vision 2014: trends in commercial card and small business lending

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Trends in commercial card and small business lending

Michael Kortering PNC Bank

Dan Meder Experian

#vision2014

2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

What is going on with small business?

Key trends:

► Small business loan demand

► Small business cards

► Consumer-to-business cross-sell

► Portfolio benchmarking

Next steps

Agenda


Small business

loan demand


Which do you see?


The uneven road of small business optimism

Source: March 2014 NFIB small business survey


The U.S. Economy has been growing at a moderate rate for the past three years

*Data is from the St. Louis Federal Reserve FRED database and is in 2009 dollars, seasonally adjusted.

The economy has been growing since 2010

The inflation-adjusted GDP growth rate has been around 2.3% since 2010

The post WWII average has been 3.3%

U.S. GDP*

Annual change in U.S. GDP

$12.0T

$13.0T

$14.0T

$15.0T

$16.0T

$17.0T

-4%

-2%

0%

2%

4%

6%


$0.00T

$0.50T

$1.00T

$1.50T

$2.00T

$2.50T

$0.51T

$0.54T

$0.57T

$0.60T

$0.63T

$0.66T

$0.69T

Large commercial loan portfolios are growing faster than smaller commercial loan portfolios

* Data is from the FDIC.gov website database. Commercial loans include both C&I and CRE loans.

U.S. commercial loans greater than $1M have grown from $1.6T in 2010 to $2.1T in 2013 (+33.2%)

But, commercial loans less than $1M have fallen from $0.65T to $0.59T over the same period (-10.2%)

Commercial loans > $1M

+33.2%

-10.2%

Commercial loans < $1M


-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

2000Q1 2003Q1 2006Q1 2009Q1 2012Q1

Federal Reserve Senior Loan Officer Opinion Survey

Net percentage of domestic banks reporting stronger demand for C&I loans from small firms

Net percentage of domestic banks increasing spreads of loan rates over banks' cost of funds to small firms

Net percentage of domestic banks tightening standards for C&I loans to small firms

The Senior Loan Officer Survey shows increased demand and competition for small C&I loans

*Data is www.federalreserve.gov.

Despite shrinking

balances for small

C&I loans, the Federal

Reserve senior loan

officer opinion survey

shows increased

demand, decreased

lending standards,

and shrinking margins


Making the most

of small business

credit cards


Small business credit cards… An attractive alternative for small businesses

Improved cash flow Vacation Saves time

Extend payments Earn rewards Convenience

http://blogs.kqed.org/newsfix/files/2013/06/faucet-with-money.jpg

http://www.universalfunding.com/blog/wp-content/uploads/2013/05/Accounts-Receivable-Financing.jpg

https://www.google.com/url?q=http://smallbiztrends.com/2010/02/new-credit-card-laws-dont-apply-to-small-business-cards.html&sa=U&ei=onIwU8DJBsmT0QHqsoGYCg&ved=0CDIQ9QEwAg&usg=AFQjCNGIZTUs_jp3sBm-Ne0VZzSBkAoulQ

http://dev.bukkit.org/media/images/39/298/Easy-button_1_.jpg


The market continues to move from checks to electronic payments

Data Source: 2013 Federal Reserve payments study

0

20

40

60

80

100

120

140

2003 2003 2009 2012

$B

's

Non cash transactions by payment type

ACH

Checks

Debit

PrepaidCard

CreditCard

45.8%

14.9%


Checks are declining at a 9.3% per year rate, despite total non cash payments increasing by 4.4%

Business card payments are the third fastest growing category, following private label and prepaid

Business card payments are growing at 14% per year

Growth rates of non cash payments

2009-2012

CAGR

2009-2012

Inflation

Rate

Credit Card

Business

General Purpose 13.9%

Private Label 4.6%

Total Business 11.9%

Consumer

General Purpose 5.9%

Private Label 26.0%

Total Consumer 6.9%

Total Credit Card 7.7%

Prepaid Card 16.0%

Debit 7.8%

Checks -9.3%

ACH 5.0%

Total 4.4% 2.3%

Data Source: 2013 Federal Reserve payments study


$0.50T

$0.55T

$0.60T

$0.65T

$0.70T

$0.75T

Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13

Commercial Loans<$1MM Credit Card

Change in Loan Balances: Commercial Loans<$1MM vs. Credit Card

Credit card balances declined slightly in 2011 and 2012 but increased slightly in 2013

*Data is from the FDIC.gov website database. Commercial loans include both C&I and CRE loans.

U.S. consumer credit card balances declined slightly from $0.70T to $0.69T (-1.5%)


Cross-selling the

business owners in

your consumer

portfolio


Consumer repository

Source

data

Principal

information

Business

information

Business contact

link candidates

Consumer

link candidates

Commercial repository

Match and link process

B2C

links

Business owners are consumers too…

Cross-sell to consumers who are business owners

Links are established based and maintained over time based on updates from public records, trades, and other sources


Entity linkage service Sample

Consumer

Contact Data

Client input: Jane Doe 341 White Pond Drive, Akron, OH 44320

Businesses linked to Jane

BIN:778954433 Business Name: Westwind Imports Affiliation: Current Title: Owner

BIN:757689433 Business Name: Green Door Cafe Affiliation: Current Title: Co-owner

BIN: 723998123 Business Name: Burke Hardware, Inc Affiliation: Previous Affiliation dates: 8/2009-1/2011 Title: President

Input

Jane’s CID is linked to currently and

previously affiliated BINs

B2C

links

Jane’s CID (Customer Identification Number)

Linkage process is bi-directional (B C). In other words, linkage can be established for consumer or business input files


It is difficult to get business owner PII on prospects

Some banks have this information on existing business banking customers

The result is that 95% of business card direct mail is ITA

Most business card direct mail is ITA

0%

20%

40%

60%

80%

100%

2010 Q1 2011 Q1 2012 Q1 2013 Q1

Business Card Direct Mail by Offer Type

ITA

PA

*Data is from Comperemedia.


0%

10%

20%

30%

40%

National Bank #1 with

Business

Banking


Business

Banking


Business

Banking

National Issuer #1 National

Issuer #2 Others

Direct Mail Offer by Issuer

Percent PA DM Market Share

Banks with business banking use pre-approved more than other banks

Comperemedia and is from 2010-2013

Banks with business banking customers have a higher percent of PA DM

Issuers without business banking customers rely almost entirely on ITA

Much of the business card direct mail volume is concentrated in three issuers


Why portfolio

benchmarking?


Portfolio benchmarking and “fact-based” decisions


Link small business performance to peer group metrics

Identify the good, the bad and the ugly

Incorporate observations into treatment strategies

The “payoff”…

Better informed decision making

Improved allocation of resources

Healthier financial results

Portfolio benchmarking enhances small business decision making

Cash cows

Stars

Dogs

Market

growth Question marks

Relative

market

share

24

21

18

14

11

8

2.0 1.6 1.2 0.8 0.4 0.0

Dorian

Pentrix

Xantax

Longal

Energan

Bendac Braviton

Eviron

Lotran

Zodial


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Portfolio Distribution by Industry

Industry Bank

Portfolio benchmarking allows management to evaluate portfolio distribution vs. the industry

*Industry data is from Experian’s business bureau files; bank data is illustrative.

This portfolio is lower risk than average, with few assets in missing, construction, and retail industries


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Under 1

Year

1 Year 2 Years 3 to 5 Years 6 to 10

Years

Over 10

Years

Portfolio Distribution by Time in Business

Industry Bank

Many other attributes can be evaluated such as time in business

This portfolio is lower risk than average, with few assets in newly opened businesses



0%

5%

10%

15%

20%

25%

30%

35%

0 - 20 21 - 40 41 - 60 61 - 80 81 -100 Missing

Portfolio Distribution by Intelliscore

Industry Bank

Score comparisons are a key part of portfolio benchmarking


This portfolio is lower risk than average, with fewer assets in lower score businesses

SM


In the next 60 days, you should:

Examine your consumer portfolio and determine how many of them are small business owners

Take what you’ve learned today, and begin to apply some of the portfolio metrics to your small business portfolio

Next steps


For additional information, please contact:

[email protected]

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vision 2014: trends in commercial card and small business lending

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