grzegorz hansen_corporate banking in the world of b2b e-commerce platforms

Reshuffling Markets:

Corporate Banking in the World of

B2B e-commerce Platforms

Grzegorz Hansen

5th Annual Digital Banking and Mobile Payment Summit

27 April, 2016

Vienna

Key financial data

(PLN M) 2012 2013 2014 9M/15

Net loans 66,947 68,210 74,582 79,407

Assets 102,145 104,283 117,986 125,750

Deposits 57,984 61,674 72,422 78,546

Equity 9,619 10,256 11,073 11,923

Total income 3,571 3,674 3,939 2,983

Net profit 1,197 1,206 1,287 992

Cost/Income ratio 46.5% 45.7% 44.9% 47.0%

Cost of risk (bps) 66 70 72 55

ROE net 14.6% 13.1% 13.1% 12.1%

CET 1 ratio 13.0% 14.2% 12.2% 14.1%

Total Capital Ratio 18.7% 19.4% 14.7% 17.0%

mBank Group’s key market shares as of Sept. 30, 2015

Corporate Loans

6.3%

Corporate Deposits

Mortgage loans

Retail Deposits

10.1%

6.5%

Retail Loans

7.6%

5.4%

mBank – who are we?

| Reshuffling Markets: Corporate Banking in the World of B2B e-commerce Platforms | 2

• Set up in 1986, mBank (originally BRE – Export

Development Bank) is Poland’s 4th largest universal

banking group in terms of total assets and loans,

and 5th by deposits at the end of September 2015

• Servicing 4.2 million retail clients and 19,086 corporate

clients in Poland and over 800 thou. retail clients in

Czech Republic and Slovakia

• mBank has leading positions in retail, corporate, SME

and private banking, leasing, factoring, commercial

real estate financing, brokerage, corporate finance

and capital markets advisory as well as distribution

of insurance

• Listed on the Warsaw Stock Exchange since 1992

with a market value of ca. EUR 4.0 billion, a member

of WIG-20 blue chip index since its inception in 1994

• Highly capitalised, liquid bank with a strong funding

profile and a well balanced business mix between

retail and corporate banking segments

• Rated ‘BBB-’ by Fitch and ‘BBB’ by Standard & Poor’s

• A strategic shareholder, Germany’s Commerzbank,

owns 69.5% of mBank’s shares

mBank’s market position

mBank compared to its main competitors – Sept. 30, 2015

Source: Banks’ consolidated financial statements.

#4

#4

#5 deposits

(in bln PLN)

total assets

Citi Handlowy

49.8

Millennium

65.1

Getin Noble

70.9

ING BSK

112.2

mBank

125.8

BZ WBK

135.1

Pekao

170.8

PKO BP

254.9

Citi Handlowy Getin Noble Millennium

120.3

185.2

ING BSK

18.6

mBank

79.4

BZ WBK Pekao

91.9

PKO BP

65.3 46.2 49.7

Millennium Getin Noble mBank

128.6

ING BSK

95.6

BZ WBK

178.3

Pekao

51.2

PKO BP

78.5 83.8

27.1

56.5

Citi Handlowy

net loans



Black Death of 1347-1351

The Triumph of Death, Palazzo Abatellis, Palermo; Wikimedia Commons


The Escape: Decameron (1350-53)

source: Master of 1492-'Giovanni Boccaccio and Florentines who have fled from the plague'-miniature-Bruges-ca 1485 in Giovanni Boccaccio; Decameron


Essential economic changes: agriculture

in Northern Italy: • primary decline of the country’s population (peasants moved to towns during famine), • sharp decline of cities’ population due to Black Death, • triumph of the city’s power: the rule of Signoria and the freedom of the country’s population, • introduction of new form of land usage: mezzadria (a form of rent coupling capital and work)

as a new way to cultivate land, • higher usage of labour force in agriculture, • injection of capital into agriculture, • new plants being introduced: lemon, bitter orange, then sweet orange and corn as well as

fruit trees, • later: land improvement, • no substantially higher agri product consumption per capita (except in 1400 when

consumption per capita was ca. 18% higher than in 1300)

key results: • higher productivity in agriculture, • decrease of yield from agriculture

Source: Ruggiero Romano, Tra Due Crisi: L’Italia del Rinascimento, 1971 Giulio Einaudi editore s.p.a., Torino

Source: Pieter Breugel the Elder, The Land of Cockaigne, 1567; The Yorck Project: 10.000 Meisterwerke der Malerei


Attitude towards novelty, innovation?

action, novelty, constant change as an autotelic value?

• Athenian assembly, Spring of 415 B.C.

• debate on attacking and seizing Sicily, Sparta’s „breadbasket”

• Alcibiades’ rationale:

the state, if it remain quiet, will be worn out of itself, like anything else, and its skill in everything grow dull; while by entering into contest it will continually gain fresh experience, and will find self-defence habitual to it, not in word but rather in deed. (...) a state of no inactive character would most quickly be ruined by a change to inactivity

Thucydides, The Peloponnesian War, book VI

• the „Sicilian expedition” ended with Athens’ defeat, loss of the fleet, the retreat of part of the survivors on September 13th, 413 B.C.

• from here the crisis started, ended with the war lost and Athens occupied by Sparta in 404 B.C.

Wikimedia Commons: XIXth century illustration, The Defeat of the Athenian Army at Syracuse 413 B.C.


FIs desperate for new revenues (markets)

? ? ? ? ?


B2B e-business: e-financing of suppliers?

B2B trade

financing of B2B trade

B2B e-commerce

e-financing of B2B e-commerce


The future of supplier financing?

financing of B2B trade

e-financing of B2B e-commerce


Strategic: what should corporate banks do?

relationship-based model of financial services business

entirely on-line model of financial services business

or


Polish vs. global e-commerce market

• declared attitude towards sales offers (generally, not e-offers): • 65% of respondents always negotiate the price, • 40% of respondents check at least 3 sales offers, • 15% never buy if they do not receive discount.

• therefore: majority of B2B buyers should be interested in the tools reducing offered price • although all companies in PL try to „be present” in Internet...

• only ca. 16% sell via Internet, • mainly B2C

• although Polish e-market is predominantly B2C, e-commerce B2B is supposed to be „on the rise”

• the best international example of B2B e-commerce in Alibaba (BTW Aliexpress.com is 41

popular site in PL as ranked by Alexa), • Alibaba has been created - with focus on export - in reaction to the need:

how to make it easy for non-Chinese buyers to buy from China without the need to hire local commercial agents to negotiate, to conclude contracts, to maintain relationships, to cover local taxes and payments, to take care for the logistics etc? how to make it possible – therefore – to sell in small amounts – but on a mass scale?

• there is a lot of local and international B2B initiatives (platforms and portals): Alibaba, Ariba

(SAP Group), Amazon Business, Mercateo, Coupa, Santander-Trade...


Polish e-commerce B2B market

• there are closed and open e-commerce (B2B) platforms

• there is a conceptual and functional variety of closed platforms:

• closed platforms: e.g. OptiBuy, Logintrade, Marketplanet, Open Nexus, ...

„tailor made” systems, or rented sub-systems, joining company’s internal purchase process with the function of collecting offers and negotiation with suppliers; here, suppliers are selected and relationships with them are being managed

largest companies are the users (buyers): KGHM, PKN Orlen, PKP, mBank, ...

• platforms for the exchange of commercial documents in EDI standard: Comarch EDI, Infinite

these systems serve for the automation of commercial exchange for the already established relationships, mostly in FMCG and DIY


Polish e-commerce B2B market

• open platforms:

• B2B (all-to-all): Oferteo (includes B2C), Aleo (B2B by ING Bank), ...

• the rest are mostly vertical portals (sector-centered) or individual e-shops

• B2C platforms – vertical or horizontal - are still the king:

• Allegro, OLX, Swistak.pl, ..., Aliexpress, ebay


Disintermediation more & more popular...

• http://www.pymnts.com/news/2015/amazon-expands-business-loan-program-for-sellers/

• http://qz.com/436889/alibabas-customers-can-now-get-a-loan-based-on-their-online-shopping-history/

• http://www.pymnts.com/news/2015/uber-enters-auto-financing/

http://www.pymnts.com/news/2015/amazon-expands-business-loan-program-for-sellers/





















http://qz.com/436889/alibabas-customers-can-now-get-a-loan-based-on-their-online-shopping-history/































http://www.pymnts.com/news/2015/uber-enters-auto-financing/


















Distribution of B financing: possible evolution

individual, relationship-based financing contracting

mass, portfolio-based, financing contracting

wholesale (via intermediaries)

financing contracting

?

?


What market? When?

• the market: • e-commerce, • B2B, • everyone#everyone, • not industry-specific (ca 15%÷25% of non-core purchase) - open, • with buyers ca below EUR 100M (yearly turnover), • with sellers ca below EUR 10M (yearly turnover), • mostly occasional trade relationships (stand-alone transactions)

• http://www.forbes.com/sites/sarwantsingh/2014/11/06/b2b-ecommerce-market-worth-6-7-

trillion-by-2020/

• Is it ever to develop in Poland? Why? How? Due to what?

• If yes, when? 2Y horizon? 5Y? 10Y?

• Is it to grow as a local market or as an intenational one (X-Border? regional? continental?)? • Will financing of this market develop as supply-chain financing (based on individual set-ups

i.e. build within the relationship model) or as pure transactional e-financing (based on limits allocated automatically within the on-line model)?

• Will e-financing follow and develop in a similar pace as the very B2B e-commerce?

http://www.forbes.com/sites/sarwantsingh/2014/11/06/b2b-ecommerce-market-worth-6-7-trillion-by-2020/


















To own or just to service e-market? (1/2)

• the financing institution does not have to control (to „own”) B2B e-market, to be able to finance B2B transactions at an e-commerce platform,

• the financing institution may be providing financing for the customers of someone else’s B2B e-commerce platform (e.g. ICICI Bank for Indian customers of Alibaba: http://economictimes.indiatimes.com/industry/banking/finance/banking/icici-bank-to-finance-indian-sellers-linked-with-alibaba-com/articleshow/47769755.cms?intenttarget=no)

• so e-financing does not have to grow organically to gain volume, it can also grow by contractual alliances with well-established B2B e-commerce platforms,

• financial institution(s) can just create a separate e-Financing Platform to become a financing component for many e-commerce B2B platforms...

http://economictimes.indiatimes.com/industry/banking/finance/banking/icici-bank-to-finance-indian-sellers-linked-with-alibaba-com/articleshow/47769755.cms?intenttarget=no































To own or just to service e-market? (2/2)

• however, in such scenario the financial institution does not have access to all data on B2B e-commerce platform customer activity, with negative impact on credit risk assesment,

• moreover, the operator of the B2B e-commerce platform may decide to terminate the contract and the e-Financing Platform may be left alone, without its proper market


If to own: together or on our own?

fragmentation of the Polish banking market:shares in the balance sheet total

PKO BP Bank Pekao BZ WBK mBank ING BSK

Getin Noble Millennium BGZ BNP Paribas Bank Handlowy Alior Bank

Bank BPH BOS Idea Bank other

source: Polish Financial Supervision Authority, data as of 30 Sept., 2015


Thank you!

Grzegorz Hansen

Director for Transactional Banking Strategy and Development

Transactional Banking Department

mBank SA

grzegorz hansen_corporate banking in the world of b2b e-commerce platforms

Economy & Finance