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“Capturing the value of Consumer Credit in growing Retail Banking” Silvio Barzi – Clarima CEO

“Capturing the value of Consumer Credit in growing Retail Banking” Silvio Barzi – Clarima CEO. Goldman Sachs Consumer Finance Conference London - October, 16 th 2003. AGENDA. Importance of Consumer Credit for UCI’s strategic goals. Attractive opportunities in Consumer Credit.

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“Capturing the value of Consumer Credit in growing Retail Banking” Silvio Barzi – Clarima CEO

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  1. “Capturing the value of Consumer Credit in growing Retail Banking”Silvio Barzi – Clarima CEO Goldman Sachs Consumer Finance Conference London - October, 16th 2003

  2. AGENDA Importance of Consumer Credit for UCI’s strategic goals Attractive opportunities in Consumer Credit UniCredito’s answer: Clarima Results to-date & conclusions

  3. CUSTOMER DRIVEN ORGANISATIONAL MODEL Weight on 1H03 Group revenues 45.7% 30.9% 8.3% 15.1% Corporate division Private & AM division New Europe division RETAIL DIVISION Pekao Zagrebacka Clarima UBM Pioneer Bulbank UniCredit Banca per la casa BMC Xelion KFS Locat UniBanka TradingLab UC Romania • Employees • Italy • New Europe • 70,356 • 40,228 • 30,128 • Branches • Italy • New Europe • 4,598 • 3,248 • 1,350 Zivnostenska

  4. per la casa THE RETAIL DIVISION COVERS THE ITALIAN MARKET THROUGH A NUMBER OF PRODUCT & CHANNEL SPECIALISTS Retail Division Retail investment products through captive and non captive networks Consumer credit products through direct channels, partners and captive networks Banking products for households and small business through proprietary branch network Mortgages and home related products through organised intermediaries (real estate agents, insurers…)

  5. TAILORED STRATEGIES FOR DIFFERENT CUSTOMER SEGMENTS, CONSUMER CREDIT KEY FOR RETAIL BUSINESS High importance Sources of revenue growth Low importance Existing customers New customers High growth / High value businesses Risk mgmt Efficiency • Consumer Credit Retail business • Retail mortgages • Small Business Corporate business Private Banking business New Europe

  6. AGENDA Importance of Consumer Credit for UCI’s strategic goals Attractive opportunities in Consumer Credit UniCredito’s answer: Clarima Results to-date & conclusions

  7. CONSUMER CREDIT: LOW PENETRATION IN ITALY … As % of GDP 14.3 10.8 9.6 8.0 3.6 E F UK D I As% of private consumption 22.5 18.9 16.5 14.7 6.1 E F UK D I As % of disposable income 20.6 16.4 15.1 12.4 4.8 E F UK D I

  8. … BUT A FAST GROWING BUSINESS TOTAL CONSUMER CREDIT MARKET KEY DATA (Euro bn) 44 • Growth: +33% 41 REVOLVING CREDIT 37 • Revenues: 0.3 32 20 • Growth: +16% INSTALLMENTLOANS • Revenues: 2.4 1996 1999 2000 2001 2002

  9. MAJOR SHIFTS AMONG PRODUCTS EXPECTED IN THE LONGER TERM ITALY – EXPECTED EVOLUTION OF STOCKS (Euro bn and %) CAGR 2002-2006E Market (100%) = 41 44 82 16.5% Other 9.5% 4,7% 5,0% 3,9% Revolving 11,1% 5,5% 6.7% 32.2% 14,4% 17,2% Direct Loans 21,6% 23.3% 14,7% POS Financing 16,1% 14,4% 60,7% 13.3% 55,0% 49.0% Automotive 13.2% 2001 2002 2006E

  10. ATTRACTIVE PROFITABILITY IN CARDS RORAC PER BUSINESS (2001, %, rates and new loans) Loan growth 2001 vs 2000(%) 60 Personal Employer Guaranteed 50 Credit Cards 40 Motorcycles Industrial Vehicles 30 Second-hand cars 20 Appliances 10 New Cars 0 -10 -50 -30 -10 0 10 30 50 70 RORAC (%)

  11. NON AFFLUENT MARKET PRESENTS UNIQUE OPPORTUNITIES … MARKET CONDITIONS 24 mln 27 bn Euro • Limited marketing sophistication 15% • No specific segment attention 75% Affluent • Lack of product innovation 85% • Limited customer acquisitionactivity 25% Non affluent • No tailored operations for masscustomisation Clients Margins

  12. … AND BANKS HAVE BEEN LOSING MARKET SHARE TOTAL CONSUMER CREDIT MARKET (Euro bn) 44 37 20 41% 54% 38% 1996 2000 2002 Banks market share

  13. NO ACCEPTABLE ANSWER TO A MARKET IN NEED OF FOCUS AND SEGMENTATION FINANCE COMPANIES • POS financing primary product • Limited customer loyalty • Limited cross selling TRADITIONAL BANKS • Brick and mortar legacy • Focus on managed assets • No innovation • No mass service culture NEW PLAYERS • BancoPosta, not replicable • Foreign entrants, primarily monoliners

  14. ITALY – MARKET SHARES BY BUSINESS LINE Loans granted in 2001, Euro mln & % POS Financing (incl. Automotive) Personal Loans Fiat Fidis Findomestic DB Prestitempo FidItalia Agos Itafinco Compass Finemiro Citifin Finconsumo Ducato Others Findomestic DB Prestitempo Finemiro Ducato COMIT Agos Itafinco Compass Citifin FidItalia Finconsumo Others 3,139 770 1,909 408 1,571 358 1,354 323 1,222 276 1,007 252 924 197 907 186 898 108 833 87 4.961 287 Cumulative market share first 10 players 69,9% 89,5% FRAGMENTED MARKET WITH TRADITIONAL “STAND ALONE” MODEL …

  15. 25% 20% 15% 10% 5% 0% 1980-1985 1986-1991 1992-1997 … AND THE MARKET ENVIRONMENT IS QUICKLY CHANGING DEMAND SIDE SUPPLY SIDE • “The new card by AmEx and Enel. … “ • New revolving card from AEM Milano and Compass called AEM Visa, launched at early 2001 • Desideria from Banca di Roma launched at the end of 2000 (“first revolving card with flexible payments for Italians”). EGO from Credem launched at mid 2001 (also for clients without an account at Credem) • New revolving co-branded cards (ex. Findomestic-Mediaworld, … ) • “Citibank Card will invade Italy. … 500.000 cards issued before 2004” • “Barclaycard is to launch in Italy (early 2002) as part of an aggressive plan to expand in Europe” Italian Savings Rate over time

  16. AGENDA Importance of Consumer Credit for UCI’s strategic goals Attractive opportunities in Consumer Credit UniCredito’s answer: Clarima Results to-date & conclusions

  17. A MAJOR INNOVATION IN PFS … CLARIMA’S CONCEPT • Focus on non affluent segment • Customer acquisition and cross selling through variety of channels • Low cost non traditional infrastructure • Simple, innovative, consumer oriented products • Lead with credit cards, cross-sell next

  18. ... CAPTURING A UNIQUE OPPORTUNITY IN CREDIT CARDS … WHAT THE MARKET OFFERS • Majority of card accounts deferred debit/charge • No flexible revolving • No price differentiation based on credit risk • No sophisticated micro marketing • Static products • No up and cross selling • Limited push by traditional banks

  19. per la casa … LEVERAGING SPECIALISATION AND MARKET POWER OF THE LARGEST DISTRIBUTION NETWORK IN ITALY Retail Division Leads Leads Real estate agents (2500) Stock exchange Third parties Branches (2750) Partners (25)    

  20.         STRONG INTEGRATION ACROSS RETAIL CHANNELS FOR COMMERCIAL ACTIONS … Strong focus  Medium focus CLARIMA CHANNELS BANK Pos/ Merchants Specialized Shops UCB Branches Partnership Direct COMMERCIAL ACTIONS Acquisition Cross selling INNOVATIVE CHANNELS TRADITIONAL FINANCE COMPANY TRADITIONAL BANK

  21.               … SINCE DIFFERENT PRODUCTS REQUIRE DIFFERENT CHANNELS Strong focus CLARIMA CHANNELS BANK Medium focus Pos/ Merchants Specialized Shops UCB Branches Partnership Direct PRODUCTS Revolving cards Pos financing Personal loans Credit insurance

  22. ACQUIRING CUSTOMERS THROUGH INTIMATE CO-MARKETING PARTNERSHIPS ADVANTAGE FOR PARTNER ADVANTAGE FOR CLARIMA • Strengthening of customer loyalty • Reducing administrative costs • Adding new revenue stream • Strengthening of core product offering • Lowering joint customer acquisition cost • Lower customer acquisition cost • Better knowledge of the customer, lower risk • Enhanced customer relationship and cross selling • Piggy backing on partner’s brand Co-MarketingPartnership

  23. DIRECT IS PROVING PROMISING REVOLVING CARDS PENETRATION 83% 50% 7% Market Clarima Non-Direct Clarima Direct

  24. RESULTS ABOVE EXPECTATIONS FROM PARTNERSHIPS AND DIRECT Clarima cards Italian avg. % Revolving usage 5 - 10% 60% > 70 # Year transactions 25 - 30 Integrated marketing and risk strategy PROFITABILITY DRIVERS Avg. spending/ Transaction 90 Euro 81 Euro Avg. balance 900 Euro 1,350 Euro

  25. UNICREDIT BANCA CAPTIVE MARKET OPPORTUNITIES UCB RETAIL CUSTOMERS • Cross sell revolving • Cross sell other products (Mln) • Sell revolving • Cross sell personal loans 5 1 4 Total target customer base With pay later cards Without cards

  26. EXCELLENT RESULTS ON CAPTIVE MARKET DIRECT “CAPTIVE” RESULTS Redemption DIRECT REASONS FOR “CAPTIVE” x 6.6 • Higher redemption rates • 70% lower acquisition costs • 50% to 70% lower credit risk • Increase in competitive pressure Public ‘02 Captive ‘02 Captive ‘03 Revolving Penetration (%) 100% Pay later Revolving 83% 71% 5% Public ‘02 Captive ‘02 UCB

  27. AGENDA Importance of Consumer Credit for UCI’s strategic goals Attractive opportunities in Consumer Credit UniCredito’s answer: Clarima Results to-date & conclusions

  28. CLARIMA: RESULTS TO DATE • 25 Partnerships • Direct channel fully operational • ~150,000 cards/new customers in 18 months • 2,750 bank branches fully operational for personal loans • Extensive testing of cross selling/upselling on captive customers • POS financing and specialized stores to start operations in 1H04 • Significant investments in credit scoring systems

  29. STRONG CONTRIBUTION OF CONSUMER LENDING TO THE DIVISION’S GROWTH … Key figures(as of June 2003) Market share evolution • ~3.8 bn consumer loans (+10% vs year-end 2002) 2002 ~7.5% > 9% 2006 • ~150,000 clients for Clarima + 20% LEVERAGING ON: 3 MAIN DISTRIBUTION CHANNELS PARTNERSHIPS AND DIRECT MARKETING SPECIALISED FINANCIAL SHOPS UCI Banca Key goals: Key goals: Key goals: • ~800,000 net acquisitions of customers from 2003 to 2006 • Clarima as the “consumer credit specialist” of the Group • Dedicated and alternative distribution traditionally strong in Italy • Full commercial integration with UCI Banca • Revolving cards / Total cards ratio higher than 50% • Focus on “credit at point of sale” • Maximisation of UCI Banca customers potential for credit cards and personal loans

  30. … THANKS TO TAILORED STRATEGIES FOR EACH DISTRIBUTION CHANNEL STRATEGIC GUIDELINES • New selected partners strong for distribution capability, customer base and brand PARTNERSHIPS AND DIRECT MARKETING • Low acquisition costs per client thanks to high integration of product/model with the partner • Share of “revolving clients” on total direct channel new clients >80% • Leverage on cross-selling • Increase of penetration of cards on the customer base UNICREDIT BANCA • Conversion of UCI Banca “optional” cards into revolving cards • Increased share of wallet of clients (from 18% in 2002 to 31% in 2006) for personal loans SPECIALISED FINANCIAL SHOPS • Opening of 9 shops in selected high potential cities in January 2004 • Other 15-20 openings starting from 2005

  31. IN SUMMARY: OUR BELIEFS … • The Italian retail market will see growing competition for market share, key driver of future top line growth • UniCredit will leverage its superior organisational model and business focus to gain market share on existing and new clients and become the preferred bank for Italian retail customers • Double digit operating margin growth will be driven by consistent execution of a growth plan, leveraging skills acquired over the last 3-5 years at all levels of the organisation • Clarima is a key contributor of this growth by focusing on consumer credit … • … with a business model difficult to replicate

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