Slide 0- 0 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
SaurabhSaurabh TrTripathiipathi
Global Trends & Implications for IndiaGlobal Trends & Implications for India
- 1 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
PAYMENTS: 'STRATEGIC', BUT UNMEASUREDPAYMENTS: 'STRATEGIC', BUT UNMEASURED BCG Survey ResponsesBCG Survey Responses
Banks considering payments to be strategic
Banks systematically tracking payments profitability
No
Yes
No
Yes
15%
85%
30%
70%
Source: BCG Global Payments Survey 2003
- 2 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
PAYMENT IS CORE TO BANK REVENUESPAYMENT IS CORE TO BANK REVENUES An Indian BankAn Indian Bank’’s Revenues Revenue
(1) Total income = Net interest income + fee – one time gains on sale of investments (2) Letters of credit, guarantees, processing fee, treasury income etc (3) Current accounts and 10% of saving accounts (4) Remittances, Bills, Cards, tax collection, at par facility etc (5) Cheque return charges, folio charges, Merchant FX commission, Miscellaneous fee, service charges (6) Other fees includes – LC, Guarantees, treasury products, loan processing fee etc
0
500
1000
1500
2000
2500
Total income NII on deposits Fee NII on advances (1) (6)
Index
Payment related fees(5)
> 25% of revenues
- 3 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
GLOBALLY, FOUR KEY CHALLENGES GLOBALLY, FOUR KEY CHALLENGES
Source: BCG bank interviews
0 10 20 30 40 50 60 70 80 90
100
% bank responses
- 4 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
CORPORATESCORPORATES HAVE HIGH EXPECTATIONSHAVE HIGH EXPECTATIONS
“This whole area of payments and payments processing is the strongest differentiating factor between banks. Not credit - that’s a commodity.
Payments is the bedrock of the relationship”
- MNC Corporate Treasurer
“This whole area of payments and payments processing is the strongest differentiating factor between banks. Not credit - that’s a commodity.
Payments is the bedrock of the relationship”
- MNC Corporate Treasurer
Source: BCG corporate interviews
- 5 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
CORPORATESCORPORATES ARE DEMANDINGARE DEMANDING
Operational Effectiveness (Low Cost Operation)
Source: BCG Global Payments 2004
- 6 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
NEW VALUE ADDED SERVICES NEW VALUE ADDED SERVICES ExamplesExamples
STP-enabled Treasury systems with online interfaces • Eg UBS : KeyLink
'Shifting corporate cash management onto online channels is our next big challenge'
(European Bank)
Note: may diminish role of bank as advisor on transactions
Online Execution For Treasury
Real-time information for working capital management • Eg ABN AMRO: Cashpro Freedom • Eg Cable&Wireless: Real Time
Nostro
Note: propositions can generate extra fees, may lead to switching
Information Management
(1) International Bank Compensation Group Source: Bank Interviews, Press
- 7 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
NEW VALUE ADDED SERVICES NEW VALUE ADDED SERVICES ExamplesExamples
Electronic Invoice Presentment & Payment
Improved Liquidity & Asset Management
Alternative players with integrated offerings • Eg BoNY: MoneyFunds DIRECT
'Fund managers pitching for large corporates' short-term liquidity, make it hard for us to compete in cash management'
(AP Bank)
EIPP/EBPP to speed up business cycle and increase working capital • Eg Deutsche Bank: eBills
Automated processing of invoicing and settlement to reduce processing cost
(1) International Bank Compensation Group Source: Bank Interviews, Press
- 8 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
MANAGING FLOW OF FUNDS CRUCIAL TO MANAGING FLOW OF FUNDS CRUCIAL TO SMESME Survey OF Survey OF SMESME Indian CustomersIndian Customers
Top CD customer needs
Balance inquiry/ transactions Request cheque book Request draft
High value clearing Multi city cheque Multi branch banking Outstation cheque collection
Drafts / PO Funds transfer LC / BG / packing credit
TOD Cheque bounce protection
Proportion of customers demanding
out of account)
Non routine transactions
Convenience
Discounts
- 9 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
EROSION ON TRANSACTION ACCOUNTS OF EROSION ON TRANSACTION ACCOUNTS OF NATIONALIZED BANKSNATIONALIZED BANKS
Current Account Market ShareTotal Assets Market Share
64%
38%
29%
31%
5%
5%
26%
0%
20%
40%
60%
80%
100%
Foreign & New private
(1) Example ICICI Bank, UTI Bank, HDFC Bank, IDBI Bank Source: RBI; BCG analysis
- 10 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
DEMAND DEPOSITS AND CARD CORE TO RETAIL PAYMENTSDEMAND DEPOSITS AND CARD CORE TO RETAIL PAYMENTS Both Are Facing Significant Market PressureBoth Are Facing Significant Market Pressure
Domestic payments revenue pool by region ($B)(2)
Payment type (% of total revenues)
0
20
40
60
80
100
Debit
DDA
Other(1)
Credit
Payment revenues ($B)(1) “Other” includes direct debit, credit transfers, paper based credit, and high-value credit (2) Excludes current account foregone interest and current account fees Source: 2003 BCG Global Payments model
- 11 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
NIINII IS NOT ALWAYS REMUNERATIVEIS NOT ALWAYS REMUNERATIVE Savings Accounts ProfitabilitySavings Accounts Profitability
Total
Overall profit (%)Overall profit (%) (18)(18) (23)(23) (6.0)(6.0) 44 4242 101101 100100
Profits
-4
-2
0
2
4
6
8
10
Source: BCG Analysis
- 12 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
TECHNOLOGY IS NOT ENOUGH!TECHNOLOGY IS NOT ENOUGH! IndiaIndia
Number of transactions per day at ATM
# daily transactions
0
50
100
150
200
250
300
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Breakeven(1)
ATMs #
. . . .
(1) The break even number of transactions varies between banks depending upon the cost staructure
- 13 -Note: This presentation was made in Bancard & E-payments seminar on 26th october 2005. The presentation is incomplete without accompanying oral commentary.
MULTIMULTI--PRONGED EFFORT REQUIREDPRONGED EFFORT REQUIRED
Reduce transaction costs
Customer Education
PAYMENT IS CORE TO BANK REVENUESAn Indian Bank’s Revenue
GLOBALLY, FOUR KEY CHALLENGES
CORPORATES HAVE HIGH EXPECTATIONS
NEW VALUE ADDED SERVICES Examples
NEW VALUE ADDED SERVICES Examples
MANAGING FLOW OF FUNDS CRUCIAL TO SMESurvey OF SME Indian Customers
EROSION ON TRANSACTION ACCOUNTS OF NATIONALIZED BANKS
DEMAND DEPOSITS AND CARD CORE TO RETAIL PAYMENTSBoth Are Facing Significant Market Pressure
NII IS NOT ALWAYS REMUNERATIVESavings Accounts Profitability
TECHNOLOGY IS NOT ENOUGH!India