The small business credit card opportunity for Community Banks

Transcription

1 The small business credit card opportunity for Community Banks Welcome John Yarley, Visa Monica Gabel, A.T. Kearney

2 Notice of confidentiality This presentation is furnished to you solely in your capacity as a customer of Visa Inc. and/or a participant in the Visa payments system. By accepting this presentation, you acknowledge that the information contained herein (the Information ) is confidential and subject to the confidentiality restrictions contained in Visa s operating regulations and/or other confidentiality agreements, which limit your use of the Information. You agree to keep the Information confidential and not to use the Information for any purpose other than in your capacity as a customer of Visa Inc. or as a participant in the Visa payments system. The Information may only be disseminated within your organization on a need-to-know basis to enable your participation in the Visa payments system. Please be advised that the Information may constitute material non public information under U.S. federal securities laws and that purchasing or selling securities of Visa Inc. while being aware of material non public information would constitute a violation of applicable U.S. federal securities laws. 2

3 Agenda 1. Why are we here today? 2. Exploring the untapped small business credit card opportunity 3. How can Community Banks succeed in the space 4. How can Visa help Community Banks succeed 3

4 Industry trends in the U.S. indicate a positive outlook for small business credit cards GDP expected to continue to grow Real GDP growth 1.7% 2.6% 2.9% 1.5% 2.6% 2.3% Actuals Forecast 1.9% Small businesses are optimistic about the future Small business optimism index Index (1986=100) Source: International Monetary Fund, December Source: National Federation of Independent Business,(NFIB.com/sboi) Small business births are outpacing deaths Thousands of businesses, seasonally adjusted Note: Census data around small business deaths lags Source: U.S. Bureau of Labor Statistics Business Employment Dynamics, December 2017 ( Deaths Births Credit cards now reported as the best and most efficient payment tool for businesses When making payments, which of the following is the best and most efficient payment tool for your business? 47% 22% 12% 9% Major credit cards Source: Visa Small Business Insights Research, 4Q16 Checks Debit/Check cards Bank transfer 36% 33% 12% 8% 2016

5 The small business segment is attractive to banks Millions businesses Significant correlation between small business ownership and affluence Among $10M+ asset households, 4 in 10 identify themselves as small business owners 1 Large and potentially very profitable client set Estimated 29M+ small businesses in the U.S., with each segment offering significant per banking relationship value 2 Segment values branches and relationships Product and services can be delivered with existing bank infrastructure Top-3 reasons driving small business owner bank satisfaction 3 Easy to do business with Appreciates our business Responsive to my requests or questions U.S. small business market by business size $1.8K <$100K $4.4K $100K-$500K $7.7K $500K-$2.5M $14.4K Per relationship annual bank revenue (Annual bank revenue per relationship) $2.5M-$10M 5 1. US Small Business Association Office of Advocacy 2. Barlow Research; 2012 SOHO Opportunity Study and 2014 Attitudes & Behaviors Study 3. Barlow Research Annual Report on Small Business Banking

6 Agenda 1. Why are we here today? 2. Exploring the untapped small business credit card opportunity 3. How can Community Banks succeed in the space 4. How can Visa help Community Banks succeed 6

7 We gathered market intelligence to assess the opportunity of Community Banks in the small business credit card space We conducted Community Bank executive interviews to understand issuers approaches to and views on small business credit cards, as well as their pain points in offering the product We conducted a small businesses survey to understand small businesses behaviors, decision making, and preferences regarding usage of credit cards for business expenses The study was conducted with a nationally representative sample of more than 3,400 U.S. small businesses The study defines small businesses as those with 2016 annual revenue between $50,000 and $10 million The survey was conducted in October 2017 with an online panel The research was commissioned by Visa, in partnership with ICBA Bankcard, and executed by A.T. Kearney 7

8 Several key themes emerged from the Community Bank executive interviews Today, small business credit cards are not a priority product for Community Banks The majority of Community Banks do not proactively sell small business credit cards; they take a reactive approach when customers request a card The reactive approach is driven by the perception that their offerings are uncompetitive given the lack of an attractive product construct and support capabilities As a result, Community Banks do not invest in marketing their small business credit card offering and sales are mostly branch-centric Limited product training to branch personnel is seen as a key acquisition limitation Principal and Agent issuers differ slightly in their views of the small business credit card opportunity given the different roles and degrees of freedom in product construct and underwriting decisions they each have Community Banks need to take a more proactive approach to the small business credit card business to fully take advantage of the opportunity 8 Source: A.T. Kearney Community Bank executive interviews

9 The small business survey provided key marketplace insights into the small business credit card opportunity for Community Banks Business credit cards are an important payment product for small businesses and become even more important as businesses grow and become more established Community Banks have low small business credit card market share, but when they are the provider, they tend to be primary Five opportunity insights emerged for Community Banks: 1. Small businesses actively shop for business credit cards 2. Demand for small business credit cards can be created 3. Many small businesses are receptive to Community Banks as providers of business credit cards 4. When it comes to Community Banks, small businesses value more than the product offer 5. Community banks can succeed if they are in the consideration set Community Banks have a large untapped small business credit card opportunity, particularly within their existing small business customer base 9 Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study

10 Business credit cards are an important payment product for small businesses Usage of credit cards for business expenses Among small businesses 32% 15% 13% None Consumer credit card only Consumer and business credit card ~70% of small businesses have a credit card for business expenses (business or consumer card) 53% of small businesses use business credit cards on a regular basis 40% Usage in a typical month Business credit card only Of small businesses who use a credit card, ~70% designate a business card as primary (vs. a consumer card) 10 Definitions: Small businesses are those with 2016 revenues between $50,000 and $10 million Questions: Which of the following does your company have for business expenses?; Of the $[total $ amount] your company spends in a typical month, please estimate what proportion is paid for with each of the following payment methods Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study (N=3,459)

11 Community Banks have low small business credit card market share, but when they are the provider, they tend to be primary Market share of Community Banks Among small businesses who have a business credit card as their primary card for business expenses 26.0% 80% of businesses that have a credit card with a Community Bank consider that card to be primary 2.9% Have a banking relationship with a Community Bank Have business credit card with Community Bank 11 Definitions: Small businesses are those with 2016 revenues between $50,000 and $10 million Questions: With which of the following financial institutions does your company currently have a banking relationship?; Which of the following financial institution(s)/bank(s) issued the BUSINESS card(s) your company actively uses for business expenses?; Of the credit cards your company actively uses for business expenses, which one is the primary credit card for business purposes (e.g., the card you spend the most on)?; In the past two years, did your company shop for a new/additional business credit card?; Which of the following financial institutions were/are in your consideration set as potential providers of a BUSINESS credit card? Select all that apply; Of the financial institutions considered, which one did your company choose as the new/additional BUSINESS credit card provider? Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study (N=1,663)

12 Insight #1: Small businesses actively shop for credit cards Incidence of business credit card shopping activity in the past two years Among small businesses who have credit cards for business expenses Likelihood to get a business credit card in the next two years Among small businesses who have credit cards for business expenses Extremely likely 14% Did not shop for or open new/additional business card in past two years 62% Shopped for or opened new/additional business card in past two years 38% Very likely Likely Somewhat likely 17% 17% 21% 69% at least somewhat likely Not at all likely 31% 12 Definitions: Small businesses are those with 2016 revenues between $50,000 and $10 million Questions: In the past two years, did your company shop for a new/additional business credit card?; In the next two years, how likely is your company to get a new/additional business credit card? Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study (N=2,432)

13 Insight #2: Demand for small business credit cards can be created through offers and advertisement Trigger for shopping for a business credit card Among small businesses who have credit cards for business expenses and shopped for a business credit card in the past two years 18% Banks and third-party stimulus 33% 19% Product feature/ function 31% Changing business needs 30% 13% 5% 5% 4% 7% 7% 6% 5% 5% 7% Received offer for business credit card Received recommendation from family, friends, colleagues, accountant, financial advisor Banker recommended we get business card Saw ad for business card (e.g., print, TV, bank website) Wanted to get better rewards Wanted to get additional credit Wanted to separate business from personal expenses Wanted to better track expenses Wanted to manage cash flow Wanted to establish credit record for the company Had to provide business cards to employees Other 13 Definitions: Small businesses are those with 2016 revenues between $50,000 and $10 million Questions: Which of the following options best describes the main trigger or event that caused your company to shop for a new/additional business credit card?; Which of the following options best describes the main trigger or event that caused your company to get/open a new business credit card? Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study (N=920)

14 Insight #3: Many small businesses are receptive to Community Banks as providers of business credit cards Providers likely to be in the consideration set for a business credit card Among small businesses who have credit cards for business expenses and are at least somewhat likely to get a business card in the next two years 72% 52% 48% among those who already have a relationship with a Community Bank; 18% among those who do not 26% 26% 19% A large, national bank A super regional, regional, or mid-size bank A local or community bank A credit union A specialized credit card provider 14 Definitions: Small businesses are those with 2016 revenues between $50,000 and $10 million Questions: In the next two years, how likely is your company to get a new/additional business credit card?; If your business were to get a new/additional BUSINESS credit card, from which of the following financial institutions would your company consider getting the card from? Select all that apply Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study (N=1,666)

15 Insight #4: When it comes to Community Banks, small businesses value more than the product offer Top reasons for considering a Community Bank as a provider of a business credit card Among small businesses who have credit cards for business expenses, are at least somewhat likely to get a business card in the next two years, and would consider a Community Bank as a provider Top potential drivers of Community Bank consideration as a provider of a business credit card Among small businesses who have credit cards for business expenses, are at least somewhat likely to get a business card in the next two years, but would not consider a Community Bank as a provider More personalized service 54% Attractive rewards program 34% Convenience (e.g., branch locations) Local presence/involvement 53% 52% Business benefits Competitive pricing High lines of credit 19% 30% Offering characteristics Trust in the banker(s)/existing relationship with the bank 44% Attractive introductory/one-time new customer benefits 17% Better understanding of business/needs 38% Convenient branch locations 13% Better credit card pricing 36%... Better credit card rewards programs 30% Wouldn t get card from Community Bank under any circumstance 2% N=437 N=1, Definitions: Small businesses are those with 2016 revenues between $50,000 and $10 million Questions: In the next two years, how likely is your company to get a new/additional business credit card?; If your business were to get a new/additional business credit card, from which of the following financial institutions would your company consider getting the card from? Select all that apply; You said your company may get a credit card from a local/community Bank. Why would you consider a local/community Bank as a business credit card provider? Select all that apply; If your business were to get a new/additional business credit card, from which of the following financial institutions would your company consider getting the card from? Select all that apply; What would it take for your company to get a credit card from a local/community Bank? Select all that apply Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study

16 Insight #5: Community Banks can succeed if they are in the consideration set Shopper s consideration and selection of a Community Bank as business card provider Among small businesses who have credit cards for business expenses, shopped for a business credit card, and selected a provider Did not consider a Community Bank 97.7% Considered a Community Bank 2.3% Selection of a provider other than a Community Bank 33% Selection of a Community Bank 67% 16 Definitions: Small businesses are those with 2016 revenues between $50,000 and $10 million Questions: In the past two years, did your company shop for a new/additional business credit card?; Which of the following financial institutions were/are in your consideration set as potential providers of a BUSINESS credit card? Select all that apply; Of the financial institutions considered, which one did your company choose as the new/additional BUSINESS credit card provider? Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study (N=523)

17 Agenda 1. Why are we here today? 2. Exploring the untapped small business credit card opportunity 3. How can Community Banks succeed in the space 4. How can Visa help Community Banks succeed 17

18 The opportunity insights have clear implications for Community Banks Opportunity insights 1. Small businesses actively shop for business credit cards Implications for Community Banks Opportunity for Community Banks to capture their fair share of new credit card relationships 2. Demand for small business credit cards can be created Develop strategies for generating awareness of the offerings and triggering demand 3. Many small businesses are receptive to Community Banks as a provider of business credit cards 4. When it comes to Community Banks, small businesses value more than just the card offer 5. Community banks can succeed if they are in the consideration set Make cards an integral part of the offerings and leverage them as a critical tool to foster deeper and stickier customer relationships Have a competitive offer (not necessarily the best offer) and highlight core strengths (e.g., personalized service, local presence) to attract customers Be more proactive about promoting and creating awareness of the business credit card products 18 Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study

19 To succeed in the small business credit card space, Community Banks need to rethink their approach to market Develop and deploy competitive offer(s) Competitive rewards and aggregation across cards Attractive lines of credit Competitive pricing Take a relationship approach to underwriting/pricing Relationship-based underwriting standards Relationship-based pricing (i.e., APR) Rewards based on overall banking relationship Create awareness and drive demand Offer basic digital capabilities Direct marketing In-branch and online promotion and information Front-line personnel education Online/mobile application processes Online statements (integrated with online banking) Alerts and tools for easy rewards redemption Develop/deploy product management strategies 19 Onboarding program Activation and usage programs Line management programs

20 Agenda 1. Why are we here today? 2. Exploring the untapped small business credit card opportunity 3. How can Community Banks succeed in the space 4. How can Visa help Community Banks succeed 20

21 New assets and tools are available to help Community Banks launch and/or grow their small business credit card portfolio Likelihood to get credit card from a Community Bank Playbook Small business credit card Targeting model Business case Whitepaper The small business credit card opportunity for Community Banks Small Business Credit Card Playbook February 2018 Customer personas Four customer personas can be used to identify small businesses with higher likelihood to get a small business card from a Community Bank Business Tenure No. of Employees # Customer Personas Industry Business Tenure High Low No. of Employees Removed picture and replaces with Other Highly likely Somewhat likely Available opportunity sizing Any 1 All Production businesses Production Any Any Any 2 Young Professional Services, Utilities & Trade businesses with a large employee base Professional Services, Utilities, Trade Under 10 years 100 employees or more 3 Young businesses in the Other industry category with a small employee base Other Other Industries Under 10 years Under 20 employees 4 Young Professional Services, Utilities & Trade businesses with a medium size customer base Professional Services, Utilities, Trade Under 10 years Under 100 employees 10 Small Business Credit Card Playbook January 2018 Visa Confidential 21

22 Playbook The Small Business Credit Card Playbook is a guide for Community Banks to launch or grow small business credit cards Guidance organized into six sections 22 The small business credit card opportunity for Community Banks Small Business Credit Card Playbook February 2018 Actionable recommendations for driving portfolio growth for Community Banks that currently offer small business credit cards Guidance for developing and launching a competitive product for Community Banks that do not currently offer small business credit cards Introduction: explains the objective, structure, and flow of the Playbook Why small business credit cards: provides the business case and support for why Community Banks should focus on small business credit cards Program set-up: provides an overview of the activities required to launch a small business credit card product, including operations, underwriting, and servicing perspectives Product and value proposition development: provides information regarding the different platforms and card types to help issuers determine which one is best for them Go-to-market strategy: explains different marketing and sales tools required to launch/grow the portfolio Program management and optimization: shows ongoing activities required to manage and optimize an existing portfolio, including activation, usage, and risk management strategies

23 Targeting model Visa has developed a targeting model to support small business credit card acquisition by Community Banks Likelihood to get credit card from a Community Bank The model was developed leveraging the Visa/A.T. Kearney Small Business Credit Card Study and allows Community Banks to identify small businesses with higher likelihood to get a credit card from a Community Bank The targeting model can be used in two ways: Targeting model Customer personas Customer personas Four customer personas can be used to identify small businesses with higher likelihood to get a small business card from a Community Bank Business Tenure No. of Employees # Customer Personas Industry Business Tenure High Low No. of Employees Removed picture and replaces with Other Highly likely Somewhat likely Any 1 All Production businesses Production Any Any Any 2 Young Professional Services, Utilities & Trade businesses with a large employee base Professional Services, Utilities, Trade Under 10 years 100 employees or more 3 Young businesses in the Other industry category with a small employee base Other Other Industries Under 10 years Under 20 employees 4 Young Professional Services, Utilities & Trade businesses with a medium size customer base Professional Services, Utilities, Trade Under 10 years Under 100 employees Tool to score individual small businesses on their likelihood to get a small business credit card from a Community Bank (i.e., Highly likely, Somewhat likely, Not likely) that can be used for cross-sell to existing customers or prospecting new customers Small Business Credit Card Playbook January 2018 Visa Confidential Description of the characteristics of small businesses most likely to get a business card from a Community Bank to allow less sophisticated issuers to improve targeting

24 Business case Issuers can lever Visa s Card Performance Accelerator (CPA) tool to conduct a business case analysis 50% likely to get a business card 50% likely to get the card from a Community Bank 5,000 Community Bank DDA customers 2,500 Opportunity sizing has been added to the CPA tool 1,250 90% approval rate 1,125 Potential available small business credit card customers 24 Note: The available opportunity size reflects the maximum business potential for the issuer. Actual results will depend on the issuer's ability to capture the opportunity and the timing to reach the run-rate Source: Visa/A.T. Kearney 2017 Small Business Credit Card Study, Visa information, A.T. Kearney analysis

25 Whitepaper A whitepaper has been developed to help Community Banks better understand the opportunity and how to pursue it The whitepaper explains the small business credit card opportunity for Community Banks and providers recommendations for actions Community Banks should pursue to succeed in the small business credit card space The whitepaper includes: Key marketplace insights to capture the untapped Community Bank small business credit card opportunity Actionable recommendations for Community Banks to succeed in the small business credit card space Illustrative example of the small business credit card opportunity for a Community Bank 25

26 Existing Visa assets In addition to the new assets, Visa's existing tools provide support to small business credit card issuers Training materials and guides Small Business Portfolio Launch Guide Product Implementation Guides Landscape overviews Visa Business Credit Card Underwriting Study White Paper Visa Branch Optimization Study: Business Debit and Credit Cards White Paper Acquisition Guide Desk Reference for staff Best practices to optimize fraud strategies Plug and play value propositions Visa SavingsEdge Visa Business Reporting Visa Payment Controls Marketing support Lifecycle Marketing Materials and Guides Targeting Model Analytics tools Card Performance Accelerator (CPA) Tool Segment-specific Market Research, Trends, and Insights Quarterly Small Business Product Benchmarks Online Small Business Product Training for frontline employees 26

27 Q&A 27