SMALL BIZ PAYMENTS. Stop Missing Out on Your Slice of the $5.5 Trillion Pie

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1 SMALL BIZ PAYMENTS Stop Missing Out on Your Slice of the $5.5 Trillion Pie

2 Exciting New Federal MBL Regulations! Published in the Federal Register (read here) on 3/14/16 2 Phases 1. Personal Guarantee Requirement eliminated effective May 13, Overall rule goes into effect January 1, 2017 Eliminates all previous rules outside of what is defined within the FCUA 2

3 Expanding credit union member business lending to empower credit unions with greater flexibility and autonomy in offering commercial loans is a major victory for America s small businesses and job creators. - Jim Nussle, CUNA President/CEO 3

4 "With this new rule, we will begin a new era, for NCUA as a regulator and for credit unions as business lenders. Debbie Matz, NCUA Chair

5 Business Credit The Whole Pie Perspective $0.5 Trillion = Current Card Volume $2.4 Trillion in Card Opportunity 5

6 Why Business rather than Commercial? Business Cardholders Act Like Consumers Business Cardholders require less sophistication and support than commercial cardholders Small business accounts are also highly profitable Higher Velocity of Transactions Higher Balances Higher Interchange Same Rewards Structure and Offers as Consumer Community Engagement Issuers desire revenue maximization opportunity, but are leaving money on the table by underserving small businesses with consumer solutions. 6

7 Importance of the small and mid market accounts 29% of 2015 U.S. Commercial Card Volume 1 34% More profitable for issuers compared to large markets 2 78% Lower issuer acquisition costs compared to large markets 2 1. Assumes U.S Commercial Card volume of $550B, based on 2015 Packaged Facts volume estimate Visa Commercial Products Issuer Benchmark Study: 94bps NRY and $4.9K cost to acquire for MM and 70bps / $23K to acquire for LM

8 Business Payments - The $5.5Trillion Card Opportunity According to Visa s Small Business March 2015 Report, year over year spending data shows that Visa Business credit card transactions grew at the fastest rate in two years! 8

9 The Small Business Opportunity 83% of businesses use a payment card of some sort for business expenses. Most card ownership is in terms of business cards. There is relatively little overlap between companies that have both forms of payment card (18%). Any Who Use A Personal Payment Card For Business Expenses 22% only use personal cards Use Both Business & Personal 18% 42% only use business cards Any Who Use A Business Payment Card For Business Expenses 17% do not use either personal or business cards for business expenses Q11. Do you, or do any of your colleagues, use business payment cards to pay for business expenses? Q13. Do you, or do any of your colleagues, use personal payment cards to pay for business expenses? Source: Kaiser Research Commercial Study, 2011

10 The Business Justification for Small Biz Taking action against an identified high propensity sub-segment can yield benefit Propensity Modeling identifies a segment of cardholders using their card in a business-like fashion Action is initiated against the highest probability cuts (x) A percentage will adopt this new card (y) and generate elevated commercial interchange differential (z) Note: Communication and Product Management is key to ensure customer engagement and ongoing loyalty. Incremental Revenue = ( x * y ) * z Cards converted to SB 1,000 Avg. Spend per account 12,000 Blended SB Interchange 237 bps Blended Consumer Interchange 148 bps Delta 89 bps Consumer Annual IC Revenue $177,600 Sm. Bus. Annual IC Revenue $284,400 Small Business Advantage $106,800

11 11 Enter the Alternate Lenders Increasing in number Delivering against a need Approval rates continue to be strong Continue to strike partnerships with Issuers.

12 Qualify the Opportunity Why It Matters Driving Customer Loyalty Early identification offers the ability of the existing issuer to grow with the business Early Identification can generate long term loyalty Offering the professional prospect a richer product at their discretion Competitor Threat Existing Issuer s best customers = competitor s best prospect Solutions by alternative players are on the rise and increase the risk of disintermediation as they fulfill gaps and address small business needs Maximize Revenue Ability to holistically manage the business relationship Increase in non-interest revenue Revenue drivers offer increased differential v. consumer products Expansion of the serviceable population The average profitability of small business accounts can be many times that of consumer accounts, with a potential annual profit per relationship of about $2,101 for small business accounts compared to less than $100 for some consumer accounts. Mercator, 2014

13 Small Biz Trends and Concerns Technology Advancement 13

14 BizNOWCredit Sneak Peek

15 Introducing BizNOW Credit Expense your Finger Tips No more lost paper receipts Mobile and Desktop Applications Role Based Cardholder and Admin Features 15

16 Introducing BizNOW Credit Real Time Receipt Capture Customizable Categorization Self Service Admin Functions 16

17 Introducing BizNOW Credit Self Service Admin Functions Data Exports for Reconciliation and Auditing 17

18 The Winning Business Recipe

19 Why do they remain in consumer portfolios? 2014 Manufacturing Sales/Retail Services Can earn rewards 42% 41% 42% More convenient 25% 30% 28% Not aware of advantages of using a small business card 18% 18% 17% Better financial terms 17% 13% 14% Cheaper 15% 15% 15% Higher credit lines 13% 15% 16% Better customer service 8% 10% 11% Have not been offered small business card 3% 4% 3% 19% 23% 12% 13% 14% 18% 11% 12% 9% 6% 4% 5% 31% 23% Bank of America American Express Chase Capital One Citibank Wells Fargo All Other Issuers MCA 2014 CCD Study. business purposes? Question: Why do you use a consumer credit card, rather than a small business card, for your small

20 The 3 Ingredients for Success 1.Straightforward, uncomplicated product offerings

21 Simplicity as the key to success Small Business Product Suite Example Charge Card Options Pay in Full each billing cycle Cash Back Rewards Product For Business Owners who are focused on flowing earned rewards back into their business. Travel & Rewards Product For Consultants and those who travel to gain Travel Perks, Airport Lounge access, etc. For Business Owners who would benefit from rewards redemption of merchandise for the business. Revolving Balance Card Options Standard Card Offering Low APR (risk based pricing) No Rewards Cash Back Rewards Product Special Intro Rate No Annual Fee for first year or waived if $5,000 of purchases made within the first 3 months Travel & Rewards Product Special Intro Rate Additional Bonus Points Awarded based upon first spend No Annual Fee for first year or waived if $5,000 of purchases made within the first 3 months 21

22 Product Comparisons / Key Considerations Small Business Card Debit and revolving credit options Typically individual liability General use payment Level I financial data (some Level II information) Zero Liability Core enhancements same as Commercial Card PLUS: Purchase Security & Extended Protection Visa Merchant Offers Commercial Card Non-revolving credit Typically corporate liability Central billing options Procurement, T&E, and Fleet MCC blocking Level I, Level II, and Level III enhanced data Visa IntelliLink Virtual Cards Most optional enhancements available

23 Sales Process Small Business Card Direct mail proven effective Sold through retail bank branches when client account opened In addition to check, cash, and ACH payments, SB cards try to capture business expenses paid with a personal card Typically employee/cardholder liability underwriting Program Optimization tools and Best Practices Card Activation and Usage Programs Commercial Card Typically sold face-to-face through Treasury Management or Commercial Banker relationship Typically corporate liability underwriting Rebates standard part of bank pricing model for larger companies RFP process common Visa Op Regs require 10 card min. Program Optimization tools and Best Practices Clients large technology investment in financial/erp systems necessitates card data integration

24 The 3 Ingredients for Success 1.Straightforward, uncomplicated product offerings based upon 2.Segmentation

25 Slicing up your Piece of the Pie 25

26 Top Benefits of Transitioning to Electronic Payments (Percent of Organizations) Cost savings Improved cash forecasting Fraud control More efficient reconciliation Working capital improvement Better supplier/customer relations Straight-through processing to A/P or A/R Reduction in days sales outstanding Ability to take payment discounts Other 1% 27% 24% 24% 20% 16% 37% 39% 46% 57% 0% 10% 20% 30% 40% 50% 60% Source: 2013 Association for Financial Professionals Electronic Payments Survey. Findings are based on 484 responses to a 34 question survey provided to AFP corporate practitioner members and prospects with titles of cash manager, director, analyst, and assistant treasurer.

27 Buyer and Supplier Perspective: (DPO/DSO) Days Following Request for Goods / Services Check (45-day) ACH (30-day) Card (20-day) More float for buyer than checks while seller receives payment much sooner Business Credit Card assumes an average 35-day period from when the Seller receives funds from their merchant acquirer and when the buyer pays the billed balance on their card account. 35 days determined by assuming the average transaction occurs mid-cycle (15 days) and that the buyer has, on average, 20 days after statement cycle to make payment on their card bill. Source: "Commercial Card Market Landscape," First Annapolis (February 2012). Page 20.

28 Payment Strategies start with understanding the DDA Consumers most often cite that their main financial provider is the FI where they have their primary checking account Income Shortage of funds? DDA Excess of funds? Long Term Mortgage Medium Term Personal Loan Short Term Line of Credit Credit Card ATM/Debit Check ACH Online Bill Payment Mobile Payments Short Term Savings Medium Term CD s Bonds Long Term Investments Retirement Buying a house Buying a car Clothes Food, Bills, Clothes Holiday School fees Retirement BORROWING PAYING SAVING Engagement / Profitability

29 Prospect Identification % Target Accounts Small Business Model identifies business spend in retail portfolios Small Business Model Lift Chart (Combined U.S. Portfolios) % Sample Universe Credit Debit Baseline Not biased by individual issuer or portfolio results Utilizes linear regression model techniques Uses attributes such as goods purchased, spend amount, spend timing, spend velocity High Level Positive Indicators Home Improvement Centers Office Supply Chains Wholesale Trade Miscellaneous Business Services Courier Services Equipment Rental Advertising Services High Level Negative Indicators Miscellaneous Apparel Pharmacies Department Stores Dating Services Video and Game Rentals Optical

30 The 3 Ingredients for Success 1.Straightforward, uncomplicated product offerings based upon 2.Segmentation with a strong online, mobile and 3.Social Media influence.

31 Social Media & Small Business Engagement Who s doing it right! 31

32 So what s holding you back? 32

33 THANK YOU Lydia Plunkett