© 2002 GartnerG2 Usage of New Technologies for SMB Financing Ken Kerr, Gartner Financial Services

© 2002 GartnerG2 Viewpoint Distances are shrinking due to technology; much of the world’s underserved SMB market will be digitally connected within a decade. New electronic technologies are extending financial services to SMBs and reducing costs for financial providers. But competition will keep margins from growing. New technology will enable developing countries to leapfrog over infrastructure limitations in the delivery of financial services. International providers will, directly and through partnerships, expand their reach to underserved and unbanked markets.

© 2002 GartnerG2 Technology Adoption: Hype Cycle to Maturity Trough of Disillusionment Slope of Enlightenment Plateau of Productivity Maturity Technology Trigger Peak of Inflated Expectations Visibility Major press coverage creates hype Adoption Stalls Drawbacks Exposed General Market Adoption grows Possibilities Envisioned “Killer” Application Mature applications, payoffs received Technical Issues resolved ATMs Account Aggregation

© 2002 GartnerG2 Strategic Importance of SMBs Grows for Banks SMB Profitability Compared to Other Segments Much less Less The same More Much more To consumer To corporate Relative Profitability of Deposits and Loans to Banks $3B+ $1-3B DepositsLoans Assets LoansDeposits More Important than 3 years ago: 80% of banks (among largest banks: 91%) Default rates in LDCs no greater than in developed world

© 2002 GartnerG2 E-finance drives down costs, but also margins Relative Bank Processing Costs E-trans- actions Call Center Branch Teller E-finance Lowers Operation Costs automates processes speed credit decisions lowers profitable loan size Lower Margins Also Likely lower cost of entry expands financing reach servicing becomes more transparent

© 2002 GartnerG2 New Technology Applied for End Users and Staff E-Finance in developing world: requires technology for both customers and agents Bank Field Agent SMB Agents: “Portable office”--cell phones, PDAs, wireless laptops, etc. As supply increases, larger customers will demand rapid decisioning on loans FSPs will need automated tools to reduce costs of decisioning and servicing accounts Customers: “Self Service”-- kiosks, cell phones, Internet cafes, Chip cards Access to information, anytime, anywhere

© 2002 GartnerG2 Live dialog between customer and RFSP. Information and functions may be shared. Person to Person Customer accesses information and functions, submits information,executes transactions on his or her own. Self-Service Customer’s computer accesses information and functions, submits information, executes transactions. Computer to Computer Interaction Style Advice Interaction Intent Sales Service Interaction Style: More Important Than Devices Face-to-face, “manned” telephone, instant messaging. Brochure, mail, IVR, ATM, Web, PC dial-up, wireless device, kiosk. File transfer, EDI or FEDI wireless device, Web services. Method

© 2002 GartnerG2 U.S. SMBs Use of Online Banking At Banks With Dedicated Small Business Sites SMEs Will Use Online Channel To Transact SMB Internet Banking Extends reach through self-service reduces transaction costs Makes some corporate services economically feasible for SMEs Anytime access to accounts, loan info 51% 33% 16% Traditional Banking Electronic Banking Equal mix of both SMBs’ Primary Banking Channel, 2004 Among SMBs Active w/Online Financial Activity

© 2002 GartnerG2 Near Real-time Access to Accounts and Cash Flow: Critical to Your SMB Success? 53% 15% 33% Somewhat Critical Not Critical Very Critical Source: GartnerG2 Access to Cash Flow is Critical 30% 24% 18% 26% Reduce costs (credit, transfers, payments) Faster cash flow info Save time General business help FSPs View: Primary Factor Driving SMB Online Channel Adoption

© 2002 GartnerG2 Planned by YE03 3Q2002 Check account balances Send invoices Stop payments Acquire credit cards Buy insurance Positive pay Invest funds Pay bills Transfer funds Small Business Internet Transactional Activity (US) Source: GartnerG2 Activities Most in Demand Online

© 2002 GartnerG2 Wireless devices to drive SMB e-finance in LDCs All mobile units Basic units Data Enhanced Mobile Device Sales in Latin America, by type, First Internet device dictates e-finance usage Wired Internet world-- limited mobile e-finance demand Developing world-- multiple use with mobile devices creates comfort with mobile e-finance Millions

© 2002 GartnerG2 Immigrant remittances opens opportunities International remittances is a very profitable business: Nearly $50 billion (US) annually--fees account for 10% of total Cards, ATMs now being used Local bank brands convey trust Accounts can build other services Remittance services build knowledge of new customers

© 2002 GartnerG2 Usage of New Technologies for SMB Financing Ken Kerr, Gartner Financial Services