Bankinter

BANKINTER

Grou

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Agenda

Evaluate the Internet consumer acquisition strategy

Terms to discuss:

• Customer profitability

• Customer lifetime value

Options

Positioning

• Innovative

• Multichannel

• Low-Cost

• Financial Services

Growth

• Started in 1965• Organic Growth• Forayed into Online

Banking• First Multichannel Bank• 37% of transactions –

Internet• CRM system

Internet Strategy

• Partnering - Portals

• Internet Branch

• Transform into Multichannel

Snapshots

Alliances Strategy E-collaborator Brick and Mortar

Pros • High traffic portals

• Co-branding

• High traffic sites• Low acquisition cost• CRM• Hard to duplicate

• High life-time value• More personal • More loyal• Easier to cross-sell• Appeal to non-internet users

Cons • High cost

• Easy to Duplicate

• Lack of targeting

• High non-formalization rate

• High cost acquisition• High operating cost• The first mover advantage is lost

WHO WILL SHOW US THE MONEY??

WAIT … WAIT IS OUR PERFECT CRM REALLY PERFECT?

DATA DATA???

Customer Profitability = financial margin + commission revenue

– cost of serving the product

*Financial Margin = outstanding balance * ( interest – transfer rate)

*Cost of servicing an account = number of transactions * standard cost of each transaction

In simplified marketing terms:Customer life time value = total customer revenue – total customer cost

Effectiveness Ratio: Value / Acquisition Costwhere Value equals Net Contribution Margin/Expected no of years

BUT WHY IS THE LIFETIME VALUE IMPORTANT? THINK ABOUT THE BIGGER PICTURE

BY THE WAY THE FINANCE DEPARTMENT SENT THIS

EXPECTED PROFABILITY of CUSTOMER BY CHANNEL

discount rate 10%

8700 Formulae attrition rate 14% attrition rate 28% Attrition rate

PROFITABLE UNPROFITABLE Probability SurvivalYear 0 1 2 3 Res.Val. Year 0 1 2 3 Res.Val. Probability Survival

Expected cash Flow = Prob. Survival 100% 86% 75% 65% Prob. Survival 100% 72% 51% 37% Present value factor = 1CF if client -41 427 465 505 CF if client -494 -97 -27 -18 Present value Expected CF -41 369 347 326 1195 Expected CF -494 -70 -14 -7 -12PV factor 1.00 0.91 0.83 0.75 0.75 PV factor 1.00 0.91 0.83 0.75 0.75PV -41 335 287 245 898 PV -494 -63 -11 -5 -9Cumul. PV -41 294 581 826 1724 Cumul. PV -494 -557 -569 -574 -583

ALLIANCESattrition rate 16% attrition rate 46%

PROFITABLE UNPROFITABLEYear 0 1 2 3 Res.Val. Year 0 1 2 3 Res.Val.Prob. Survival 100% 84% 70% 59% Prob. Survival 100% 54% 29% 15%CF if client -123 379 410 466 CF if client -447 -142 -43 -43Expected CF -123 317 288 274 873 Expected CF -447 -76 -12 -7 -6PV factor 1.00 0.91 0.83 0.75 0.75 PV factor 1.00 0.91 0.83 0.75 0.75PV -123 289 238 206 656 PV -447 -69 -10 -5 -5Cumul. PV -123 166 403 609 1264 Cumul. PV -447 -516 -527 -532 -536

E-COLLABORATORSattrition rate 20% attrition rate 59%

PROFITABLE UNPROFITABLEYear 0 1 2 3 Res.Val. Year 0 1 2 3 Res.Val.Prob. Survival 100% 80% 64% 51% Prob. Survival 100% 41% 17% 7%CF if client -100 319 367 398 CF if client -120 -134 -37 -37Expected CF -100 255 234 203 540 Expected CF -120 -55 -6 -3 -2PV factor 1.00 0.91 0.83 0.75 0.75 PV factor 1.00 0.91 0.83 0.75 0.75PV -100 231 194 153 406 PV -120 -50 -5 -2 -1Cumul. PV -100 131 325 478 883 Cumul. PV -120 -170 -175 -177 -178

YOUR FRIENDS • Discount Rate- The interest rate used to determine future cash flow ( mostly

taken as present interest rate)

• Present value- This helps you calculate how much cash consumers will bring in the future in today's dollars .

• This simple example illustrates the general truth that the present value of a future amount is less than that actual future amount. If the appropriate interest rate is only 4 percent, then the present value of $100 spent or earned one year from now is $100 divided by 1.04, or about $96.

LOOK AT THE LAST EXHIBHITHOW TO INCREASE PROFITABILITY

HINT: RATIO

OPTIONS