The SME Offerings of Standard Bank of South Africa

Value-adding Products in SME Finance

New Technologies for

Small and Medium-Size Enterprise Finance

4 – 6 December 2002

World Bank Headquarters

Washington D.C.

Standard Bank Group

Retail & Commercial

Banking

Life Assurer

WealthMerchant & Investment

Banking

100% 30%65%100%

South Africa

Africa STANLIBSCMB

International

Africa

• African Roots… Global Reach• Top or second bank on most measures in South Africa:

– Total assets ZAR 395.8bn, US$ 40.2bn*– Headline earnings ZAR 4.4bn, US$ 447m*– Market Capitalisation ZAR 43.3bn, US$4.4bn*

• Only South African bank to be seriously meeting the challenges in Africa• Only South African bank that has grown organically to its current size

• As per 31 December 2001, Exchange Rate ZAR 9.844 : US$1

3

Large Enterprises

> 100 or 200 employees*6 000 enterprises

Estimated Market Size

Medium Enterprises50 to 100 or 200 employees*

12 000 enterprises

Small EnterprisesEstablished enterprise

< 50 employees60 000 enterprises

Very Small EnterprisesFormal enterprise or self-employed

no or < 10 or 20 employees*420 000 enterprises / self-employed

Micro EnterprisesEnterprise or self-employed lacking formality

i.t.o. registration, tax or labour400 000 enterprises / self-employed

Survivalist EnterprisesProviding minimal means to the poor,

income less than poverty line, no employees800 000 self-employed

* The higher employment criterion of 20 or 200 employees applies to mining, manufacturing, electricity and construction

R 50million

R 5million

R 10million

R 12thousand

R 150thousand

South African SME MarketMarket

Segmentation

Commercial Banking Market

Penetration26%

Retail Banking Market

Penetration30%

Emer

ging

Mar

ket

Turnover

Your cash needs Cash availability

Your cash needs Cash availability

Click, call or come inMulti-channel deliveryKnown point of contact

Click, call or come inMulti-channel deliveryKnown point of contact

Enabling your business

State-of-the-art operating platforms

Enabling your business

State-of-the-art operating platforms

Empowering and enabling you to run your business

Simpler, Better, FasterIt’s all about your

convenience

Empowering and enabling you to run your business

Simpler, Better, FasterIt’s all about your

convenience

The SME Value Proposition

Your Cash Needs

Customer Value

• Standardised, uncomplicated, off-the-shelf

products

• Appropriate for the size of the business

• Transparent pricing, enabling choice of services

Bank Value

• Limited flexibility / choice, improved economics

• Profitable product range

• Easy to sell

• Competitive, but not necessarily cheapest

Customer Needs

• Cash flow is the lifeblood of my business

• I need to manage my cash effectively

• I want uncomplicated transactability

• I have simple finance requirements, but rely on

the bank when I need it

Bank Solution

• Convenient deposit and withdrawal facilities

• Immediate clearance of deposits

• Easy access to appropriate range of loan products

• Customer choice between price and convenience

Enabling your Business

Customer Value

• Technology that helps to run the business

• Hassle-free solutions

• Easily accessible

• Time spent on banking is not wasted

Bank Value

• Encourage migration from physical to direct

• Minimise staff intervention

• Customer satisfaction

• Ties customer in, creating stickiness

Customer Need

• Enable my business conveniently, reliable and

secure

• Provide me with accurate and up-to-date

account information

• Give me a solution that not only ‘sounds good

on paper’ but works in practice

Bank Solution

• SME AutoBank Card provides access to bank’s

operating platforms

• On-line banking extends operating platforms

into business

• Mobile banking provides anytime, anywhere

access

Click, Call or Come In

Customer Value

• Multi-channel delivery

• Anytime, anywhere service

• Team of SME Business Bankers core to delivery

• Customer knows point of contact

Bank Value

• Efficient use of channels

• Greater emphasis on self-service

• Field spends time on quality issues that add value

• Satisfied, profitable and loyal customers

Customer Need

• I like online banking, it is convenient and secure

• But behind the systems I need a real person who

won’t let anything ‘fall through the cracks’ and will

be able to provide solutions

Bank Solution

• Dedicated staff, know how to deal with SME’s

• Differentiate service by high, medium and low

customer contribution

• Anytime, anywhere service through Internet,

ATM’s, Call centre and IVR

• Relatively high Non-Credit Fee Income – 40%, international average 23%*

• High loan loss provision OD/TL – 4% of performing loan book

• Margins directly impacted by interest rate fluctuations

SME Profitability

NII Transactions

39%

NII Lending OD/TL8%

4%4%

NII after Loss

11%

Loss Provision

2%

Fee Income Transactions

Branch

26%

Fee Income Transactions Remote

12%

Fee Income Lending

2%

NII Asset Finance13%

NII after Loss

Loss Provision

* Business Banking Board Report, 2002

Lending Products Automated Overdraft SME Overdraft Business Revolving

Credit Plan Medium Term Loans Business Mortgage Stannic Asset Finance Factoring Guarantees Khula Loan Guarantee

Lending Products Automated Overdraft SME Overdraft Business Revolving

Credit Plan Medium Term Loans Business Mortgage Stannic Asset Finance Factoring Guarantees Khula Loan Guarantee

Electronic products Internet Banking Business Online Mobile Banking AutoPay POS ATM ADM

Electronic products Internet Banking Business Online Mobile Banking AutoPay POS ATM ADM

Transactional Products SME Account (without

cheque book) SME Current Account SME PlusPlan Savings

Account SME Auto Bank Card MarketLink Call and Notice

Deposits

Transactional Products SME Account (without

cheque book) SME Current Account SME PlusPlan Savings

Account SME Auto Bank Card MarketLink Call and Notice

Deposits

SME Products and Services

Empowering and enabling you to run your Business

Simpler, Better, Faster.It’s all about your

convenience - straightforward business

financial solutions

Empowering and enabling you to run your Business

Simpler, Better, Faster.It’s all about your

convenience - straightforward business

financial solutions

Description Remote business banking card for SME’s

Unique Features Empowerment through channel choice and convenience - Internet, telephone / mobile, ATM’s and POS

Product Attributes - Multiple SME AutoBank Cards per account- Select / manage daily and monthly limits per card- Transactions can be limited to deposits or enquiries only- Deposit function, ADM machines for bulk deposits- Account payments, organize payments a year in advance

- Manage funds between linked accounts- Statements and balances from a choice of channels

- Maestro debit card functionality- Activate or increase overdraft by Internet, phone or ATM

Product Economics - Cost reduction ~ for bank - physical vs. direct infrastructure ~ for customer - choice of cheaper alternatives- Enhanced long term profitability - stickiness

Transaction Products: SME AutoBank Card

SME AutoBank Card: Transaction Trends

5 million

30 million

1999 2000 2001 2002

Non Card Transactions SME Card Based Transactions

Scored Lending: Automated Overdraft

Description With a SME AutoBank Card an overdraft can be activated, increased or decreased

Unique Features - Overdraft facilities are available immediately, 24/7, through direct channels by combining

behavioural scoring and channel technology

Product Attributes - Adjustments whenever required, maximum R100 000- Overdraft limit can be increased to 100% of confidential limit- Risk grading determined by behavioural scoring - Only available to sole proprietors and partnerships

Product Economics - Reduced credit assessment costs- Reduction in bad debt- Direct marketing efficiencies - pre-approved offer / direct fulfilment (20% take-up rate)

Automated Overdraft: Application Channel

• Direct channels applications are on average half the value of branch applications, due to the ceiling on scored facilities

Direct22%

Branch78%

Direct8%

Branch92%

20022001

Unscored Lending: Business Revolving Credit Plan

Description Simple and flexible credit line repayable in equal monthlyinstalments

Unique Features - Usually granted for an indefinite period- Draws may be made on partial (25%) or full repayment- Access via SME AutoBank card and direct channels

Product Attributes - Easy cash flow planning - Once authorised, no re-negotiation

- Interest is capitalised monthly - Additional repayments accepted

Product Economics - Risk return better than overdraft - Higher loan use - average for BRCP is 80% - Security link lowers bad debt

Business Revolving Credit Plan: Loan Status

Can revolve

17%

Above limit to be revolved

20%

Reducing basis

47%

Debt consolidation

16%

-Guaranteed Lending i.e. Sizanani, Khula, Mpilo- Swopping hardcore OD to BRCP- Customer Request i.e. Asset Finance

Description Payment gateway e-enabling business trading on Internet;more cost effective for merchant than SEP’s

Unique Features ‘Pay button’ can be displayed on 3rd party web sites for ad-hocpayments to bank-approved merchant

Product Attributes - Secure shopping on the web by clicking on AutoPay button, entering ATM card number and password, select cheque or

credit card account- Customer authentication by issuer, no risk of repudiation by

customer for merchant - Low merchant turnover requirement, R2 thousand per month

Product Economics - Reduced credit card fraud- Increase of revenues - flexibility and more dominant web presence

Electronic Products: AutoPay

Electronic Products: On-line Banking

Business Online

• Software installed on customer’s PC

• Full segregation of duties through workflow

• Ultimate functionality: batch, ERP, International and Fx, e-filing, EBP, Factoring

• Complex take-on process

• Dedicated support structure

• High fixed costs• Low transactional costs• Breakeven with IB 50 payments p.m.

SME Internet Banking

• Software resides on Internet

• Segregation of duties through SME AutoBank Card

• Simple functionality

• Apply on-line

• Self-help and Call-line

• Low fixed costs• High transactional costs

Technology

Security

Functionality

Take-on process

Support

Pricing

• Two electronic platforms aimed at business market, enabling seamless delivery• Both products are based on TCP/IP protocol and use Internet based technology • Same basic functionality: Statements and balances, transactions and payments,

adding and deleting of beneficiaries

On-line Banking Usage

50%

21%

55%

31%

66%

49%

01999

Internet connected On-line banking usage

2000 2001

24,000

34,000

43,000

61,000

1999 2000 2001 2002

Standard BankTotal Market

Better or no

competitor offering

Co

mp

etit

iven

ess

of

Off

erin

g

Nice to have

Equal

Essential

Lagging

Customer Need

4. Excess

2. Area of Focus

3. Appropriate

1. Urgent!

On-line Banking: From Forecourt to Full-service

• Payroll

• Web-site hosting • e Filing

• Electronic Bill Presentment

• Internet Access

• Mobile merchant capability

• Downloadable file format

• Accounting package integration

Thanks for listening