Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
This case provides participants with the opportunity to develop the leadership strategy in the small and micro business segment for Rosbank, a leading universal bank in Russia. As part of the case study, participants will have to analyze current market trends, evaluate Rosbank position and prospects, as well as to formulate suggestions pertaining to market share increase. In order to retain its grounds and attract new active customers, Rosbank should focus on development of alternate sale channels and pay close attention to perfection of product range. The goal of the bank is to double the number of active customers and the profit per each customer.
小ontents
contents
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Introduction
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Rosbank
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SME Segment in Russia
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Rosbank Entrepreneurs Segment
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Competitors
Bank Products and Services: SME Segment
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Supplements
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This case study was prepared by Changellenge>> for Rosbank solely to use for educational purposes in the framework of Changellenge National Case Study League >>. The authors do not intend to illustrate effective or ineffective management. Certain names in this case study, together with other identification data might have been altered for confidentiality purposes. Case study data might not be valid or accurate, and also might have been altered to comply with commercial confidentiality policy. All rights reserved, unauthorized use is prohibited. In order to purchase the case and for distribution purposes please contact us: info@changellenge.com.
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
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Introduction
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Introduction
Introduction Early in the morning Mikhail, Vice-President for Development of Entrepreneurs Products Segment, Rosbank, was getting ready to set off for the economic forum dedicated to support and development of entrepreneurship in Russia. While putting on his tie in front of the mirror Mikhail was yet again considering the important issue that had been in prime of his attention for the past several days. The board of directors tasked him with establishing the strategy of entrepreneurs’ products segment1 development. This included two goals: first, to increase the share of Rosbank in micro and small business segments at least twofold and, second, to increase the gains from the entrepreneurs’ products in the general portfolio considerably. Mikhail was expected to highlight which factors would provide for the substantial growth. It was evident that the existing approaches and methods could not secure the dynamics required, and Mikhail had to come up with ta new quality solution that would ensure competitive edge for Rosbank. Mikhail came to the forum right at the moment it started and proceeded to the hall while welcoming his acquaintances and business partners. One of the more prestigious Moscow hotels provided floor to congregation of various representatives of leading Russian banks; state authorities; insurance, leasing, and factoring companies; as well as NGOs uniting micro and small business enterprises. Forum participants discussed state support measures, entrepreneurship segment issues, and means of stimulating enterprise demand for bank services and products. By the moment the
main part of the forum was over, Mikhail already had several useful key thoughts and ideas sketched out in his notebook. After the event’s official part Mikhail joined the buffet reception where he met quite a number of colleagues and friends. As the hour of latest news discussions passed, Mikhail met Nikolay (Deputy Head of small-business association OPORA), his old chap and a prominent professional in business and entrepreneurship. Mikhail eagerly shared his thoughts on the strategy development. “I believe — said Nikolay upon listening to his friend very carefully — that Rosbank has good chance to increase its market share. I still remember what big success you were able to achieve last year in the segment of micro and small business crediting. True — nodded Mikhail — crediting is our strength. Yet today we are striving to balance our portfolio and achieve self-funding balance. That is why we are especially interested in attracting new deposits and making our bank a hub of all customer’s transactions. In general, we are looking to increase or gains per one customer. And what are the established limitations in regards to the strategy development? — asked Nikolay. We certainly cannot afford multimillion investments with delayed long-term effect, such as, for instance, bank branches reequipment and redesign. We have just launched IT infrastructure rebuild project. It will
continue till 2017 and thus our resources for development and integration of new IT based services are currently very limited. — I understand. In his case, perhaps, maybe it is worthwhile to consider expanding the range of bank products offered, improving sales methods, and increasing the number of products sold per a customer? Package offers are a good way for the bank to make profit, aren’t they? These offers can be both of universal nature and industry specific. You are right — said Mikhail — It is profitable for a bank to bring forth package offers as they make it possible to sell more services and products. At the same time, such offers are also profitable for a customer as certain operation and servicing costs are reduced significantly. Some of our competitors develop separate business area product packages whereas Rosbank builds offers with account for specific business needs of all Rosbank customers in general.” At this moment, the animated conversation of two friends was joined by their old acquaintance Tatiana, a self-made businesswoman. “You know what? — noted Tatiana — I would advise Mikhail to ponder on segmentation in some new curious way. Perhaps you could single out certain new fields that have not yet come into limelight. This way you would definitely sidestep your competitors. Here is an example; I would be very much interested in products tailored for female entrepreneurs.
1 For the bank, the entrepreneurs are companies (legal entities and sole traders) with annual revenue from 0 to 400 mln
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Introduction
You should try to offer something specific for businesswomen. This is a non-conventional approach — reacted Mikhail — This way we don’t even need to introduce any cardinal changes into our products range, it will be enough to just modify its representation and appearance. Plus we really could come up with many more such targeted segments both for general market and industry specific! What about advertisement of your products? — continued Tatiana — mayhaps many potential customers are just unaware of Rosbank existence, and you just have to launce several countrywide federal ad campaigns? We prefer to act in a different way — responded Mikhail – Our bank invests into ready product at a promotion stage. Once we come up with a new product with high potential, the bank allocates corresponding ad budget. At that point, one of the most prominent Russian entrepreneurs, and one of the first Rosbank customers, came to Mikhail, and the latter quickly thanked his interlocutors for great ideas and bid farewell.
On his way back home late at night Mikhail reverted to pondering about the strategy development and summed up all thoughts of the day. His team is to develop the strategy that would allow Rosbank to increase market share in “entrepreneurs”2 segment up to 5% by 2017 by means of the following: • “Entrepreneurs” segment active customer base two-fold increase by 2017 • Alternate channels of sales3 development • Doubling the annual income from one customer (from 60 thousand RUB to 120 thousand RUB) by 2017 • Perfection of product line (development of “anchor” products, expansion of product range to 4.5 products per one customer) Next day Mikhail would gather the work team and would start developing the strategy together with his colleagues. The final goal is to enable Rosbank put forth new offers for micro and small business and become an even better partner for entrepreneurs.
2 “Entrepreneurs” segment in Rosbank includes micro and small businesses. Medium enterprises are not a part of this segment 3 Sales channels which are not traditional for the bank (as opposed to sales through client account managers or directly through points of sales when customers flock in “from the street” or due to advertising). Alternate sales channels may comprise, for instance, partner suppliers of large customer bases
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Rosbank
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Rosbank History I Rosbank
Rosbank History Rosbank (initially named “Nezavisimost”) is a joint stock bank which was incorporated in the Russian Federation in 1993. Over the subsequent five years, Rosbank customers were mainly comprised of medium-sized trade, finance and technology companies, for which it conducted a variety of activities, including corporate lending, settlement, government bond trading, foreign exchange and money market transactions. Nowadays universal bank focused on all segments of clients, becoming a bank with a full range of products and services, having market expertise, giving support in international activity. Robank today is a trusted partner aimed at long-tem relationship sharing the goals of its customers and striving to grow together with them. In 1998 Rosbank was acquired by the Interros Group with the initial purpose of providing banking services to Interros Group companies. In 2000 Rosbank acquired Uneximbank which was merged into Rosbank and ceased to exist as a legal entity. In 2002 the businesses of Rosbank and Commercial Bank “MFK Bank”, specializing in investment banking, were consolidated. In 2003 the Interros Group acquired OVK group – one of Russia’s largest retail banking institutions. The integration of OVK with Rosbank has transformed Rosbank into a financial institution capable of offering universal services.
Societe Generale in Russia Societe Generale international financial group is the major shareholder of Rosbank. Based on a diversified universal banking model, the Societe Generale Group combines financial solidity with a strategy of sustainable growth, and aims to be the reference for relationship banking, recognised on its markets, close to clients, chosen for the quality and commitment of its teams. First time Group appeared in modern Russia in 1993 with foundation of Banque Societe Generale Vostok (BSGV) – the first foreign bank to acquire the General License from the Central Bank of Russia. Then in 2003 was created BSGV Leasing and launched retail banking services; BSGV becomes a universal bank. After one year was introduced specialized subsidiaries: Rusfinance Bank (consumer loans) and ALD Automotive (car fleet leasing and management). In 2005 was acquired DeltaCredit Bank, one of the leaders on the Russian mortgage lending market. Integration of Rosbank in Societe Generale Societe Generale became the owner of 20% minus 1 share of Rosbank in 2006. In February 2010, Societe Generale with the consent of other shareholders of Rosbank Group took the decision to reorganize the legal structure of its Russian subsidiaries in order to build a major financial group.
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
The first step was achieved in January 2011 with the acquisition of 100% of the share capital of Rusfinance and Delta Credit. The two companies will keep acting as separate entities, Rusfinance being mainly dedicated to consumer credit and Delta Credit to mortgages. The second step was achieved in July 2011 with the merger of the two universal banks Rosbank and BSGV into a single and unified company ultimately operating under a single brand. Benefiting from their differentiated positioning on both corporate and retail segments, the new structure aims at improving its financial performance by increasing revenues through cross-selling strategy and developing synergies in order to reduce operational costs. During 2013, Societe Generale further consolidated its positions in Russian market by acquiring in December 2013 an additional 10% stake in Rosbank equity from VTB Group, increasing it up to 92.4%. As part of the agreement Rosbank sold to VTB Group certain Russian assets: shares listed on Moscow Exchange as well as some loans and real-estate assets. This transaction had a positive financial impact on Rosbank’s financial results for the year ended 31 December 2013.
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Rosbank Today I Rosbank
Rosbank Today Rosbank is engaged in a full range of banking activities, including commercial and investment banking and custodial services. Rosbank has 14 branches operating in the Russian Federation. Rosbank serves over 3 mln individual clients among 71 regions in Russia. One of the largest retail networks in Russia with over 600 outlets, 1200 points of sales, about 3000 own ATMs and 40000 arranged by Rosbank ATM`s. First place among subsidiaries of foreign banks in Russia by Tier 1 capital (Top 100 World Banks 2013, The Banker, July 2013). One of the biggest retail credit portfolio (RBC Rating, 2013) in Russia. Moody’s Investor Service Long term rating is Baa3. In terms of retail banking Rosbank offers cash management services, credit cards, consumer financing, financial solutions for purchasing real estate and automobiles, saving and investment programs, money transfers and currency
4
exchange operations, renting of safe deposit boxes, remote banking services, Internet-Bank and Mobile Client-Bank services, services to wealthy clients. Key areas of Rosbank corporate business include operations on foreign exchange and money markets, debt market, syndicated and structured financing, custody operations, brokerage services, trade financing, leasing, factoring. Rosbank enters the list of the most reliable banks according to Forbes rating in 2014. The bank has the most expensive brand among the foreign financial institutions of Russia4. Rosbank aims at being intuitive, convenient, attentive and reliable partner for clients. Intuitive means transparent pricing, understandable terms and keep clients informed. Convenient means fast applications processing, extended branch hours, free cash withdrawal in wide
atm network, 24/7 remote functionality. Attentive means product offer covering basic and advanced needs, diligent complaints resolutions. Reliable means no surprise experience, what you see is what you get. The bank not only helps people in need, but also strives to do this in an efficient manner by supporting those that make proper use of their means. Rosbank’s social activity calls not only for centralized project financing, but also providing its employees with opportunities to perform voluntary community service. In line with the intra-corporate program “Everyone Has The Right to Help”, the bank supports the aspirations of its employees by matching the amount of their contributions, thereby doubling the charitable proceeds.
Brand Finance feat. BrandLab and Banki.ru, 2014
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Rosbank Strategy I Rosbank
Rosbank Strategy In 2014 Rosbank started to realize a new business strategy for 2014-2017. The new strategy of the bank is part of Societe Generale Group global strategy, which is aimed at improving the quality of customer service and achievement of leadership positions in the field of innovation, ensuring growth through business development, enhancing collaboration between divisions and sustainable profitability maintenance. Dmitry Olyunin, Rosbank CEO, stated: «The new business strategy is based on Rosbank’s evident competitive advantages: widely known international brand, universal product offering,
30 ���
AVERAGE EMPLOYEE AGE
353 000 m
2
TOTAL OFFICE AREA IN RUSSIA
and one of the largest regional networks. All this give us the unique opportunities for the further development. The new strategy is aimed at development along all the business lines, including technologies and service improvement. We focus on the daily banking model, strengthening synergies between the bank’s subsidiaries». Currently 61% of assets are the share of a credit portfolio which about a half make the credits to legal entities. Overdue debt in the total volume of loans is less than 9%. The structure of liabilities is as follows: 19% of funds on accounts and deposits of individuals,
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ONLINE COURSES
PROGRAMS ON STUDY PORTAL
1927
6
3
BUSINESS TRIPS IN 2013
SOCIETE GENERALE FUTSAL TEAMS IN RUSSIA
KILOMETERS BETWEEN THE KREMLIN AND THE BANK HEAD OFFICE
31 000
20% of debt in the form of interbank loans from Russian and foreign banks, approximately 15% are balances on current and Deposit accounts of clients. On the domestic interbank market Rosbank is, as a rule, the creditor. In addition, bank is actively working on the currency market. According to the bank statements for 2013 year Rosbank earned a net profit of $ 6.4 billion By the end of 2013, assets grew by 6% or 41.3 billion rubles. In assets the greatest dynamics was shown by a credit portfolio (mainly retail), and also investments in the bond of the Russian Federation (in 2014 Rosbank continued to increase investments in the state bond).
LETTERS AND MESSAGES PER DAY SENT OUT BY ROSBANK EMPLOYEES
6,7
TRAININGS A YEAR PER EACH EMPLOYEE
13 100 EMPLOYEES
75% FEMALE EMPLOYEES
25% MALE EMPLOYEES
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SME Segment in Russia
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General Background I SME Segment in Russia
General Background All over the world, small and medium enterprises (SME) provide for growth and diversification of a respective country economy. Competition between small enterprises and their cooperation with major producers form the optimal costs backbone, improve products quality, and ultimately result in lower final price.
Market segment
SMEs are legally defined in Russia5. There are two basic parameters: employees’ headcount and annual receipts. Micro enterprises include companies and individual entrepreneurs with annual receipts less than 60 million rubles and employing less than 15 persons, small enterprises have annual receipts below 400 million rubles and fewer than 100 employees, medium enterprises – less than 1 billion rubles and 250 employees. As of today, Russian business is segmented as described in the table below:
SMEs qty, thousand eaches
Qty of companies
Average turnover, mln rub/year
Average employees headcount
Banks penetration
1 000
> 5 000
Over 10 000
95%
Large
3 000
1 000-5 000
Over 1 000
95%
Medium
14 000
400-1 000
125
55%
Small
243 000
60-400
25
35%
Micro
1 760 000
<60
2,5
30%
Mega
Source: Rosstat data, 2013
243
1760
13,8
Average employee headcount, thousand persons
1719,5
Receipts, billion rub.
4110,6 Medium enterprises
6506,8
4248,9
15116,3 Small enterprises
8347,4 Micro enterprises Source: Rosstat data, 2013
5 Corresponding criteria are set forth in the Federal law No. 209-FZ dated 24.07.2007 “On Development of Small and Medium Enterprises in Russian Federation”
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General Background I SME Segment in Russia
Small business provide the largest share of receipts (55%) and employees (52%) in SME segment (including individual entrepreneurs). In terms of trade segmentation the large part of all small and micro enterprises (about 40%) are dealing with wholesale and retail trade and consumer services, about 20% work with real estate (including rental and other related services), whereas around 10% are in construction business. Geographically, most SMEs (exclusively of micro businesses) are situated in Central Region (32%); around 19% are located in Volga Federal District, 14% and 12% - in Northwestern and Siberia Federal Districts respectively. Less than 5% of SMEs are hosted in Far East and North Caucasus districts.
SMEs breakdown by industry, %
Trade and consumer services
39,3%
Real estate transactions
20,4%
Construction
11,5%
Manufacturing
9,6%
Other activities Transportation and communication Agriculture, forestry, fish husbandry Mining, utilities distribution
8,2% 6,5% 3,5% 1,0%
Small and Medium Enterprises Source: Rosstat data, Small and Medium Enterprises in Russia. 2013
SMEs distribution per region (exclusively of micro businesses), thousand eaches
Central Federal District
80,6
Volga Federal District
49,3
Northwestern Federal District
34,9
Siberian Federal District
30,1
Ural Federal District
19,4
Southern Federal District
18,3
Far Eastern Federal District North Caucasian Federal District
11,1 5,8 Source: KPMG, 2014
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SME Segment Development Trends I SME Segment in Russia
SME Segment Development Trends In 20136, the segment development was in the red: for the first time in the last decade, the total number of SMEs dwindled. The main culprit for that was the abrupt increase of insurance contributions to the Pension Fund of the Russian Federation (the tariff increased 2.3 times â&#x20AC;&#x201C; from 14.3 thousand rubles to 32.4 thousand rubles). As a result the number of micro, small, and medium enterprises decreased by about 600 thousand eaches7. At the moment, the Russian government heatedly debates two amendments into the Tax Code of the Russian Federation which are to come in force starting from 2015. The goal of these amendments is to establish stimulate for the return of entrepreneurs back into â&#x20AC;&#x153;legal zoneâ&#x20AC;?.
characteristic of SME segment. According to Rosstat, the number of registered small and micro enterprises in Russia increases on average increases by 9% per year, whereas 7% of already operating enterprises undergo liquidation. The same is true for individual entrepreneurs: each year sees registration of 700-900 thousand entities while 400-600 thousand officially shut down. Of those companies that do not operate as franchisees and start own business activities only about half pertain for a year, and only 20% of them drag on for five years. Franchising is better in this respect as 95% of franchisees celebrate the first year anniversary, and 75% of such companies reach the five-year mark.
Overall, large turnover of legal entities registrations and liquidations is quite
6 According to the results of the latest total survey of SME segment completed by Federal State Statistics Service in 2013. Published in 2014 7 Statistics includes individual entrepreneurs
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State Initiatives on SME Segment Development I SME Segment in Russia
State Initiatives on SME Segment Development The current status and issues of SME segment were discussed at the range of major economic forums in the beginning of 20148. Russia does not lag behind the mature industrial countries in terms of SMEs relative number – there are 33 such enterprises per 1000 people here. However, SMEs only account for 21% of Russian GDP whereas in western countries this indicator often surpasses 40%. The segment development targets adopted by the Russian government back in 2010 presuppose the increase of the SMEs share in the Russian economy up to 50% and up to 60% in total Russian Federation jobs by 20209. In the course of the last year SME share in GDP decreased by 5% as many companies shifted to the “gray” part of economy due to tightened legislation. In 2014, the Russian government initiated a new project purported to establish new tools increasing the availability of credit resources for SMEs. Such tools include long-term credits for SMEs through the National Welfare Fund and nonbank Credits Guarantees Agency. The latter will be providing counter-guarantees to regional financial guarantee institutes, as
8
http://government.ru/news/9741
9
EY G20 country report 2013, Russia
well as direct guarantees to SMEs working on investment projects when credit amounts are above the limits of regional guarantee institutes. It is hoped that these measures will ensure the credit market growth by 15-17%, and that
the total credit portfolio shall increase up to 6 trillion rubles. However, the project will not commence until late 2014 and will start being of considerable influence on the segment only in 2015.
GDP share of SME segment, % 58%
52%
RUSSIA 22%
23%
27%
29%
2009
2010
2011
2012
2013
USA
EU
21%
24%
22%
54%
67%
2011
2012
2013
USA
EU
24%
Employment in SME segment, % RUSSIA 18%
2009
20%
2010
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
Source: MEDT of Russia, Deloitte, 2013
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Bank Products and Services: SME Segment
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Credit Services I Bank Products and Services: SME Segment
Credit Services
As of August 2014 the total volume of credits issued to SMEs totaled over 4.5 trillion rubles. The overall growth for the period August 2013August 2014 was 4.5%, but this is much less than for the period of 2012-2013 when the same indicator was 15.3%. Slowdown of economy and decrease of borrowing clientele (in 2013) was of considerable negative impact on crediting growth rate. Last year alone over 600 thousand enterprises shut down temporarily or permanently due to general macroeconomic worsening.
10 Source: Appraisal of Expert RA based on banks survey (excluding Sberbank Russia)
Credit factories provide borrowers with new means of getting short-term credits that are characteristic of smaller security requirements and higher risk factor. According to expert appraisals10, as of the end 2013 the share of credits issued for the term surpassing 3 years was only about 11%, the share of credits for 1-3 years totaled about 20%. All other loans were short-term credits and overdrafts. Thus, the market still has virtually no “long” loan funds available. However, given current unstable economic conditions entrepreneurs try to avoid new projects. They mainly take loans in pursuit of two goals. First, they seek to refinance their liabilities dating back to 2010-2013 when economy was at its golden peak and turnovers were growing across all sectors and industries. 2014 proved to be much harsher with fewer gains, and enterprises started to experience problems with servicing
support their business more frequently as individual persons: rates for such loans are a bit higher compared to credit facilities for legal entities, but it is easier to get them. According to some estimations, the increase of “physical” loans was 45% in 2013, though the overall share of this subsegment is still smallish – around 7% of all credits issued. Furthermore, credit arrangements do not always take place in a bank where entrepreneurs are served as legal entities. Business people choose banks that offer the most favorable conditions in regards to interest rates, size of credit and procedures simplicity.
the credits taken. Refinancing makes it possible to postpone credit maturation as well as decreases the monthly debt burden. Second, entrepreneurs seek to enlarge working capital. Businesspersons experienced issues with such capital due to decrease of turnover. Yet, rates for the above loan types are growing which results in additional pressure on enterprises. The biggest demand for additional financing comes from retail trade and manufacturing segment. At the moment we are witnessing the obvious trend when business owners take credits to
7
50%
6,41
46%
45%
5,73
6
40%
5,16 5 trillion rub
Many banks focused on micro, small and medium enterprises in the past two years. Mass credit strategies (credit factories) and a range of other special products.
35%
4,49 3,84
4
30% 25%
3,23 3 2
2,25
2,65
22%
19%
17%
1,75
20% 15% 11%
15%
12%
10% 1
7%
4% 0
2008*
2009
2010
2011
SME outstanding debt balance, trillion rub Growth rate, %
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
2012
2013
2014
2015**
6%
5% 0%
2016**
Growth rate (optimistic forecast), % Growth rate (pessimistic forecast), %
Source: Appraisals of Expert RA and Bank of Russia
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Кредитование I Bank Products and Services: SME Segment
Along with reduction of SMEs turnover banks are also facing issue of sourcing financially reliable and trustworthy customers. Today small and, especially, micro businesses are high-risk borrowers (due to nontransparent reporting and next to absent availability of loan security). SME segment is currently facing the accrual of debt arrears. By August 2014 the total debt amount reached 455 billion rubles (18% growth from August 2013). The competition for
reliable customers has become even doggier due to recent turmoil with licenses withdrawn from a number of banks. As a result the market now sees redistribution of customer base in favor of large banks. State banks are in the especially advantageous stance – they have full access to cheap funds and are well able to offer refinancing for customers of not-so-lucky commercial banks.
Key SME Financing Impediments
Impediments on part of SMEs
20%
Other
No Impediments
No Answer
Lack of SME transparency
22% 22%
Lack of Loan Security
Lack of Control over Company
Impediments on part of banks
48%
High Interest Rates
Unavailable Financing
According to EY11, the key impediment for SME financing in Russia are high loan interest rates (mentioned by about half of all companies surveyed). Another notable obstacle is the absence of acceptable security with most companies.
2% 6%
Poor quality or lack of loan security
Lack of loan security or guarantees
1% 3%
Lack or incompleteness of document package required
2% 10%
Poor financial standing
11% 34% 14% 5%
Few potential lenders with good financial standing
High interest rates
Russia EU
SME Financing
High provisions for non-performing loans Low economic and legal expertise of the majority of Russian small enterprises Lack of qualified employees Lack of bank experience in SME segment risk analysis
Source: SME in Russia, Financing Sources, 2013
11
EY, SME in Russia: Financing Sources, 2013
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Settlement and Cash Services I Bank Products and Services: SME Segment
Settlement and Cash Services One of the more demanded bank products among SME is settlement and cash services (SCS). Accounts held by a customer in a bank allow the latter to improve borrowerâ&#x20AC;&#x2122;s credit risks management, whereas a customer will find a range of benefits in package offers: lower services costs and discounts for additional bank services. According to SCS market survey12 as of the beginning of 2014 Rosbank
was the leader in SCS package offers number (9 programs) for two years in a row. At the moment SCS costs are calculated by banks both as standard fares, when commission for each services is established services, and in a form of package offers. At that itâ&#x20AC;&#x2122;s noteworthy that the package offer price is usually below 5 000 rubles per month.
Price of SCS packages, February 2013, January 2014
to 5 000 rub. month 5 500-6 500 rub. month 7 000-10 000 rub. month more 10 001 rub. month
73,9% 4,3% 13,0% 8,7%
Share of packages with the indicated price as of July 2014 Source: AnalyticResearchGroup
12 AnalyticResearchGroup, Legal Entities Settlement and Cash Services Survey, 2014
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Deposit Products I Customer Attraction Channels I Bank Products and Services: SME Segment
Deposit Products In spite of negative economic factors affecting deposits market, legal entities deposits were in green. In first half of 2014 the total volume of deposits attracted by credit institutes from legal entities increased by 11% and amounted 12 trillion rubles. The growth of micro and small enterprises deposits was at 6%. Banks started to institute more loyal policies towards smaller companies. Back several years ago the owner of small business would find it much simpler and comfortable to open deposit account as the physical person (sometimes in a bank
different to the one servicing his business). Nowadays, special bank offers for small time entrepreneurs are in place. Thus an enterprise that has been with the particular bank for more than 2 years is currently able to get a better deposit rate than a private person is. As for the currency denomination in the past 1.5 years Russian ruble was a prevailing deposit currency. However, since the beginning of 2014 deposits in international currencies started to gain in volume (due to weakening ruble).
Customer Attraction Channels The main SME customers attraction channel remains to be direct sales through bank offices or account managers. Therefore, banks with large established branch network boast a competitive edge. An option to attract customers by means of agent sales does exist but as of now it still is not truly viable in banking sector. Additional methods of expanding clientele include cooperation with regional guarantee institutes supporting SMEs, as well as participation in state municipal programs aimed at development of local entrepreneurship. Moreover, banks started to focus on partnership with trade equipment
manufacturers, insurance companies, leasing companies, etc. Other alternative sales channels (such as cross-selling via corporate customers) and distant sales channels are still sluggish. In the years past the main flow of SME customers to banks originated through special credit programs offering â&#x20AC;&#x153;fastâ&#x20AC;? money such as express credits, overdrafts, and evergreen loans. However, with economy worsening and banking market in general somewhat dwindling most banks shut these programs. Under new conditions many banks find it more efficient to
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
concentrate on maintaining loyalty of existing customers offering package services along with loans and improving SCS. Retaining existing customer is cheaper than attracting a new one, thus banks are into improving customer satisfaction more. Loyal customers may also serve as the efficient sales channel in a way: up to 12% of potential SME borrowers come to a particular bank on recommendation of their business partners. It is observed that entrepreneurs trust such recommendations more than, for instance, bank product advertisement materials.
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Customer Preferences I Bank Products and Services: SME Segment
Customer Preferences National Agency for Financial Studies survey established bank products in most demand by SME. In particular, the agency found out that regardless of business category (micro, small, or medium enterprise) corporate payroll services take the lead (58%) closely followed by distant banking (49%). Payroll services are in the peak demand with construction companies, real estate enterprises, and manufacturers. The bigger is the scale of business, the higher is the demand for salary projects. It is explained with the fact that companies are striving to save
on costs associate with physical handling of moneys and their payout to employees. Overdraft and other credit products are used by 15% of companies. Overdraft serves to cover temporary cash deficiencies. Loan in general are a two-sided factor for SMEs. On one hand, credits are the main business development driver for small companies as they are needed to pay for suppliers/subcontractors products or services on time. Therefore, SMEs look up for ASAP time to â&#x20AC;&#x153;yesâ&#x20AC;? on loan applications. On
Most popular SME banking products
Payroll Services
58%
Distant Banking
49%
Credit Products (except overdraft)
15%
Overdraft
15%
Acquiring
14%
Cash Logistics
11%
Fixed Term Deposits
10%
Exchange Control Services
9%
LoC
3%
Documentary Products
2%
None
1% *Total exceeds 100% since multiple choice was possible Source: All-Russia SME Representatives Survey, NAFS, 2013
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Customer Preferences I Bank Products and Services: SME Segment
the other hand, loan terms and conditions are currently quite rigid. Both rates and conditions are often impossible for many Russian companies.
Acquiring and cash logistics round out the top five most popular SME products (14% and 11% correspondingly). Wholesale and retail trade companies mainly form the demand in
this respect. Also to note is that one out of 10 SMEs have fixed period deposits and apply for exchange control services.
Distribution of bank products preferences per enterprise type 58 %
Payroll Services
48 % 53 %
Distant Banking
42 % 9% 7%
Overdraft
16 %
Credit Products (except overdraft)
10 % 15 %
Acquiring
10 % 15 %
Cash Logistics
9% 7% 8%
Fixed Term Deposits
14 %
Exchange Control Services LoC Documentary Products
7% 2% 2% 1% 1%
Small
Micro
*Total exceeds 100% since multiple choice was possible Source: All-Russia SME Representatives Survey, NAFS, 2013
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SME Customers: Bank Selection Criteria I Bank Products and Services: SME Segment
SME Customers: Bank Selection Criteria According to Rosbank survey of small business enterprises, business owners monitor banks themselves in order to secure the most price attractive bank products and services. During the process they might consult with partners and friend, but the final solution will be made solely by the proprietor. The common opinion is that bank reputation and fame is a guarantee of assets safeguarding. Thus the choice is usually made from top 30 Russian banks. Entrepreneurs also feel that as of today bank products and services prices are approximately the same with all banks, so the final decision is mostly based on quality factor of the first contact with a bank.
loan application review and to the extent of documents required for a loan. 3. Flexible approach. The flexible approach is understood as high level of customer orientation and readiness of a bank to accommodate for customerâ&#x20AC;&#x2122;s business targets.
Rates
Rosbank survey results also indicate that the following bank selection criteria are of most importance for SMEs:
Decision speed
1. Future cooperation price factor. The respondents estimate the value of corporate service tariffs as the economic component.
Flexible approach
2. Decision speed. Survey participants pay specific attention to the duration of
IMPORTANCE
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Rosbank Entrepreneurs Segment
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Rosbank Entrepreneurs Segment
Rosbank Entrepreneurs Segment The entrepreneurs segment is a separate branch among Rosbank retail operations. For the bank, the entrepreneurs are companies (legal entities and sole traders) with annual revenue from 0 to 400 mln. RUR (in case a company belongs to a group, segmentation is based on group revenue). Inside these segment two sub-segments can be singled out: microbusiness (with annual revenue below 60 mln. RUR), and small business (with revenue from 60 mln. RUR to 400 mln. RUR per annum). Also the entrepreneurs segment includes private persons, who own businesses meeting the above-mentioned revenue requirements. Companies with revenues above 400 mln. RUR per annum belong not to retail, but to corporate operations of Rosbank. Regardless of annual revenue volume, the entrepreneurs segment does not include government authorities,
municipal bodies, unitary and other types of state enterprises; insurance, leasing, and other financial institutions; filial structures of international groups of companies; higher education establishments, and companies belonging to extractive industries. By industry, a major part of Rosbank clients belonging to entrepreneurs segment are engaged in delivering services and commercial activities (15% and 60% of micro-businesses, and 19% and 43% of small businesses respectively). Currently, the bank occupies 2.5 % of the market and provides services to around 69 thousand customers belonging to the entrepreneurs segment (legal entities and sole traders, not including private persons).
Rosbank customers (companies) breakdown by industry
Rosbank customers in Entrepreneurs segment (legal entities and individual entrepreneurs, except natural persons)
5% 5%
Micro
15,6% 15,6%
10%10% Trade Trade
Retail Retail and and wholesale wholesale 42,7% 42,7% trade trade Services Services
1,8% 1,8%
Services Services
10%10%
Construction Construction
Microbusiness
9,4% 9,4%
Small business
60%60%
Other Other
April 01, 2012
11,7% 11,7%
Agriculture, Agriculture, hunting hunting forestry forestry Other Other
Small 63,8 thous.
Total 63,8 thous.
April 01, 2013
52,3 thous.
18,2 thous.
70,5 thous.
April 01, 2014
54,6 thous.
10,7 thous.
65,3 thous.
October 01, 2014
57,5 thous.
11,1 thous.
68,6 thous.
Construction Construction Manufacturing Manufacturing
Manufacturing Manufacturing
15%15%
Working with the entrepreneurs segment is characterized by constant change in client numbers: on average, customer churn is about 20% per annum. In order to grow, the bank needs to offset this outflow and attract new customers. One of the reasons for such customer churn may be dynamic processes taking place in SME segment itself: small and microbusinesses belong to a higher risk sub-segment characterized by large number of start-ups, toxic businesses, and dissolving businesses. The second reason consists in aggressive policy of banks to solicit clients. One of the major channels to attract new customers is including a clause in credit agreement, which presupposes mandatory transfer of customer cash management services to the crediting bank.
Source: Rosbank
18,8% 18,8%
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Products and Services of Rosbank in the Entrepreneurs Segment I Rosbank Entrepreneurs Segment
Products and Services of Rosbank in the Entrepreneurs Segment Credit Financing Historically, Rosbank has been strong in the credit provision market. In 2013, Rosbank was acknowledged as the leader for growth of SMB credit portfolio: in 2013 Rosbank portfolio increased by 32%, as compared to 2012. The bank’s credit portfolio in the entrepreneurs segment amounts to 26.7 bln. RUR, and deposit portfolio to 22.6 bln. RUR. In the near future the bank plans to balance its portfolio, and reach self-funding by 2017. For this purpose it is necessary to increase the volume of attracted funds and to grow balances on accounts. Apart from that, the bank has assumed an objective to become the major bank for its customers, i.e. to stimulate clients, who have several accounts with different banks, to conduct their transactions using Rosbank. Bank revenue structure in the entrepreneurs segment is balanced: the bank receives approximately one third of income from each line of business (from fee income and income from deposits and account balances), and about 40% accounts for interest return from credits. The bank has developed a broad lineup of credit products: offers are formulated in such a way that takes into account the size of customers’ businesses, their capabilities and requirements. All in all, there are around 10 types of credit aimed to upkeep certain activities of the company: commercial mortgage (credit to purchase commercial property), car loans,
target-specific loans such as fixed assets acquisition or working capital facilities, express credit, lease financing, overdraft. For microbusinesses, the bank makes available such credits as «Professional» (unsecured general purpose credit for individual business owners, which is granted using a simplified procedure), and «Successful Start» (for start-ups taking out a franchise from “Tea Funny”). In 2012, the «Professional» became a groundbreaking product in the market and was used by Rosbank as an anchor product. Express credit products are granted to clients as promptly as possible. They do not require any collateral or preparing a large document package, preliminary decision to grant credit is taken during 2 hours, and arriving at the final decision takes around 3 days. Precisely this type of credit became the driver for credit portfolio last year. When granting classic loans, the bank undertakes a field visit for financial analysis of client’s business: looks at the balance sheet, estimates losses, cash flow, etc. In this case, it takes around two weeks from application to granting the loan. Average credit amount for clients belonging to small and micro business is around 1.8 mln. RUR. In total, credit products for legal entities cover around 25% of companies. The level of credit product penetration, when entrepreneur gets a loan as a private person, is around 60-80%.
Deposits The deposit lineup includes classic deposit offerings (fixed term, highest profitability), deposits with the possibility to pay in or take out a part of funds within a fixed term, and ultimately flexible deposits, which allow to immediately allocate and reclaim funds on the current account. For small business enterprises with the revenues from 60 to 400 mln. RUR the bank offers a specific product — “Treasury” deposit (allocating lump sums for any number of days with a possibility of one early reclaim with application of a specific reclaim interest rate). Apart from classic fixed-term deposits, the bank offers an additional service – accrual of interest on daily balances of current accounts, if the balance exceeds 300 thous. RUR. It is also possible to arrange an «Entrepreneurial» deposit in the name of private person owning business. Apart from that, the bank offers its clients belonging to small and medium business, a series of additional banking services: payroll card programs (covering 5% of clients), foreign exchange control, renting of safe-deposit boxes, corporate bank cards Cash-In Business (providing an opportunity to deposit cash using ATMs to current account of a legal entity), acquiring services13. Remote service channels include Internet banking, text message banking, and Internet bank client. Internet banking and text message banking allow clients to receive information
13 Acquiring means organising the acceptance of plastic cards to pay for goods and services
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Products and Services of Rosbank in the Entrepreneurs Segment I Rosbank Entrepreneurs Segment
about payments and the situation in their current account Internet Bank Client System allows to control the accounts, make transactions and use other banking products independently in the real-time (loans, deposits, securities, etc.), i.e. to conduct electronic workflow. Starting from July 2014, Rosbank implemented a new service â&#x20AC;&#x201C; business support for clients belonging to small and medium business. Bank specialists help clients solve all kinds of issues: they inform what to do in case of ÂŤlost paymentâ&#x20AC;? (sent funds did not come through to contractual partners, or alternatively the funds sent by the partners did not reach the client of the bank), they help to compile currency contracts, they explain how the Internet bank works, or which documents will be required to execute a certain operation. With the help of business support, clients receive timely consultations in issues important for them, without wasting time on reaching their client manager or addressing the call centre. Bank profitability for all types of products and services is represented in the Supplement.
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Account Management Strategy I Rosbank Entrepreneurs Segment
Account Management Strategy Rosbank utilises several channels to attract the customers belonging to micro- and small business. Around 30% of new customers are the incoming flow «from the street” (clients, who came to a branch office of Rosbank at their own discretion). The major channel to attract clients is the work of client managers (60% of clients). They increase the customer base searching through open sources, and they work with existing clients offering them new products. Around 10% of other customers come to the bank following the references from companies, which already receive Rosbank service. If a company attracts its partners, both partner organisations receive certain benefits in cash management services. On average, an account manager provides service for 250-300 clients. As of date, Rosbank employs around 300 account managers. In order to increase efficiency of managers’ work, the bank uses bonuses for successful sales, organises a variety of internal events and competitions between managers. Customer account manager is a versatile specialist. He acts as a loan expert; based on his experience, he evaluates client’s business in order to take the decision about approving or rejecting a loan. Another important task of account manager is to retain clients and increase the level of their banking product consumption. Account manager efficiency is measured both by the number of attracted
clients, and portfolio volume (because there is a high possibility of opening «delinquent accounts»). The bank’s major strategy in working with its customers belonging to SMB segment is unification of owner’s needs with the needs of his business. Rosbank is the first bank in the Russian market, which has started to implement the «one contact» principle. In the framework of this model the client has one account manager for his comprehensive requirements in business and private spheres, which allows to save client’s time, and the account manager has the full understanding of the customer. This model also opens an opportunity to enter the segment from a different perspective: in the
current customer base it is possible to single out private persons, who own businesses, and make offers to them regarding products for their businesses. But currently the bank has not yet streamlined its internal processes, which would ensure transfer of information from certain specialists working in the retail branch to account managers. For example, when a specialist processes an application for a loan from a private person and gets the information that the client’s source of income is own business, he would be able to transfer client’s contacts to any account manager. According to the results of internal investigation commissioned by Rosbank, the following customer management issues were revealed:
Problems with the quality of customer service,% 13 24 11
5
10 6 6
7
8
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
Absence of separate CSS Low professional level of CSS ICB support quality High load on EAMs Imperfection of banking system, business processes Operational duties imposed on EAM Unclear functions of CSS Lack/absence of CSS Other (12 variants) * ICB – investment commercial bank **CSS is customer service specialist (bank operator) *** EAM is entrepreneur account manager Source: Rosbank data, 2014
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Account Management Strategy I Rosbank Entrepreneurs Segment
In order to increase engagement of its clients, Rosbank offers them the following loyalty programs: 1) Benefit in the form of lower interest rate (up to 1%) for the clients belonging to microand small business, who have positive credit reputation in the Russian branches of Societe Generale Group. 2) Organizing marketing activities: following the results of â&#x20AC;&#x153;Deposit of Giftsâ&#x20AC;? sales promotion, which was organised throughout the whole Rosbank chain, 1.1 bln. RUR was attracted to deposit portfolio. In the framework of promotion, clients could partially withdraw funds from their account, keeping there a certain minimum deposit, which was stipulated in the product passport. Based on the results of this marketing activity, a set of prizes was rewarded (the grand prize was a certificate for 850,000 RUR to buy Peugeot-made car).
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Perspective Customer Segments I Rosbank Entrepreneurs Segment
Perspective Customer Segments Rosbank is aimed at active development of its customer base. This is why it is very interested in developing alternative channels to search for clients and to enter new perspective segments of micro- and small business. A successful example of such isolated segments are householders societies (HS). HS and building societies hold funds for capital repairs that are accumulated on a specific banking account. Funds are added every month and remain there until demanded (according to the legislation, money can be spent only in accordance to intended purpose). Banks service these funds applying a special tariff (interest rate is much lower as compared to fixed term deposits), this is why these practically uncommitted funds cost nothing for the bank. And the difficulty of working in this segment lies in convincing the HSs to place their funds precisely in Rosbank through making the bank stand out from the competition (owners have a right to transfer
funds to an account in a different bank). Another difficulty is purely organisational â&#x20AC;&#x201C; the choice of bank must be approved by all members of householders society. Another perspective segment from the point of view of allocating uncommitted funds on specialised accounts are public notaries. From July 2014 the are obliged to work with banks in relation to registration of collaterals and allocating guarantee funds of CJSCs. These funds also provide high profitability for the bank. Currently, in the market there are practically no offerings for this segment, because an effective entering strategy hasnâ&#x20AC;&#x2122;t been elaborated yet. Abroad there is a widespread practice of cooperation between banks and segments of private specialists, who deliver highly professional services to the general public â&#x20AC;&#x201C;
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
lawyers, doctors, etc. Apart from increasing account balances, such isolated segments also attract to the bank additional customer base consisting of private persons. Also, Rosbank is interested to work with currency contracts. This line of business is becoming especially perspective in the Eastern direction, because recently there has been much interest to deals with Asian countries, especially with China. Many commercial companies belonging to micro- and small business purchase and bring electronics and fast moving consumer goods from China. Potentially, these companies are very profitable for Rosbank: such clients need a large number of banking products, consequently they pay more fees. Clients engaged in foreign procurement activities are of higher quality, as compared, for example, with small retail trade working with FMCG.
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Competitors
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Competitors
Competitors Competition of Rosbank in this segment of micro- and small business can be separated into two large groups. The first group are state banks, which have large branch networks, high level of investment, access to cheap government funding, and aggressive strategy in the market. The second group unites high technology commercial banks attracting clients by technologies, which are quick and convenient.
Small regional banks
Sberbank Sberbank of Russia is the biggest lender to the small business of the country. Its main advantages are availability of branch offices in all regions, and relatively low interest rates. Moreover, owing to cheap government funding, in 2013 Sberbank became one of the
��oung� and �innovative� commercial banks that develop actively. As a rule, they offer expensive service, but they are more loyal to customers
The most reliable banks, enjoying state support, widely advertised, bureaucratic
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
first banks that launched creditor financing program for small and medium business. Sberbank’s lineup of credit products is the widest in the market (around 15 credit products and programs). Starting from 2012, the bank started launching a new product «Business Project” aimed at expanding and modernising existing client business (investment lending), and also at diversifying and opening new lines of business (project financing). Since 2012, Sberbank has been developing a network of Business Development Centres (BDC), which constitute a totally new infrastructure format for micro- and small business, introduced throughout the country. As of July 1, 2014, over 140 BDCs were operating in the country. Their main aim is to assist entrepreneurs in developing their personal qualities and skills, and increasing efficiency of their business using a variety of instruments offered by Sberbank and its partners (consulting services, free educational seminars and trainings, insurance, etc.). Apart from that, Sberbank has a wide spectre of offerings belonging to the standard lineup of services for small business: remote service (Sberbank Business Online, and mobile application), allocating funds on deposits, investment in securities, investment products, payroll cards, pension products and insurance, rent of safe deposit boxes, cash management services, trade finance transactions, cash collection, brokerage services, consulting of entrepreneurs, acquiring, etc. The list of services rendered by Sberbank in all lines of business is very long.
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Competitors
Raiffeisen Bank Providing services for small business has been one of priority segments for Raiffeisen Bank since 2008. As of today, the bank provides service for over 35,000 small businesses and sole traders. Raiffeisen Bank offers its customers a variety of service packages for cash management services: «Start» (for start-up companies), «Basic» (covering the basic needs of the company), «Optimum» (for well-developed business), “Grand» («everything necessary for a business premier league player»), and «ForeignExchange». Also the bank gives an opportunity to manage company’s account remotely using a purpose-built remote banking service system Elbrus Internet. Companies choosing this service get lower tariffs on cash management services, get better conditions for accepting payment documents the same day, i.e. save time and decrease the volume of paperwork. In order to control employees’ travel, hospitality, and administrative expenses and simplify expense reports, Raiffeisen Bank offers entrepreneurs a corporate debit card. Using this card, clients can order and pay for goods and services 24/7 in retail outlets and on the Internet, book hotel rooms, rent cars, and so on and so forth.
Moreover, the bank has a diverse lineup of credit products: from granting express credit (unsecured loan for the amount of up to 2 mln. RUR, turnaround time is around 2 days) for companies with annual turnover up to 45 mln. RUR, to obtaining investment credit for the amount of up to 96 mln. RUR (for companies with annual turnover from 45 to 360 mln. RUR). Also there is a possibility for a sole trader to receive a business development loan which is granted to the account of private person. All in all, the bank offers around 10 variants of credit for different business purposes (working assets, contract financing, bank guarantees, letters of credit). In contrast, there is only one option to allocate money on deposit account for companies belonging to small and medium business. The bank offers several kinds of acquiring projects: merchant acquiring, mobile acquiring, Internet acquiring. In order to attract customers, Raiffeisen Bank uses a successful marketing vehicle: the section of bank website devoted to products for small business features success stories of clients, and their references about working with the bank. Starting from May 2014, Raiffeisen Bank, in addition to the service of preparing documents for state registration, offers its clients free three months on cloud services for business. These services feature applications for keeping business and tax accounting, current reporting, managing trade, warehouse automation, sales management, website development, etc.
Promsvyazbank Working with small and medium enterprises is one of key lines of business at Promsvyazbank. The lineup of banking products for SMB companies includes credit products from 500 thous. RUR to 120 mln. RUR (7 products), deposit products (4 types), bank guarantees, cash management services (4 tariffs), remote banking services (Internet bank combined with online accounting). Servicing SMB customers takes place in over 140 branches of Promsvyazbank throughout Russia. Promsvyazbank is actively engaged in providing loans for small and medium business. Its lineup of credit products includes several types of credit for various business needs (working capital and investment needs, refinancing of other loans, covering cash deficiencies, purchasing property), and also loyalty program for bona fide borrowers. In summer 2014, the bank added factoring service14. There is a unique offer — a venture foundation project for SMB companies was launched by Promsvyazbank in cooperation with OPORA Russia All-Russian Non-Governmental Organization of Small and Medium-Sized Business in 2013. By the end of 2014, the bank plans to formalise investment deals with 50-70 enterprises (the volume of each project may amount from 3 to 10 mln. RUR). Apart from financing, the venture foundation aims to support entrepreneurs through finance
Factoring is a variety of services for producers and suppliers that are engaged in commercial activity based on deferred payments
14
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Competitors
consulting from experts of Promsvyazbank, free PR, and access to mentor program. Also, Promsvyazbank has launched a specialised information Internet portal “ChesTnok», which allows entrepreneurs to get valuable knowledge and services necessary for conducting and developing business. With the help of this service, entrepreneurs can undertake an express analysis of outside partners, get answers for topical issues from professional consultants and experts of the bank, and also apply for financing from the Venture foundation of Promsvyazbank.
Alfa Bank The strategy of working with small and microbusiness at Alfa Bank presupposes increasing the share of fee income, providing service for transactions, and developing non-banking services. The bank offers to its customers several packages of cash management services that take into account the specifics of companies’ activities. «Commercial» package envisages fast crediting funds to an account and low tariff on accepting and recounting cash; «Business
Start» package is aimed at new entrepreneurs, «Importer» package simplifies servicing accounts in foreign currencies. Among credit products, the bank has only one general purpose unsecured loan for the amount of up to 6 mln. RUR («Partner»), and Alfa Bank does not plan to widen the credit lineup. A strong side of Alfa Bank are advanced technology solutions. In this segment of small and medium business, such project was the launch of “Alfa Pay” small mobile users stations that accept bank cards. A user station is a card reader which is connected to a mobile phone through universal headphone jack. Entrepreneurs can provide this station to their agents, couriers, shipping agents in order to receive payments. Apart from that, Alfa Bank offers its clients a wide variety of partner and loyalty programs: membership in a privileged «Client Club» (where companies exchange discounts on their products), certificates for legal consultations, advertising on the Internet, accounting services, and concierge services for entrepreneurs. Alfa Bank has also offered to entrepreneurs an online accounting service (through integration with “Moe Delo” Internet accounting service),
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy
and a free document preparation service for registering business. In order to prepare documents, users need to input their personal information on the website reg-alfabank. ru, then the service will automatically check the correctness of given information and will instantly prepare the full set of documents for registering a sole trader or a limited liability company in accordance to the legislation of the Russian Federation. In the market of non-banking services there is an alternative example – a supplement service provided by “Knopka” comprehensive support for small and medium business. The service was launched in 2014 by 24.ru Bank, currently it is collaborating with other banks. It is assumed that “Knopka” can replace banking service, an accountant, a secretary, and a legal consultant. One interface encompasses the necessary set of services: carrying out payments, presenting accounting statements, payroll projects, document preparation, booking tickets and hotels, processing visa documents, calling customers and suppliers, etc. A comprehensive package of services costs up 19 000 RUR per month. The liability of the service in case of an error when preparing and presenting the accounts is insured.
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Supplements
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Supplements
Supplement 1. The Bank’s return on products Values
Profitability per month, thous. RUR
LE\PP*
Small Business
Total for entrepreneurs segment
LE PP
50 400 95 200
12 600
Settlement services for small businesses
LE
36 288
3 902
40 190
Cash services for small businesses
LE
26 738
3 812
30 550
Fees for remote services for small businesses
LE
15 600
2 464
18 064
Plastic card operations for small businesses
LE
1 533
1 731
3 264
Trade finance transactions for small businesses
LE
120
720
820
Income from fixed-term deposits
LE PP
0,8 0,399
0,266 �
1,066 0,399
Income from account balances
LE PP
63 600 �
24 000 �
87 600
289 480
49 229
338 689
Loans (interest income)
Total:
Credit portfolio, thous. RUR
Micro-Business
158 200
�
Number of clients
LE PP
57564 12 740
11 119 �
Profitability per client, thous. RUR/month
LE PP
3,25 6,41
4,27
3,88
2038 �
28 884
Towards Business: Entrepreneurs Segment Market Share Expansion Strategy Number of credits LE** 10 435 PP 16 411
423 Persons (PP) * Legal Entity81 (LE)\Private
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Income balancesfrom fixed-term deposits Total: Income from account balances Number of clients
Supplement 2.
Total: The portfolio of Rosbank in the segment of entrepreneurs Values
Credit portfolio, Profitability per month, thous. RUR Credit portfolio, thous. RUR
Deposit portfolio, thous. RUR
Values
Deposit portfolio, Profitability per month, thous. RUR thous. RUR
Profitability per client, thous. Number of clients RUR/month
Number of credits Loans (interest income) Profitability per client, thous. RUR/month Average withdrawal Settlement services amount, Number of credits thous. RUR for small businesses Creditservices portfolio, Cash Average withdrawal thous. RUR for small businessesamount, thous. RUR fixed-term deposits Fees for remote services Credit portfolio, for small businesses thous. RUR a/c balances Plastic card operations fixed-term deposits Loans (interest income) for small businesses Trade finance transactions a/c balances Settlement services for small businesses for small businesses Income from fixed-term Cash services deposits for small businesses Income from account Fees for remote services balances for small businesses Total: Plastic card operations for small of businesses Number clients
Credit portfolio, thous. RUR
LE PP PP LE PP LE PP LE
LE LE\PP* PP PP LE** LE LE PP PP LE LE** PP PP LE LE PP PP LE LE PP PP LE\PP* LE LE LE PP PP PP LE LE LE PP LE LE PP LE LE PP
0,8 � 0,399 268 680 63 600 � 57564 12 740 268 680 3,25 57564 Micro-Business 6,41 12 740 10 43 435 200 3,25 16 81 411 600 6,41 1 36767 288 10 435 1 445 16 411 10 26 069 738 440 1 11767 896 140 1 445 1 15443 600960 10 069 42 000 440 11 896 140 Micro-Business 10 487 508 1 533 1 443 960 43 127200 004 42 000 81 600 120 10 36 487 288 508 127 004 0,8 26 738 0,399
0,266 � � 47 429 24 000 � 11 119 � 47 429 4,27 11 Business 119 Small � 2038 10 800 4,27 �
63 600 15 � 600
24 000 2 �464
87 600 18 064
47 429 1 731 11 119 � 720 4,27
316 089 3 264 81 423
0,266 � 2038 � 24 000
1,066 0,399 28 884
268 680 LE 1 533 LE 57564 PP 12 740 Trade finance transactions LE 120 for small businesses Profitability per client, thous. LE 3,25 RUR/month PP 6,41 Income from fixed-term LE 0,8 Towards Business: Entrepreneurs Segment deposits PP 0,399 Number of credits LE** Market Share Expansion 10 435Strategy PP 16 411 Income from account LE 63 600
2 3 911 902 2038 � � 4 3 769 812 287 2 �911 � 2 963 464 115 4 769 287 � � Business Small 7 1 627 731 568 2 963 10 � 800115 � � 720 7 3 627 902 568 � 0,266 3 �812
1,066 0,399 Supplements 316 089 87 600 81 423 316 089 Total3,88 for entrepreneurs 81 423 segment 28 135884 600 3,88 1 40828 190 28 884 26 30 734 550 867 1 828 22 18 691 064 155
867 Total26 for734 entrepreneurs segment 3 264 22 135691 600155 820 40 190 1,066 ** LE (including tranches) 30 550 0,399
820 3,88
87 600
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for small businesses Income from fixed-term deposits
LE PP
0,8 0,399
0,266 �
1,066 0,399
Income from account
LE
63 600 �
24 000 �
87 600
Micro-Business 268 680
Small 47 Business 429
Supplement 3.
The customer segment entrepreneursPP balances Total:
LE\PP*
Total for entrepreneurs segment 316 089
Number of clients Loans (interest income)
LE PP
57564 43 200 12 81 740 600
11 10 119 800 �
81 135423 600
Profitability services per client, thous. Settlement RUR/month for small businesses
LE PP
3,38 36 288 7,47
4,43 3 902
5,09 40 190
Number of credits Cash services for small businesses
LE** LE PP
10 26 435 738 16 411
2038 3 812 �
28 30 884 550
Average withdrawal amount, Fees for remote services thous. RUR for small businesses
LE PP
1 15767 600 1 445
2 911 464 �
1 18828 064
Credit portfolio, Plastic card operations thous. RUR for small businesses
LE PP
10 069 440 1 533 11 896 140
4 1 769 731 287 �
26 734 867 3 264
fixed-term deposits Trade finance transactions for small businesses
LE PP
1 443 960 120 42 000
2 963 115 720 �
22 820691 155
a/c balances Income from fixed-term deposits
LE PP
10 0,8487 508 127 004 0,399
7 627 568 0,266 �
1,066 0,399
Income from account balances
LE PP
63 600 �
24 000 �
87 600
268 680
47 429
316 089
Total: Number of clients
LE PP
57564 12 740
11 119 �
81 423
Profitability per client, thous. RUR/month
LE PP
3,25 6,41
4,27
3,88
Number of credits
LE** PP
Towards Business: Entrepreneurs Segment Market 10 435 2038Share Expansion Strategy28
16 411
�
Supplements
884
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Supplements
Supplement 4. Supplement giving short presentation of SMB segments and their peculiarities <1.8 mln rub
1.8-60 mln rub
60-400 mln rub
1,8
2,9
3,5
33 %
17 %
ďż˝
% of enterprises serviced in only one bank
81 %
74 %
58 %
Took loans as legal entities in 2013-2014
11 %
35 %
48 %
Bank loans in overall credit facilities
7%
53 %
61 %
Personal property
Commercial property, assets
Commercial property, assets
Survival/ growth
Growth and development (sourcing new partners, expansion of distribution network)
Growth and development (sourcing new partners, expansion of distribution network)
Key borrowing goals
Working capital
Working capital, investments
Working capital, investments
Capital demand
4 times annual turnover
58% of annual turnover
32% of annual turnover
Owner
Owner + ch. accountant (50% of cases)
Owner + ch. accountant (100% of cases)
Borrowing structure
Bank products and services
Business management approach % of enterprises not using any bank products at all (except cash management and payment services with less than 10 transaction per month)
Business management approach
Major available securities
Key business goals and issues
Decision makers
Source: Sberbank data, 2013
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Supplements
Supplement 5. Comparative analysis of corporate credit markets
53,8 % Corporate loan portfolio/GDP Percent, 2013
25,3 %
9,1 % 0,7 % 15,6 %
37,5 %
15,1 % 2,6 % 19,7 %
23,1 %
14,8 % 1,3 % 7,0 %
15,8 % 20,5 % 17,5 %
Average loan rate Percent, 2013 10,0%
8,3%
1,6%
22,5%
16,0%
3,4%
2,9%
Large corporate customers interest rate
SME
SME interest rate
Non-bank financial institutions
Average corporate customer interest rate
Large corporate customers
Source: World Bank, McKinsey survey, 2014
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