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The SME Offerings of Standard Bank of South Africa

The SME Offerings of Standard Bank of South Africa. Value-adding Products in SME Finance. New Technologies for Small and Medium-Size Enterprise Finance 4 – 6 December 2002 World Bank Headquarters Washington D.C. Standard Bank Group. African Roots… Global Reach

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The SME Offerings of Standard Bank of South Africa

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  1. The SME Offerings of Standard Bank of South Africa Value-adding Products in SME Finance New Technologies for Small and Medium-Size Enterprise Finance 4 – 6 December 2002 World Bank Headquarters Washington D.C.

  2. Standard Bank Group • African Roots… Global Reach • Top or second bank on most measures in South Africa: • Total assets ZAR 395.8bn, US$ 40.2bn* • Headline earnings ZAR 4.4bn, US$ 447m* • Market Capitalisation ZAR 43.3bn, US$4.4bn* • Only South African bank to be seriously meeting the challenges in Africa • Only South African bank that has grown organically to its current size 100% 100% 65% 30% Merchant & Investment Banking Retail & Commercial Banking Wealth Life Assurer South Africa Africa STANLIB SCMB International Africa • As per 31 December 2001, • Exchange Rate ZAR 9.844 : US$1

  3. South African SME Market Market Segmentation Estimated Market Size Turnover Commercial Banking Market Penetration 26% Large Enterprises > 100 or 200 employees* 6 000 enterprises R 50 million Medium Enterprises 50 to 100 or 200 employees* 12 000 enterprises R 10 million Emerging Market Small Enterprises Established enterprise < 50 employees 60 000 enterprises R 5 million Retail Banking Market Penetration 30% Very Small Enterprises Formal enterprise or self-employed no or < 10 or 20 employees* 420 000 enterprises / self-employed R 150 thousand Micro Enterprises Enterprise or self-employed lacking formality i.t.o. registration, tax or labour 400 000 enterprises / self-employed R 12 thousand Survivalist Enterprises Providing minimal means to the poor, income less than poverty line, no employees 800 000 self-employed 3 * The higher employment criterion of 20 or 200 employees applies to mining, manufacturing, electricity and construction

  4. The SME Value Proposition Enabling your business State-of-the-art operating platforms Your cash needs Cash availability Empowering and enabling you to run your business Simpler, Better, Faster It’s all about your convenience Click, call or come in Multi-channel delivery Known point of contact

  5. Your Cash Needs Customer Needs • Cash flow is the lifeblood of my business • I need to manage my cash effectively • I want uncomplicated transactability • I have simple finance requirements, but rely on the bank when I need it Bank Value • Limited flexibility / choice, improved economics • Profitable product range • Easy to sell • Competitive, but not necessarily cheapest Customer Value • Standardised, uncomplicated, off-the-shelf products • Appropriate for the size of the business • Transparent pricing, enabling choice of services Bank Solution • Convenient deposit and withdrawal facilities • Immediate clearance of deposits • Easy access to appropriate range of loan products • Customer choice between price and convenience

  6. Enabling your Business Customer Need • Enable my business conveniently, reliable and secure • Provide me with accurate and up-to-date account information • Give me a solution that not only ‘sounds good on paper’ but works in practice Customer Value • Technology that helps to run the business • Hassle-free solutions • Easily accessible • Time spent on banking is not wasted Bank Value • Encourage migration from physical to direct • Minimise staff intervention • Customer satisfaction • Ties customer in, creating stickiness Bank Solution • SME AutoBank Card provides access to bank’s operating platforms • On-line banking extends operating platforms into business • Mobile banking provides anytime, anywhere access

  7. Click, Call or Come In Customer Need • I like online banking, it is convenient and secure • But behind the systems I need a real person who won’t let anything ‘fall through the cracks’ and will be able to provide solutions Customer Value • Multi-channel delivery • Anytime, anywhere service • Team of SME Business Bankers core to delivery • Customer knows point of contact Bank Value • Efficient use of channels • Greater emphasis on self-service • Field spends time on quality issues that add value • Satisfied, profitable and loyal customers Bank Solution • Dedicated staff, know how to deal with SME’s • Differentiate service by high, medium and low customer contribution • Anytime, anywhere service through Internet, ATM’s, Call centre and IVR

  8. SME Profitability • Relatively high Non-Credit Fee Income – 40%, international average 23%* • High loan loss provision OD/TL – 4% of performing loan book • Margins directly impacted by interest rate fluctuations Fee Income Lending Fee Income Transactions Remote 2% NII Transactions 12% 39% Fee Income Transactions Branch 26% NII after Loss Loss Provision Loss Provision NII after Loss 4% 2% 4% 11% NII Lending OD/TL 8% NII Asset Finance 13% * Business Banking Board Report, 2002

  9. SME Products and Services Transactional Products • SME Account (without cheque book) • SME Current Account • SME PlusPlan Savings Account • SME Auto Bank Card • MarketLink • Call and Notice Deposits Lending Products • Automated Overdraft • SME Overdraft • Business Revolving Credit Plan • Medium Term Loans • Business Mortgage • Stannic Asset Finance • Factoring • Guarantees • Khula Loan Guarantee Empowering and enabling you to run your Business Simpler, Better, Faster. It’s all about your convenience - straightforward business financial solutions Electronic products • Internet Banking • Business Online • Mobile Banking • AutoPay • POS • ATM • ADM

  10. Transaction Products: SME AutoBank Card Description Remote business banking card for SME’s Unique Features Empowerment through channel choice and convenience - Internet, telephone / mobile, ATM’s and POS Product Attributes - Multiple SME AutoBank Cards per account - Select / manage daily and monthly limits per card - Transactions can be limited to deposits or enquiries only - Deposit function, ADM machines for bulk deposits - Account payments, organize payments a year in advance - Manage funds between linked accounts - Statements and balances from a choice of channels - Maestro debit card functionality - Activate or increase overdraft by Internet, phone or ATM Product Economics - Cost reduction ~ for bank - physical vs. direct infrastructure ~ for customer - choice of cheaper alternatives - Enhanced long term profitability - stickiness

  11. SME AutoBank Card: Transaction Trends 30 million 5 million 1999 2000 2001 2002 Non Card Transactions SME Card Based Transactions

  12. Scored Lending: Automated Overdraft Description With a SME AutoBank Card an overdraft can be activated, increased or decreased Unique Features - Overdraft facilities are available immediately, 24/7, through direct channels by combining behavioural scoring and channel technology Product Attributes - Adjustments whenever required, maximum R100 000 - Overdraft limit can be increased to 100% of confidential limit - Risk grading determined by behavioural scoring - Only available to sole proprietors and partnerships Product Economics - Reduced credit assessment costs - Reduction in bad debt - Direct marketing efficiencies - pre-approved offer / direct fulfilment (20% take-up rate)

  13. Automated Overdraft: Application Channel 2001 2002 • Direct channels applications are on average half the value of branch applications, due to the ceiling on scored facilities Direct Direct 8% 22% Branch Branch 78% 92%

  14. Unscored Lending: Business Revolving Credit Plan Description Simple and flexible credit line repayable in equal monthly instalments Unique Features - Usually granted for an indefinite period - Draws may be made on partial (25%) or full repayment - Access via SME AutoBank card and direct channels Product Attributes - Easy cash flow planning - Once authorised, no re-negotiation - Interest is capitalised monthly - Additional repayments accepted Product Economics - Risk return better than overdraft - Higher loan use - average for BRCP is 80% - Security link lowers bad debt

  15. Business Revolving Credit Plan: Loan Status Debt consolidation 16% Can revolve 17% Reducing basis 47% • Guaranteed Lending • i.e. Sizanani, Khula, Mpilo • Swopping hardcore OD to BRCP • Customer Request i.e. Asset Finance Above limit to be revolved 20%

  16. Electronic Products: AutoPay Description Payment gateway e-enabling business trading on Internet; more cost effective for merchant than SEP’s Unique Features ‘Pay button’ can be displayed on 3rd party web sites for ad-hoc payments to bank-approved merchant Product Attributes - Secure shopping on the web by clicking on AutoPay button, entering ATM card number and password, select cheque or credit card account - Customer authentication by issuer, no risk of repudiation by customer for merchant - Low merchant turnover requirement, R2 thousand per month Product Economics - Reduced credit card fraud - Increase of revenues - flexibility and more dominant web presence

  17. Electronic Products: On-line Banking • Two electronic platforms aimed at business market, enabling seamless delivery • Both products are based on TCP/IP protocol and use Internet based technology • Same basic functionality: Statements and balances, transactions and payments, adding and deleting of beneficiaries Technology Security Functionality Take-on process Support Pricing SME Internet Banking • Software resides on Internet • Segregation of duties through SME AutoBank Card • Simple functionality • Apply on-line • Self-help and Call-line • Low fixed costs • High transactional costs Business Online • Software installed on customer’s PC • Full segregation of duties through workflow • Ultimate functionality: batch, ERP, International and Fx, e-filing, EBP, Factoring • Complex take-on process • Dedicated support structure • High fixed costs • Low transactional costs • Breakeven with IB 50 payments p.m.

  18. On-line Banking Usage Total Market Standard Bank 66% 61,000 55% 50% 49% 43,000 34,000 31% 24,000 21% 0 1999 2000 2001 1999 2000 2001 2002 Internet connected On-line banking usage

  19. On-line Banking: From Forecourt to Full-service Better or no competitor offering 4. Excess • Payroll • Web-site hosting • e Filing • Electronic Bill Presentment 3. Appropriate Competitiveness of Offering • Internet Access • Mobile merchant • capability Equal 2. Area of Focus • Downloadable file format • Accounting package • integration 1. Urgent! Lagging Nice to have Essential Customer Need

  20. Thanks for listening

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