What Small Business Wants from Banking & Payments. Paul McAdam, SVP, Research & Thought Leadership Gail Angel, SVP, Commercial Treasury Services

Transcription

1 What Small Business Wants from Banking & Payments Paul McAdam, SVP, Research & Thought Leadership Gail Angel, SVP, Commercial Treasury Services

2 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

3 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

4 Respondents by annual revenue and number of employees Annual Revenue (2009) Number of Employees 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

5 Key small business lines of trade were well represented Company's Primary Business Professional, Scientific or Technical Services Retail Trade Construction Healthcare or Social Assistance Accommodation or Food Services Financial or Insurance Services Wholesale Trade Real Estate Sales, Rental or Leasing Non-Profit, Charity, Civic, Social or Religious Organization Manufacturing Transportation or Warehousing Arts, Entertainment or Recreation Information Administrative & Support Services Repair and Maintenance Services Educational Services Personal Care Services Agriculture, Forestry, Fishing, Mining Other 3% 3% 3% 2% 2% 2% 1% 2% 6% 5% 5% 4% 4% 7% 7% 8% 10% 13% 13% * Over 100 completed surveys within these lines of trade *Read as: 13% of small businesses in the sample are professional, scientific or technical services n = 2,248 5

6 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

7 Why the focus on relationship-based product packages? Bank switching is on the rise Reg Q repeal will unleash innovation and new competition 5.8 million U.S. small businesses* Customers want simplicity and a comprehensive relationship Product packaging enhances profitability *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

8 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 Desire to reduce banking fees 50% A new comprehensive banking provider 52% Increased capital needs 34% A new credit provider 22% Need new products 25% A new cash management services provider 11% Consolidation of banking providers 19% A new international banking provider 7% Unhappy with current customer service 13% A new investment banking provider 4% Source: Greenwich Associates, Wanted: New Banks for Small and Mid-Sized Companies, August

9 Reg Q repeal will create competitive shifts in DDA as the economy 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 interestbearing 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

10 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 business very differently = I make financial decisions for my business in the exact same way 4% 5% 31% 31% 28% Source: 1 BAI, Small Business Payment Strategies, Forrester Research, The State of Small Business Banking,

11 Relationship-based product packaging is an essential tool to escape product commoditization Deposits More cost-effective than crossselling the same product mix over time Employee Related Transactions & Cash Mgmt. More difficult for competitors to copy More difficult for customers to comparison/price shop Credit Improve customer engagement and longevity More profitable Source: FIS Enterprise Strategy 11

13 As companies become larger and more complex, they consume more financial services Number of financial services used Payroll Services Employee Benefit Financial Services Secured Credit Unsecured Credit Cash Management Services Payments 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

14 Larger companies have a greater capacity to use liquid savings products Number of deposit services used Certificate of Deposit * Business Savings or Money Market Account Checking Account 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 37% incidence of owning Savings or Money Market Account services n = 2,058 14

15 Adoption of ACH and wire transfer services expand as companies get larger (particularly at $2M+) Number of payment services used ACH Services Wire Transfer Services Merchant Credit Card Processing Debit Card 0.68* Online Bill Payment 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 online bill payment services n = 2,058 15

16 Adoption of cash management services increases significantly as companies get larger ($2M is a key inflection point) Number of cash management services used Positive Pay Sweep Accounts * LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M Lockbox Remote Deposit Capture Account Reconciliation Processing *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

17 Not a great deal of variation in unsecured credit use, other than in unsecured loans/lines Number of unsecured credit services used Unsecured Short-Term Loans or Working Capital Lines of Credit Overdraft Protection Personal Credit Card(s) 0.68* Business Credit Card(s) 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

18 Adoption of secured forms of credit becomes much more prevalent as company size increases Number of secured credit services used * LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M International (Foreign Exchange, Import/Export Letters of Credit) SBA Loans Commercial Property Mortgage Term Loans or Equipment Financing Equipment Lease Credit Lines Secured by Receivables, Inventory, 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

19 As company size increases, so does the adoption of financial services linked to employee benefits Number of other employee benefit-related financial services used Health Savings Account Company Sponsored 401(k), SEP or Profit Sharing Plan * 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

20 Above $500,000 in annual revenue, there is not a high degree of variation in payroll services adoption Number of payroll services used Payroll Cards Outsource Payroll * 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

21 Packaging opportunities: Financial services adopted by more than 50% of small businesses LT $500K $500K - $1M $1 - $2M $2 - $5M $5 - $10M $10 - $20M 1. Checking Account 2. Debit Card 3. Online Bill Payment 4. Overdraft Protection 5. Personal Credit Card(s) 6. Business Credit Card(s) 7. Business Savings or MMA 8. Merchant Credit Card Processing 9. Outsource Payroll 10. Retirement or Profit Sharing Plan 11. Wire Transfer Services 12. Secured Credit Line 13. ACH Services 14. Equipment Lease n = 2,058 21

23 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 Account Reconciliation Processing Sweep Accounts 4.6% 5.2% 5.5% Positive Pay Debit Card Wire Transfer Services Merchant Credit Card Processing Overdraft Protection Lockbox ACH Services 3.6% 3.3% 3.3% 3.1% 3.1% 2.7% 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

24 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 of Credit (less than one year) Term Loans or Equipment Financing (one year+) International (Foreign Exchange, Import/Export Letters of Credit) 5.4% 5.2% 5.6% Commercial Property Mortgage 4.1% Credit Lines Secured by Receivables, Inventory, Property or Other Assets 3.5% Equipment Lease Business Credit Card(s) 1.5% 2.0% -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

25 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

27 Nearly 90% of small businesses use the branch on at least a monthly basis Number of Business Related Branch Visits in the Past 30 Days 22% 18% 19% 11%* 7% 8% 6% 9% Zero times Once 2-3 times 4-5 times 6-7 times 8-9 times times 15 times or more *Read as: 11% of small businesses did not visit their branch in the past 30 days n = 2,058 27

28 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%* 10% 13% 7% 1% Multiple times per day Daily 2 to 4 times per week Once per week Once every 2-4 weeks Not at all Cannot recall *Read as: 14% of small businesses access their business checking accounts multiple times each day n = 2,058 28

29 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 Transfer Money Between Accounts at Different Institutions Export Account Data into Internal Accounting Systems 35% 35% 32% *Read as: 91% if small businesses doing online banking review balances and transaction activity and plan to continue it n = 1,762 29

31 What do small businesses really want from their banking and payments providers? Give Advice Help with Administration While price sensitive, they are willing to pay for services that increase convenience or save time Source: Aite Group 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

32 Existing product sets become solutions Give Advice Help with Administration Help manage my Balance Sheet Wealth Management 401(k), SEP, Profit Sharing Plans Payroll Direct Deposit HSA cards Import banking data into internal accounting systems Investments estatements Cash flow forecasting How could you turn your existing product sets into solutions? Help me manage Cash Flow Help me with the Basics: Save Time & Save Money Invoice presentment Bill pay Corporate card with rewards DDA Money Market ACH Merchant capture Tax payments Lockbox Account Reconciliation Business ebanking, mobile Line of credit Sweep account Merchant card processing Source: FIS Commercial Treasury Services 32

33 Thank you Paul McAdam SVP, Research & Thought Leadership Gail Angel SVP, Commercial Treasury Services