PRAGMATICA Management Consulting

Retail Banking Improvement of the competitive position in Small Business and Trade segments

January 2011

PRAGMATICA Management Consulting

Paseo de la Habana, 152 28036-MADRID- Spain

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Index

Introduction, focus, and objectives of the work

Proposed methodology

PRAGMATICA Management Consulting

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Introduction, focus, and objectives of the work

Proposed methodology

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Introduction A substantial change in the environment of financial entities has been occurring in recent years
Price war, that has affected "very comfortable" traditional segments for the entities in a very significant way –Drop in profitability & risk of the mortgage portfolio –Growing facility to change entity ("the client does move to other bank") –Increase in the clients' financial understanding, "culture" –“Global environment": Disappearance of some actions, narrowing of margins... –e-access: electronic access & operations available

For this reason, financial entities should adapt their strategies to guarantee future competitiveness

Orienting themselves toward market segments that can still provide them growth and profitability

The small business and trade segments, traditionally "reserved" for entities of a national scope, represent a good opportunity
They are the main drivers of economic growth They are much more profitable than big corps –They need to adapt themselves to a more competitive environment –They provide more business volume per captured than for individuals –The possibilities of profitability are broader than individuals: Wider range of and more sophisticated products –Induced business attractiveness
– –

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Focus

We define the competitive position/market share of an entity as the combination of 3 factors

Competitive position/market share

Penetration

X

Product share

X

Share of wallet

Number of clients of the entity over the total number of potential clients in the area

Degree of loyalty/entailment of the entities' current clients over the base of a (minimally) previously defined profile called "basic range"

What part of the business of each client is for the entity?: 1st., 2nd., 3rd relationship...

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Focus

The commercial activity is the basic axis over which the improvement of the competitive position turns

Ilu stra tive

Commercial activity

Recruitmen t (Sale)

Loyalty (Crosselling )

Relationshi p (Balances)

relationship

Penetration increase

Better product share

Relationship level increase

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Focus

As an initial step, it is important to bring the entity's strengths closer to the success factors of the objective segments

% of importance in client selection

trat iv

e

Commiss ions

Ilu s

Success

factors
Bank rate Small business specializ ation

Secondar y criteria

Physical proximity

Deposit rate

Networ k width

Marginal criteria

Worse than the leader

Better than the leader

Greater or lesser need of improvemen t
Paseo de la Castellana 50, Planta 3 · 28046 Madrid Tel: (34) 915 647 209 · Fax: (34) 915 629 869 Barcelona · Bologna · Bruxelles · Lisboa · Madrid Centro Luxor · Rua da Misericórdia, 76 · 1200 Lisboa Tel: (3511) 321 02 90 · Fax: (3511) 321 02 99

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Focus

As well as to adequately plan the commercial activity
e Ilu stra tiv
"Adoption cycle"

Lack commercial activity

working one time

relationship

Both cases lack commercial activity. However, the commercial strategy to be followed has to be different in each entity:

Entity A: Taking advantage of its positive image, it should first and foremost stress on the recidivist commercial visit Entity B: Should stress on the adaptation of its offer to the market needs

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Focus

All of this will allow the adaptation of the entity's offer to the market needs
Ilu stra tiv e
% of product use with the leading entity and % that work with the analyzed entity
Leasin Insuranc Factorin g e Overdraft g Credit Liquid assetInvestment fund line Credit card Overseas Secured Trade allowancemortgage Tax management Personal secured points machine. Time/term deposits Checking account operating Company credit loan cards loan Social Payroll management insurance Direct debiting payments Direct debiting receipts management Interest earning checking account

Liability products

Asset products

Compensation transfers

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Focus

... to increase the client's level of entailment

Client type
Only a contract in view Low loyalty - Contract in view plus 1 or 2 services or - 2 contracts plus 0 or 1 service "Basic range" - Contract in view, plus - 1 asset contract (credit policy, discount...) plus - 2 services (card and payments by direct debit) Medium loyalty - 1 contact in view plus 3 services or - 2 contracts plus 3 services or - 3 contracts plus 0, 1 or 2 services High loyalty - As a minimum, 3 or more contracts or 3 or more services Total

Number of clients % of clients

Minimum profile demanded

Medium/high entailment level

100%

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Focus

... and their relationship with the entity

Position of the entity (with its clients) by business volume

23 %

20 %

57 %

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Objectives of the work

Identify the main characteristics of the environment in that which the entity operates Analysis Analyze the recent evolution and current situation of the entity Carry out a commercial investigation in the Small Business and Trade segments, as much with clients as with non-clients

Diagnosis

Diagnose the entity's competitive position in the Small Business and Trade segments

Action plan

Design a combined Action Plan that allows the obtaining of a significant improvement of the position in the two client segments

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Introduction, focus, and objectives of the work

Proposed methodology

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Proposed methodology

Work launch

Environmental analysis

Analysis of the entity's client portfolio and sales process

Commercial investigation (clients and non-clients)

Diagnosis and main courses of action

Design and implementation of the Action Plan

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Work launch

Objective

Resources

- Preparatory meetings To increase the efficiency of the work by the collaboration of the entity with Consulting team - Mixed work groups

Expected results Clear understanding of the work to be carried out by part of first level management Obtaining of the necessary collaboration of key personnel (area managers, regional managers, office managers...) Improved efficiency in all the collaboration phases "Complicity" with the results to be obtained and the activities needed to be carried out by part of entity management; from the first moment

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Environmental analysis

Objective

Resources - Interviews with key managers

To identify the fundamental characteristics of the environment in that which the entity operates and the habits and financial needs of the Small Businesses and Trades

- Analysis of macroeconomic information - Analysis of the main competitor's information - Analysis of information about Small Businesses and Trades

Expected results Evolution of the relevant macroeconomic magnitudes and the situation by economic sub-sectors Fundamental characteristics of the banking environment Apparent strategy of the main competitors and the differentiating aspects of their strategy towards the analyzed segments Recent evolution and current situation of the entity and its vision of the "business" with Small Businesses and Trades Drawing up of a numerical census of Small Businesses and Trades: Type, location, and main importance Importance that Small Business and Trade has in general economy and in particular, the banking business

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Analysis of the entity's portfolio and sales process

Objective

Resources - Analysis of the evolution of the client portfolio

- Analysis of a client sample To determine the entity's current situation regarding its clients and degree of penetration and coverage in - Analysis of the information from Banking regulator, Banking associations in the area, etc. each analyzed segment - Interviews with key managers Expected results Number of clients by type, recent year evolution, average age, new client capturing and loss of clients Identification of client habits (for a sample): Types of products used and their level of use Penetration and coverage of the entity in each segment (credits and deposits) Possible differences by areas and offices Revision of the entity's current sales process with Small Business and Trade –Participants, roles, and organization –Assigned time and resources –Activities to capture new clients and product sale to clients –Available systems and commercial information

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Commercial investigation

Objective

Resources

- Interview the entity's Small Business clients and non-clients To identify the habits and financial needs of Small Business and Trade in the area of analysis - Survey the entity's Trade clients and non-clients - Questionnaires adapted to Small Business and Trade - Available census' and statistic bases Expected results Financial products and suppliers used by Small Business and Trade in the analyzed areas Criteria to purchase Small Businesses and Trades Small Businesses and Trades' main financial needs Entailment level of Small Business and Trade with the entity "Wallet share" of the entity in Small Business and Trade Aspects highlighted by Small Businesses and Trades in their relationship with the entity –Relationship quality (with the area manager, officer manager...) –Degree of satisfaction with the attention received –Commercial visits received –Adaptation of the entity's offer to their needs

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Competitive diagnosis of the entity in the analyzed segments and main courses of action

Objective

Resources

- Macroeconomics and banking environment To determine the current competitive position of the entity in the Small Business and Trade segments and - Current situation of the entity in the Small Business to establish the first courses of action to improve it and Trade segments: Sales process, offer, client portfolio - Carried out commercial investigation Expected results Adaptation of the entity to the market –Regarding product offer –Regarding commercial action –Regarding internal operating Competitive situation of the entity and quantification of the improvement potential in Small Business and Trade –Strong points and weak points in the Small Business and Trade segments –Comparison with their main competitors –Degree of response to the financial needs of Small Business and Trade First courses of action to improve the competitive position in the analyzed segments –Possible need of changes in the products, marketing mix actions and/or offer –Possible need of modifications in the sales process –Potential omissions in the territorial implementation –Need of organizational changes...

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Design and implementation of the Action Plan

Objective

Resources

- Interview the entity's Small Business clients and non-clients To establish an Action Plan that gathers the entity's short and mid-term objectives in the Small Business - Survey the entity's Trade clients and non-trade clients and Trade segments - Questionnaires adapted to Small Business and Trade Expected- results census' and statistic bases Available Short and mid-term objectives of the entity in the Small Business and Trade segments in the analyzed areas –By segment and, if applicable, clientele sub-sector –Area and office implications Action Plan for the securing of said objectives –Actions needed by department –Designation of management –Economic calendar –Material and human resources and needed investment Economic-financial quantification of the Action Plan –Projection of main importance –Sensitivity definition and analysis

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