greater knowledge of the customer’s needs;
- identify business opportunities and define the best solutions;
- achieve better preparation for customer contact.
These events are attended by around 50/60 of the most representative
customers, by invitation. They occur in all regional markets where the bank
has a branch and also serve as excellent opportunities for the board to
present the bank’s strategy for the SME segment and for customers to best
understand the economic environment, which naturally affects the
SME/bank relationship. In conclusion, the new commercial plan of
approach to the SME market is based on better planning, better support
tools, more training of the commercial area and increased interaction with
customers, in order to grow as a bank and as a team.■



UBI Banca

Developing relationship
management performance
The small-business segment, where UBI has more than
360,000 clients, manages the relations with the small-and
medium-sized enterprises (SMEs); in more detail, this segment
deals with companies with a turnover of up to 5 million euros.

T
Maria Angela Albertotti he small-business segment an extremely heterogeneous
Area retail responsabile segmento client base, which represents diversified businesses and
small business
UBI Banca enterprises, both in terms of size and service requirements.
Maria.Angela.Albertotti@ubibanca.it As a result, the approach to understand clients and satisfy
their requirements must necessarily be suited to their diverse
characteristics. This is why UBI has decided to gradually
activate differentiated service models for SMEs and small economic
operators, as can be seen from the business strategy of the UBI
retail market.
In fact, the businesses in this segment are subdivided into two
different subsegments on the basis of their turnover: below
300,000 euro for small economic operators and between
300,000 euro and 5 million euros for SMEs. The two subsegments
thus identified have clearly different characteristics, both for their
intrinsic particuliarities and number of clients and the extent of the
margins produced for the bank (there are more small economic
operators but the produced unit margins are lower). A non-diversified
business model proved to be inappropriate, both from the point of
view of commercial efficiency and cost to serve, which was excessive
for a high number of clients.

“High-tech” and “high-touch” approach. In consideration
of the fact that the commercial activity of the manager is always
based on the exploration and satisfaction of the macro-requirements
in the proactive stage and the reactive stage, it became necessary
to find a more efficient method for managing commercial activities
with the company clients. This led to the implementation of a new
service model with a differentiated approach for each subsegment,
or rather, a “high-tech” approach for the small economic operators
clients, and a “high-touch” approach for the SME clients.



The bank’s objective to satisfy the client. For the small
economic operators, which have simpler and less customised
requirements, the bank’s objective to satisfy the client and
consequently enhance client loyalty is pursued by means of a
(high-tech) “standardised” approach which is implemented by the
parent company. The central departments have used a statistical
engine to draw up a series of parameters relating to the individual
counterparts and the results have made it possible to define client
subgroups with uniform behavioural patterns (known as clusters).
Through commercial campaigns, these clusters may be offered an
ideal basket of products and services with an industrial approach.
This makes it possible to cover all of the client requirements and to
reduce the cost to serve of the manager, while optimising marketing
times, also thanks to the assistance of the contact centre which
develops specific contact campaigns.
The time “saved” with the small economic operators is dedicated to The businesses in this segment
SME clients. For this subsegment, which has more sophisticated are subdivided into two
requirements that are less easy to standardise, the client management different subsegments on the
approach is based totally on relations (high-touch). The bank’s basis of their turnover: below
objective is to become the main reference partner for the client by 300,000 euro for small
globally satisfying all of its requirements, thanks to constant relations economic operators and between
with the manager. 300,000 euro and 5 million
euros for SMEs.
Differentiated campaigns. This differentiation makes it possible
to structure client management in an increasingly efficient manner,
making the initiatives, the offer and the sales support more targeted
and effective and, at the same time, allowing the bank to focus on
current and future relations with clients of high standing.
The application of the new service model has also been reinforced
by the way the commercial campaigns are prepared: for both, only
relation campaigns are envisaged as opposed to “product”
campaigns which are, in our opinion, an obsolete and inefficient
way of approaching clients. The small economic operator and SME
campaigns are differentiated in terms of frequency of the contact and
in the tools available to the manager for exploring the requirements
of the clients.
In fact, in the framework of the CRM interaction platform for small
economic operators, an ideal basket of products and services, for
which the purchasing probability has been calculated, is provided



to each manager for each client in the portfolio. Therefore, the
manager’s job consists in creating a unique global offer with the aim
of completing the ideal basket, starting with the products or services
with the highest probability of being purchased.

The opportunities are explored Ad hoc solutions. For the SMEs, on the other hand, the
by the manager in quarterly opportunities signalled to the manager (on the basis of the potential)
proactive one-to-one meetings identified by the business intelligence analysis, are explored in
with the clients. quarterly proactive one-to-one meetings with the clients. During these
meetings the various particularities of the business and the
development potential of the company undergo an in-depth check-
up with the client so as to pinpoint requirements that have not been
met and translate these into opportunities. For these purposes, the
manager has at his disposal the CRM interaction tools, which, in
addition to a central opportunity identification service, include a
check-up form which guides the manager through the negotiations
with the client. The check-up form is also used to report feedback
about the meeting and as a record of personal opportunities. The
details in the individual check-up form that are then summarised in
the portfolio, where the manager can immediately see the entire
record of open opportunities.
Therefore, exploration of the client’s requirements is fundamental in
both segments, as well as the timely satisfaction of these requirements
by means of proposing ad hoc solutions.

Focus on UBI Banca
UBI Banca is organised on the basis of a federal, polyfunctional and
integrated model. The group is structured as follows: a parent company,
which centralises the governance, control, coordination and support
functions overseeing the nine network banks which are in charge of the
relations with the traditional reference territory, and the broad range of
product companies of the group. The group doesmainly retail banking but
has a traditional presence in the small and medium-sized enterprises (SMEs)
sector as well as a private banking activity, which places the group
amongst the top players on the Italian market.



The challenge taken up with the introduction of the new service
models is intended to be a tangible example of how knowledge of
the client combined with the distinctive skills, experience and abilities
of the managers can lead to an improvement in the level of
satisfaction of our clients, which can give us leverage to sell better,
more –and before our competitors. ■

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Survey

Why spend money on
relationship management?
European banks employ over 40,000 staff as small business
relationship managers (RMs). Taking the full costs of employing
them, it costs around 2.2bn euros a year to provide this service
to customers. Why is so much money being spent?

T
Doug Wilson his article explores the reasons for this expenditure –both good
Director and bad– and offers some guidelines for relationship manager
Finalta
usage. It is extracted from the fourth annual Finalta/Efma Small
Business in Europe report published in January 2010, using
research contributions from over 90 banks. Further comment
comes from Finalta’s ongoing benchmarking and best practice
work with major banks across Europe. For clarity, here we define small
businesses as those entities serviced within the retail bank (rather than in
corporate banking) –typically below 3m euros turnover in Western Europe
and 1.5m euros turnover in eastern Europe.

The issue. It is commonly accepted that relationships with high-value
small-business customers should be managed by dedicated, specialist
branch staff. Figure 1 shows the average to be around 3 dedicated staff
per 1,000 customers though varying substantially both within and
between regions.

Dedicated staff numbers
Across Europe, banks employ around three dedicated front line
staff per 1,000 small business customers
Dedicated front line staff per 1,000 SB Customers

7

6

5
Dedicated front
line FTEs / 1,000 4
SB customers Upper Quartile
3

2
Lower quartile
1

0
Eastern Central Southern Northern
Region
Dedicated front line FTEs: Relationship managers, dedicated SB centre managers, hunters, assistants
Regions. North: UK, Ireland, Benelux, Scand, Germany, France. South: Portugal, Spain, Italy, Greece. Central: Poland, Czech, Hungary,
Slovakia, Croatia, Slovenia. East: Bulgaria, Romania, Serbia, Ukraine.

Source: Finalta / Efma 2010 small business study



Across Europe, approximately 50% of small-business customers are
relationship managed, typically in portfolios of 150 to 250 customers.
These customers are managed using a service model which defines a
certain number of proactive contacts and face-to-fact meetings per year.
To assess whether it makes sense for European banks to employ roughly
40,000 people to make regular contact with around eight million
customers, we need to understand the role of the relationship manager.

The role of the relationship manager. There are three main
purposes:
• to play a major role in the lending process –initial authorisation, ongoing
monitoring and, normally, collections;
• to acquire and on-board new customers and to sell further products and
services to existing customers; and
• to build and maintain relationships to increase loyalty, satisfaction and
referrals.
On average, RMs spend approximately a third of their time on lending, a
third on sales and acquisition and a third on customer servicing. Perhaps
this means everything is fine. However, we need to understand the above
in more detail.

Lending processes. Almost all small-business executives agree that the On average, RMs spend
credit authorisation process for small businesses in their bank is poor. In approximately a third of their
many banks, particularly in CEE, small-business loans of less than time on lending, a third on sales
50,000 euros are decided using processes originally built for corporate and acquisition and a third on
lending decisions of over 1m euros. It takes many days to collect the data customer servicing.
required to submit an application and then many more days to get a
decision from credit control. On average, in CEE, the elapsed time is
8.4 days for unsecured and 15.4 days for secured lending decisions. It is
not much better in many Western European banks.
Not only does this lead to a terrible customer experience in a key moment
of truth, it is also very expensive. Best practice allows most unsecured credit
decisions to be made within 24 hours and secured lending decisions within
72 hours.
For many banks, what the relationship manager is actually doing is
attempting to make poorly designed systems work and to shelter the
customer from too much pain and inconvenience. The relationship manager
is an expensive “sticking plaster” for poor process design.



Direct channels for small business banking,
January 2010. A joint Efma/Finalta
production. The study is available on our
website: www.efma.com.

Customer acquisition and sales. Depending on the geography, new
small-business customer acquisition rates can be upward by 20% per annum
(though, sadly, attrition rates may be similar). Thus, a relationship manager
can be kept very busy setting up and on-boarding new customers.
However, is this a necessary and appropriate task for a relatively expensive
small-business RM? For almost all banks, the vast majority of new customers
are start-ups who have very simple banking needs and, in all probability,
will continue to have simple needs. There is no good reason why accounts
could not be opened by regular branch staff.
Finalta is seeing an increasing movement to use non-dedicated staff for
simple account opening and reactive sales of other products (deposit
accounts, debit cards, etc.) to allow the RM to focus on high-value sales
and interactions.
If a bank feels small-business account opening is too difficult for regular
branch staff, then the process is probably too complex and needs to be re-
designed. Equally, on-boarding processes can be structured so contact
centre or non-specialist staff “filter” new customers to leave the specialist
RM focused on those new customers of immediate or potential high value.

Building customer relationships. Most small-business customer surveys
emphasise the importance of regular contact with a relationship manager
along with the ability to customise products and services for them. But does
this factor always justifies the use of relationship managers?
We believe some caution is needed. A customer may “value” contact with
a relationship management and product customisation, but:
Conclusion
A lot of money is spent on relationship management.
Is this with good reason?
Good reasons Not so good reasons

To demonstrably add value to the lending To compensate for slow, complex and poorly
decision making and monitoring process managed lending processes

To provide valuable relationship development To compensate for other processes that don’t
with customers who both justify and need it deliver a good customer experience

To identify and acquire high value existing To open current accounts for start-ups, most of
businesses from competitors whom will only ever have basic requirements

To allow the bank to expand the relationship to To ensure that someone in the branch has
the personal needs of the customer, the family some knowledge of and cares about small
and employees business customers



• Is the “value” of the RM his ability to find a way through the complex
processes of the bank for the customer? If so, this is another example of
RMs used as an expensive balm for poor processes.
• Does the value in relationship management require a local, branch-based
RM? An increasing number of banks across Europe are finding that
remote relationship management models provide at least as high customer
satisfaction as the traditional model.
• Whilst the customer may wish for customisation, is this good for the bank? For almost all banks, the vast
In searching for growth, many banks have customised offers and ended majority of new customers are
up with terribly complex systems, product sets and records – and therefore start-ups who have very simple
costs. Customisation does not fit well with efficient, high volume processes. banking needs. There is no good
Generally, a customer wants the basic products and services to work easily reason why accounts could not
and quickly. Only in key moments, such as lending requests, is the human be opened by regular branch
interaction really vital. staff.

Conclusions. We are not arguing that local small-business RMs should
not be used. There are good reasons for keeping them:
• If they truly add value to the lending and monitoring process. However,
in many situations, they are actually compensating for lending processes
that are not fit for purpose.
• To build relationships with customers who both justify and value this. This
is different from compensating for a poor service experience.
• To acquire and to on-board high-value “switchers”, but not to open
accounts for low-value start-ups when this could be done by regular
branch staff.
• To extend the relationship from the business to the personal needs of the
customer. Unfortunately, few banks have successfully developed models
to achieve this.
In the current economic environment, Finalta sees many banks reassessing
their usage of relationship managers and asking:
• What is the purpose of local relationship management?
• Which customers should be managed in this model?
• What is the real value that is being added?
• What are the right measures and targets?
Perhaps a third of a typical small-business RM’s time can be saved by better
processes. Perhaps a third of locally relationship managed customers do
not require, nor justify, this model. Saving or redeploying this time and cost
can support the business case for process improvement. ■



Subsegmentation

Capturing granular
growth opportunities
The small-business segment segregates value which is every so
often difficult to spot and manage. The reason for it has to be
scoured in the evolutionary pathway the segment has been
going through over the last decades along with the search for
an enhanced relationship between small-business customers and
the bank.

I
Simone Davi n the light of these evolved needs and being an important revenue
Small business clients, marketing contributor, the small-business segment requires a concrete focus on
& segments, CEE retail
Bank Austria UniCredit Group customers’ needs together with their potential. Therefore, a dedicated
business model has been designed and three mandatory features:
simone.davi@unicreditgroup.eu a) Strategic subsegmentation: a ranking based on customer’s value
creation potential.
b) Service model: how to serve the customers through an effective cost-to-
serve, sales approach and commercial tools all bound to the customer’s
value creation potential.
c) Product offer: bundling vs. simplified product offers properly tuned on
to the customer’s value creation potential and real needs.
Lately, credit risk management has been representing a key matter to
handle with care in the correct definition of a business model, regardless
of the customer’s own strategic value. Therefore, each and every one of
the three features described above definitely embeds it.
Hence, by putting all this together, granular growth opportunities can be
seized and can deliver value in return to both the bank and
its clientele.

Highly qualified relationship managers. Let’s now unveil the
characteristics of this approach by providing a brief description of each
of the shortlisted features. Feature a) represents the core activity to a
successful customer’s value (EVA or revenue potential) identification and
management, thanks to which four strategic groups can be outlined: top
asset, top borrower, core and marginal. These strategic groups are the
outcome of specific statistical data analyses, ran at customer level; these
analyses extract and elaborate data from both internal (bank databases)
and external (banking system databases and other statistical databases –
i.e. credit bureau) in order for the bank to identify the so-called customer’s
banking behavioral patterns and needs. Thanks to these patterns, proxies



of customer’s revenue potential are identified and ranked, for instance, by
sector of industry, type of company, geography and so on. Should the
revenue potential be unavailable to some customers or prospects, such
proxies help assign each customer or prospect to the most appropriate
strategic group. The final outcome of this process is to generate a matrix
of priorities which sees customers lined up by revenue potential: the higher
the potential, the more profitable the customer, the more frequent and
qualified the relationship.
In general terms, where such analyses were carried out, it was noticed that
the “Pareto principle” fitted with the customers base distribution by revenue
generation/potential. It means that up to 20%/25% of the total customer
base, which corresponds to the upper quartile/top quartile of the
distribution by potential (named after the strategic segmentation top
asset/top borrower customers), can generate about 70%/80% of the
segment’s total revenues and deliver even higher EVA values.
Therefore, such high EVA values require a differentiated service model as Small-business banking requires
cost to serve, sales approach and commercial tools must be meticulously a concrete focus on the
aligned to the revenue potential. To follow the track, feature b) fits the customers’ needs together
purpose by defining how to serve all groups of customers accordingly. In with their potential
poor words, most valuable customers (namely those who have specific
structured needs for financial advisory –i.e. cross-border operations to
finance) have to be served by highly qualified relationship managers who
are sitting in so-called dedicated business centres or business corners,
whereas customers having basic banking needs should be effectively
served by the means of portfolio pools through an extensive usage of
alternative sales and advisory channels (namely call centres/remote
advisors, Internet portal or in-branch 24/7 banking areas) so as to lower
the number of their physical step-ins or contacts with in-branch sales or
financial advisors.
Such a value-driven approach can deliver superior financial and banking
advisory services and tailored solutions to each customer according to the
degree of sophistication of the respective banking needs (the customer’s
banking needs complexity ranking goes this way: top asset/top borrower
> core > marginal). Such an approach can then generate an enhanced
customer experience and level of satisfaction (wich is measurable through
Tri*M index analyses). A customer’s new portfolio set-up comes out by
combaning feature a) with b) before running the sub-segmentation, top
asset/top borrower, core and marginal customers belonged to a common
basket and were managed ineffectively, being randomly assigned to senior,



junior or undefined relationship managers regardless of their value. It even
lead to portfolio overpopulation (having a much bigger portfolio size than
those currently in place).

The right product to the right customer at the right time.
Nowadays, thanks to the subsegmentation, portfolios have been properly
balanced and optimised with valued customers assigned to senior
relationship managers (i.e. portfolios have a share of top asset/top
borrower customers and/or core hiher than 80% and have an average
size of 150/170 customers in total, whereas junior relationship managers
have a share of valued customers lower than 10% (and an average of
350/400 customers per portfolio, largely populated by marginal
customers). In addition, a specialised small-business channel is eventually
set up, which has its own dedicated services, personnel and
branding/communication.
Then, feature c) is the third gluing element to a successful story. As
described, each customer being ranked by revenue potential, the total
number of banking products/services owned by a customer becomes
fundamental to launch sales
We serve the SB segment according to a very effective campaigns. Therefore,
structured approach centered around segmentation once the customer’s banking behavior and needs are well
and keeping an eye out on risk at all times known (as seen in feature a),
by running subsegmentation
SB segment business model analyses by which needs are
1
Identify highest potential sub-segment of customers
Credit also identified and clustered as
Risk Key Specific
Cost-effective underwriting process difficulties solutions for transactional, financial, asset-
Automatic risk monitoring system Methodology in CEE CEE
1 related and protection), the
Low data Extensive use
Sub- 2 Portfolio allocation Bank External
Client
demo- availability, of proxies bank can leverage on such a
Service optimized by data data both market cluster
segmentation graphics
model customers' value to
minimize cost-to-
and analysis competitive advantage (that is
customer
Strategic sub- Data collection
segmentation
serve
Standardized/
via external the knowledge of your own
Data analysis engine agencies
based on prescriptive sales
approach
customer indeed) and
value creation
and commercial
potential tools
Costs
difficult to
Use of
marginal
effectively sell tailored banking
Commercial 3
allocate for
EVA
contribution
instead of EVA
products/services by defining
Bundling
sub- calculation
segmentation
Product Simplified offer the most adequate value
offer (one need-one
based on product) Top EVA/ Low Crosschecks propositions to each group.
customer Targeted value Revenue granularity between
value to drive proposition for top Core potential and quality different Thus, when you know your
campaigns, customers of internal databases,
Needs
products, and Small ticket lending Marginal databases information
clean-up
customer, you can even
for marginal
acquisitions
customers understand beforehand the
related needs and, for



instance, offer to a top borrower a pre-approved loan to expand his/her
turnover, facilitate his/her business operations and increase the bank’s
loan penetration as well as the bank’s share of wallet with that customer.
Likewise, the bank can increase its share of wallet on top-asset customers
by attracting business owner’s assets through asset bundling products, for
example by offering an alluring beat-the-market interest rate on term
deposits. The other way round, the bank can grant quick small-ticket loan
packages as hook products to attract new customers or increase loan
penetration for instance, or offer a migration package to those marginal
customers (lower potential customers) in order to retain and manage them
efficiently via remote channels.
Let’s draw a conclusion on this brief article by answering to this simple
question: what does the bank gain by setting up and following such a state-
of-the-art subsegmentation approach? It simply allows the bank to manage
both effectively and efficiently its customers (the right product to the right
customer at the right time) and its resources (employees and banking
solutions), as well as to run acquisition campaigns aimed at attracting
valuable and reliable customers. ■

2
A specialized small business channel
SB segment business model Layout & SB zone with waiting areas/meeting
Main branch offering rooms
Credit
Services for SB owners
Risk SB Center
High performance transaction services
Cost-effective underwriting process
Automatic risk monitoring system Mini branch Organiza Increased branch manager attention
1 -tion Detailed support staff
Sub- 2 Portfolio allocation SB Corner
Service optimized by Commu- Differentiated logo/ branding
segmentation nication
model customers' value to Increased visibility Marketing/
minimize cost-to- Outlet/ Individual promotion efforts
Strategic sub- serve branch
segmentation Standardized/ Referral to SB
based on prescriptive sales center/ corner
approach
value creation
and commercial
potential tools 3
Define value proposition to each segment to fill product gaps
Commercial 3
Bundling Segment New product Benefit
sub- Product Simplified offer
segmentation (one need-one Top Pre-approved Increased loan penetration and share of
offer borrower loan wallet
based on product)
customer Targeted value Asset bundle Increase share of wallet
value to drive proposition for top Top asset
Attract business owner’s assets
campaigns, customers
products, and Small ticket lending Working capital Innovative product to increase loan
for marginal Core
acquisitions bundle penetration
customers Quick small- Hook product to attract new customers
ticket loan pckg

Migration Retain customers
Marginal
package Manage costs – migrate to remote
channels


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