Markets and Channels
2.4 Products and Services Designed for Corporate Customer
The Italian banks in our panel are still at the first stage of development as they meet the primary need of segmentation, that is distinguish the cor- porate area from the other bank customers. The implementation of divi- sional structures will require more intensive and complex applications of the segmentation models, thus triggering the evolution of the underlying information system and the development of the multiple purposes of utili- zation.
2.4 Products and Services Designed for Corporate
- as for volume distribution over the different product areas, corporate lending takes up 50% of the services purchased by corporates and in some cases it goes up to 80% and 90%;
- even in the 50% instance, remaining volumes are never taken by the area of corporate finance;
- in none of the banks (legal, fiscal, organizational/strategic) advisory services have a relevant weight or are assigned distinctive priority in the customer supply process.
The clear-cut resulting judgment becomes far more complex if we see it from a dynamic and evolutionary point of view as the choices being made by the Italian banks seem to differ from one another or in relation to the starting data.
The critical elements can be summarized as follows:
- over the 3-year horizon there is a certain interest in the growing impor- tance of corporate finance in the supply priority scale;
- two banks have clearly indicated the need to emphasize the importance of corporate finance and one of them urges for less important corporate lending;
- there is a growing interest in advisory, which has difficulties in becom- ing a "product" that sells at a definite and explicit price; only one bank expects to develop strategic-organizational advisory with established performance in the medium term;
- the development of advisory is prevailingly considered as a necessary complementary and interactive tool for the development of corporate fi- nance;
- a strong correlation is expected to grow in the future between the avail- ability of a product company dedicated to corporate finance within the group, the development of corporate finance services and the basic ori- entation of the supply of advisory services; such correlation seems to be weaker when the bank does not have a dedicated product company.
Table 2.6. Priority assigned to major product areas by the Italian panel banks
Corporate lending Corporate finance Advisory
A 1 5 5
B
1 4 4
1 = highest priority 5 = lowest priority
c
1 1 5Banks D
1 2 4
E 1 4 4
F 1 3 5
H 1 4 5
Table 2.7. Main product areas in the Italian panel banks (activity level)
Payment system
Cash management
Lending Financial risk
management Business risk management
Asset management
Corporate finance Market place
services Internationalization
services Total
A 15%
0%
50%
15%
0%
15%
5%
0%
0%
100%
B 0%
0%
70%
30%
100%
C 0%
30%
50%
20%
100%
Banks D 0%
0%
80%
20%
100%
E 10%
10%
60%
5%
0%
5%
5%
0%
5%
100%
F 15%
10%
60%
2,5%
0%
0%
2,5%
0%
10%
100%
H 0%
0%
70%
30%
100%
Table 2.8. Priority assigned to major product areas by the other European panel banks
Banks Corporate lending
Corporate finance Advisory
V 3 2 5
W 1 1 2
X 1 3 2
Y 1 1 3
Z 1 1 3 1 = highest priority 5 = lowest priority
Table 2.9. Main product areas
Payment system
Cash Management
Lending Financial risk
management Business risk management
Asset management
Corporate finance Market place
services Internationalization
services Total
V 19%
5%
29%
29%
0%
0%
19%
0%
0%
100%
in the other European panel banks W
d 15%
35%
10%
5%
10%
15%
5%
5%
100%
i 15%
20%
10%
5%
15%
25%
0%
10%
100%
Banks X d 10%
5%
45%
10%
5%
5%
10%
0%
10%
100%
i 10%
10%
50%
5%
0%
0%
15%
0%
10%
100%
Y 5%
5%
30%
8%
5%
8%
30%
0%
10%
100%
Z 6%
0%
70%
1%
2%
5%
5%
0%
6%
100%
d = domestic market, i = international market
If we look at the other European banks, the elements of the analysis re- veal significant differences in comparison to Italian banks. This can be ob- served with reference to different aspects that have already been examined within the overall evaluation of the mission of the corporate area.
The 18 banks surveyed through public documentation show in fact a clear distinction between corporate lending and corporate banking as well as a clear definition of all the product areas that characterize the bank- borrower relationship. This distinction results not only from the different legislation and country system, but also from the fact that banks' target cli- ents are large and international companies. This provides the necessary bases for the creation of sufficient volumes for the diversification process by industry.
In this context, there is the exception of Bank V, where the strategic model envisages two qualification elements: the need to reduce the overall exposure in the area of corporate lending and the awareness that advisory is not managed by the bank.
2.4.2 Association Between SMEs and the Corporate Banking Area With reference to the Italian banks in our panel and considering what has already been observed in relation to the mission of the corporate area and the segmentation models, there is total overlapping of SMEs clients and corporate area.
It is inevitable that the specific features of our industrial system reflect on the way the market is being seen by financial intermediaries as well as on their organizational structures. As a result, three client groups are clearly identified: small business (micro enterprises, individual firms, etc.), corporate clients (small and medium enterprises) and large corporate cli- ents (big companies and big groups).
The larger size and the international extension of the banks surveyed through public documentation inevitably moves the concept of corporate area to larger-size enterprises, thus considering SMEs as "small" clients, who sometimes become marginal clients and sometimes are even ex- cluded.
2.4.3 Current Features and Expected Evolution of Products and Services for Corporates
The examination of the services provided to corporate customers by Italian banks highlights some basic aspects and some contradictions (see Table 2.10).
The most important aspects can be summarized as follows:
- stability of the offer over time, as no substantial differences seem to characterize future product portfolios;
- concentration of the offer on corporate lending areas and on some prod- ucts of larger distribution (payment and asset management services);
- presence of entire product areas (industrial risk and social security man- agement services, market place services) considered as marginal;
- presence of specific products (international payment services, loans programs, corporate governance services) considered as marginal;
- weak cross management of services connected with internationalization processes and with international activities of enterprises.
Table 2.10. Current and expected products and services the seven Italian panel banks (number of banks)
Product areas priority in corporate banking 1. Payment System
Electronic funds transfer (e.g. Riba, Rid and Mav) Company credit and debit cards
CBI standard CBI advanced Cash Management Overseas