FöreningsSparbanken Kjell Hedman Group EVP and Head of Payments business area
1 Payments - growth and opportunities
2 The payment area • Card issuing • Clearing card transactions • National and international payments • Transaction accounts, transfers, payroll systems,etc. • Clearing, cash settlement • Information services (e-billing, e-payrolls, etc.) • Identification services
3 Payments by the numbers • 100 products • 130 million incoming/outgoing supplier payments • 24 million payroll deposits • 80 million giro payments • 300 million acquired transactions • payment relationships with 2,000 foreign banks, of which 300 are extensive • Cash settlements averaging SEK 200 billion / day • 330 employees
4 FöreningsSparbanken’s ambitions in the payment area • To be a leading provider of competitive payment products • To maintain a market-leading position in all product areas • Position FSPA and partly owned/ independent savings banks as the best “payment bank” in their markets
5 Our market position is unique Market shares FöreningsSparbanken % 80 67 70 60 55 52 50 50 40 40 30 17 20 10 0 Bank cards Salary payments Credit cards Merchant acquring Municipal market Giropayments privat
6 No. of cards in issue, purchases and acquiring Transactions, No. of cards thousands 5 000 000 90 000 4 500 000 80 000 4 000 000 70 000 3 500 000 60 000 3 000 000 50 000 2 500 000 40 000 2 000 000 30 000 1 500 000 20 000 1 000 000 10 000 500 000 0 0 Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- 99 99 00 00 00 00 01 01 01 01 02 02 02 FöreningsSparbanken Hansabank Purchases, thousands acquiring, thousands
7 Business model - cards Förenings- Förenings- Internal InterChange Sparbanken Sparbanken acquiring bank/credit cards (BABS) etc. External IC VISA Merchant Cardholder MasterCard pays Service pays annual etc. Commission flat fees External IC Other acquirers Other card issuers -SEB, Nordea, etc. -SEB, Nordea, etc. -Foreign acquirers -Foreign issuers
8 Payment commissions 800 600 400 200 0 -200 -400 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 Payment commission income Payment commission expenses Net payment commission income
9 Payments are a long-term business • Major investments in ITsystems • Extensive work involving documentation, standardization, regulation, etc. • Sales are dependent on changes in consumer behaviour • Sales often require investments on the customer’s behalf
10 The market is constantly changing • From cash/ATM to cards • From paper to electronic • PostGiro (Nordea) / BankGiro • More international Private and Corporate • New payment methods are being established (e.g. e-cards) • EU directives • Posten (the Swedish Post) / e-mailboxes
11 Political decisions affecting payments From July 1, 2002 - no longer permitted to charge more for ATM withdrawals abroad. Estimated impact on profit: SEK -45 million per year. From July 1, 2002 - agreement with EU Commission and VISA on gradually reduced interchange for VISA cards. Estimated impact on profit: SEK -16 million per year. From July 1, 2003 - parity between domestic and cross-border payments to EU states. Estimated impact on profit: SEK -40 million per year. Total of approx. SEK 100 million in lower profit per year due to political decisions.
12 Purchasing factor - cards Number of payments per card, customer and month is rapidly increasing 8 6,85 7 5,9 6 4,87 5 4,25 4,06 4 3 2 1 0 1998 1999 2000 2001 2002E
13 Big difference in transaction cost by payment method 10% 0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -100% Internet Teller ATM Autogiro Giro Card
14 To maintain a strong market position requires • Increased focus on traditional payment and salary account transactions • Structural measures in IT • Internationalization of cards and acquiring • Investments in information services: e-billing, e-payrolls, e-documents… • Investment in electronic ID and electronic signatures, e-commerce/online payments.
15 How can we further raise profitability? • We have to go from – cash/ATM to cards (from cost to revenue) – paper to Internet (lower cost) – giro to autogiro (direct debet) • Use new products – from traditional payment products to e-billing
16 How can we further raise profitability? • Utilize card infrastructure for traditional payments - person-to-person payments with VISAcards • Outsourcing or product alliances in narrow product lines • Introduce EMV standard in card area - from magnetic strip to chip - introduce multi-functionality and reduce fraud • Extend infrastructure investments by sharing processing with a partner
17 What growth factors do we see ahead? • Increased purchasing factor • More cards per customer • Internationalization of cards and transaction acquiring • Secure online payment solutions • Information services - e-documents, e-billing, e-payroll statements • Electronic signatures for secure identification between parties
18 Growth strategy for the card business? • Acquisition of significant interest in a technology/service provider in card clearing • Incorporation of BABS and shared processing with one or more parties • Offer to share IT processing of debit and credit cards with other parties • Acquisition opportunities are constantly being evaluated, to meet the demands of major customers for cross-border services
19 Growth strategy for traditional payments? • Outsourcing or production alliances for foreign products • Process and further develop information services together with partners • Implement ID service in our own bank and gain external market share (for eg Nat’l Tax Board) • Introduce card payments directly between our customers • Utilize card infrastructure for traditional payments - person-to-person payments with VISAcards
20 We have already accomplished a great deal Transactions, milions 25 Card purchases 20 15 ATM withdrawals 10 5 0 January 2000 - September 2002
21 Rapid changeover from paper giro to Internet payments Share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1998 1999 2000 2001 2002-06-31 Internet Giro
22 The amount of cash handled by the bank is decreasing In society In society In the bank In the bank 120 000 3 000 100 000 2 500 80 000 2 000 60 000 1 500 40 000 1 000 20 000 500 0 0 1998 1999 2000 2001
23 Rapid decrease in cash transactions Millions 18 Cash in 16 Cash out 14 12 10 8 6 4 2 0 1999 2000 2001
24 Summary • Focus on market shares/position in the Swedish payment market, especially in traditional payments and salary accounts • Increase the pace to eliminate cash • Prioritize conversion from paper payments to electronic payments • Gain market share in debit cards in Sweden • Find economies of scale through internationalization • Establish information and ID business
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