In this episode of the Purposeful Banker, we continue our series of discussions about the topic of commercial deal collaboration. Today, we shift the focus from the commercial credit perspective and the commercial RM experience. Instead, we take a closer look at the Treasury Management perspective and explore how Treasury officers view the deal collaboration process.
Helpful Links
- Is True Commercial Deal Collaboration Possible? (Purposeful Banker, July 26)
- What Does Primacy Mean for Commercial Banks? (PurposefulBanker, June 28)
- A New Focus on Primacy in Primacy in Commercial Banking (Novantas)
- Commercial Loan Pricing Market Update, July 2021
- Commercial Loan Pricing Market Updates
Questions? Comments? Email Jim Young at jim.young@q2.com
Transcript:
Jim Young: Hi, and welcome to The Purposeful Banker, the podcast brought to you by PrecisionLender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, director of content at PrecisionLender. I'm joined today by Jason Carr, who's the head of middle market client development here at PrecisionLender.
Today, we're going to continue our series of discussions about commercial deal collaboration, with a closer look at the treasury management's perspective. That's something that Jason will be able to provide for us.
But before we dive into that topic, Jason, let's introduce you to our audience. You're new to PrecisionLender, but certainly not new to commercial banking. Can you tell us a little bit about your background and how you came to PrecisionLender?
Jason Carr: Yeah, sure. Thanks for having me and thanks for the opportunity, Jim. I spent the first 26 years of my career in corporate banking in a number of different roles, ranging from sales and consulting to product management, across three different banks. SunTrust, RBC, and PNC. Most of my career has been in the treasury management realm, with a few exceptions. One that's relevant to our conversation today was leading PNC's Georgia commercial banking team for several years. And then most recently, before I joined PrecisionLender, I led PNC's Southeast middle market treasury management sales team.
I've been fortunate to have the opportunity to see the commercial banking business from multiple perspectives, including those of relationships managers and treasury management officers.
Jim Young: Alrighty. And I should add that, apologies in advance for those of you who are in treasury management if I slip up occasionally and just say treasury. I will try to put treasury management in there because I think that's a little bit more, as Jason was saying, I think that's probably the better way to phrase it on here.
All right, it is your experience, Jason, in treasury management, that's why we wanted to have you on this episode. We spend a lot of time on The Purposeful Banker talking about the commercial credit side of things, and the commercial RM experience. But today, I'm hoping you can shed some light on what things are like in treasury management.
Let's start off with that broad question. When we're talking about deal collaboration, the topic that Dallas and I have been exploring on several of the podcasts, what does that mean from the treasury officer perspective?
Jason Carr: Yeah. I think to really answer this question, I need to provide some context around the role and the importance of treasury management services.
Before we get into this, by the way, just to level set up front, we're talking broadly and generally across market segments here.
Jim Young: Right.
Jason Carr: We have to recognize that each revenue and industry segment is a little different, to some degree. Thinking broadly and generally, when you think about the various ways that commercial banks can deliver value to clients, at the core are really access to capital, credit, and management of the cash cycle. These really go hand-in-hand.
And then, when we talk about relationship primacy in commercial banking, going back to some of your conversations with Dallas, this can mean a lot of things but one common meaning is being the primary operating bank, or the bank that a company uses to manage and finance its operating cashflow, because this functionally makes the bank a part of the business in a manner of speaking.
And then, when we think about how banks can differentiate as a relationship partner for clients, it often comes down to which bank consistently brings ideas and insights to the table, and which ones can tailor solutions around them to help the client improve their performance.
When you look at how technology continues to transform commercial banking business, as well as clients businesses and preferences, treasury management's really the main realm where innovation is happening. There's lots of new and exciting things happening around ways companies can do things like automate manual business processes, and accelerate and better control cashflow and liquidity, facilitate online buying of goods and services, and protect themselves from fraud. They can do this in a very customized and integrated way. Treasury management is really one of the best ways for commercial banks to differentiate and be a strategic partner. But before we even consider differentiation, we have to think at a fundamental level about how companies depend on treasury services to operate. Having competitive treasury management services, both in terms of functionality and pricing, is really table stakes.
And then lastly, and certainly not least, is relationship economics. Treasury management's arguably the best way to generate recurring, sticky fee revenue. It's absolutely vital to do this, given liquidity in the system and the margin compression that's happening right now. It's true that top performing banks require recurring fee revenue to support the extension of capital with acceptable risk adjusted return.
I know I just said a lot, but when you take all of this into account, treasury management officers at top performing banks want to be, and really need to be, in lockstep with relationship managers and involved on the front end of the client and prospect interaction, and on the front end of opportunities with really close collaboration and transparency throughout their relationship and deal cycle. This is what, to me, collaboration means or revolves around, from a treasury management officer's perspective.
Jim Young: That's great stuff. It's funny, I have jokingly talked a little bit about it with people and refer to it as credit is from Venus and treasury is from Mars.
Jason Carr: Yeah.
Jim Young: Because what you made was a very good advocacy for the importance of treasury. And then I know there is some relationship managers and come CLOs out there who would say, "That's great, if you've got that primary payments. But, what's really important is those huge loans that are bringing in that recurring revenue."
I do sometimes get the impression, fair or not, that treasury officers are sometimes viewed by credit as the support function in a big commercial deal. "I'm the relationship manager, this is my relationship. I will talk to you guys when I need you," basically. How does treasury management see itself? Does it see itself as support? It doesn't sound like, the way you just framed it, that that would be the case.
Jason Carr: Yeah. No, I think you make a good point. I think this stems in part from history, but it's also rooted a little bit in reality. It goes back to what you just referenced a minute ago, access to capital or credit is still the cornerstone of commercial banking and of commercial banking relationships. First of all, it's the largest source of revenue for banks, it still is.
And then, much of the time, especially in the small to medium sized business, and even the middle market segments, companies use a single bank for all their services. Their operating or other core credit facilities are often the anchor and that's because access to capital is vital to their business. And then, when you think about the fact that interoperability of working capital financing and cashflow management is really necessary for functional purposes, banks often require treasury management business as a condition of extending credit.
And then also, commercial bankers have grown up in a credit first or credit-centric environment. I myself started in SunTrust's management associate program, which was designed to train relationship managers. At the time, it was very credit-centric.
These factors tend to result in credit being treated as a higher priority, even a pre-requisite in the relationship and deal cycle. As a result, it is indeed true. You see treasury management sales teams at some banks that behave like supporting cast members, and actually sometimes they're organized this way. The trouble with this goes back to what I was saying before, around credit and treasury management really going hand-in-hand, and the importance of treasury both to the bank and companies on several levels. When you keep this in mind, top performing banks treasury management teams are co-stars rather than supporting cast members.
Leading with treasury management or positioning treasury management early in conjunction with credit offers the opportunity to do a number of different things. To differentiate, as I mentioned before, through ideas and insights. It offers the opportunity to tailor credit proposals to compliment efficient working capital management. The best thing that banks can do is help clients to manage their cashflow most efficiently before lending them money to finance it. And then, pricing deals at the relationship level and optimizing deal economics, and then positioning the bank for primacy, these are all side effects of bringing treasury management on the front end.
Jim Young: Okay. Dallas Wells and I have talked about it at times, gosh going back for, I hate to age us, years on this podcast though, about sometimes how things can get siloed. And how that sometimes you can have treasury saying, "Hey, I'm going to price this product and I'll give you a deal on credit if you get this." And credit's out there saying, "I'm going to price this loan and I'll give you a deal on treasury management services if you do this." The left hand doesn't know what the right hand's doing.
I guess, is that a fair problem to put out there? And maybe, what are some of the other obstacles to this ideal state you just painted, in terms of ... I think you used a better word for it than I can think of at the top of my head. But basically, again, equal collaborators on a deal.
Jason Carr: Yeah. No, no, what you described happens all the time. Some things that I've seen that come to mind, really in no particular order, are first of all, inconsistent goals between relationship managers and treasury officers. Sometimes, they're measured differently, or fragmented, or siloed pipeline, and relationship planning, and data and reporting infrastructure. Everything they look at and how you manage those key parts of the deal cycle internally can be separate.
Or, bringing treasury in too late in the call process. Being forced, as a treasury management officer, to have more what I would call tactical dialogue versus strategic, and designing and pricing a solution set to support a credit opportunity, as you referenced, as opposed to what's best for the client, in terms of optimizing their performance and profitability. You hear all the time, "Let's look at apples to apples and let's see if we can do it cheaper," basically. Or, seeing credits approved with no mandated cross sell. Or, really no follow through to confirm the cross sell, even if it is mandated.
Another thing you see, too, is this pricing using separate, often cumbersome spreadsheet based tools that live in a vacuum rather than being integrated with either CRM or into a pricing model that puts things all together from a relationship perspective. You have blinders on. And then, lack of follow through regarding business that's promised as part of the credit proposal process.
These are all some things I've seen in terms of problems, in terms of inhibiting the deal collaboration process.
Jim Young: Yeah. It seems to me like there could be situations, which you described, whereby the time treasury gets involved in this, they're simply being asked, "Hey, here's the product, price it. Plug that into a spreadsheet." I'm guessing there's been times when you or the people you've managed have said, "Well, I'm not sure this is even the product we should be pricing."
Jason Carr: Right. That's right. It's a fundamental disconnect between what I think most banks see as a need to get away from product-centric thinking and product pushing, and towards client and relationship-centric thinking. But internally, in terms of deal collaboration, we're not functioning that way yet, in many cases.
Jim Young: This will be the positive side of this. I'll let you create your hypothetical bank and create your role in there. You have the ability to put together a good deal collaboration system. What would that look like? And maybe, really tell me what it would look like from the treasury management's perspective if it's done right.
Jason Carr: This can happen, I've seen it happen. The keyword is probably cohesion, I would say. Top performing banks and their relationship managers maintain routines and standards that really facilitate close collaboration with all of their partners, including treasury management, from prospect targeting and relationship review planning, all the way through to implementation.
I'll just walk through it, at a high level. First of all, let's think about this. What prospects are we going to target, what relationships are we going to prioritize and what are we going to say when we reach out to them? What resonates the most? Maybe it's a treasury idea and not a generic or credit-centric message. The only way this happens is through regular dialogue and planning, that process that I mentioned, to integrate the entire process. Or, what insights can we bring to the table to challenge the clients or prospects thinking and get them to really engage?
The old model of, "Tell me about your business and your current banking structure so that I can see if we can do it cheaper," it doesn't really work. Companies have limited time, they have great access to information so they have to be compelled. Treasury management is really fertile ground for compelling messaging, not only fundamentally, but given the rapid advancement of technology as I mentioned before. The only way that ideas and insights can be raised is, again, through regular dialogue and planning.
Let's not forget when we price. Shouldn't we price as a relationship team with overall relationship economics in mind, in a way that's consistent with our value proposition? Not only to be competitive, but to be sure we're bringing in good, profitable, longterm relationships with the right economics that supports our extension to capital. This is a process and system challenge. A good process brings everyone to the table, around the same sheet of music, to collaborate the transparency again consistent targets and standards.
And then, when we present ideas, shouldn't we present the whole business of the relationship and have that whole picture in mind, that complete value proposition and ROI? Again, you don't get there if you don't have consistent end-to-end collaboration.
And then, I would say the last thing is the information that the onboarding process is based on, what was proposed and agreed to has to be consistent so you can meet, or obviously better yet exceed expectations. This also can't happen consistently if you have a fragmented process.
Jim Young: All right, this is the part of the program where I usually ask about my simple marketing guy question about banking sort of thing. But before I get into that, it's interesting what you said about the relationship part of it because we do, on this podcast, talk a lot about it from when you're pricing a loan and you need to understand the full relationship and everything out there. It stands to reason, why wouldn't that be the case as well, from treasury. The relationship wouldn't just be, "Hey, what are all the other loans you have out there?" Or from a treasury's perspective, understanding and knowing that as well, not pricing in a vacuum. That makes a lot of sense, it's just interesting how that's a tough wall to scale for a lot of banks out there.
Jason Carr: It's intricate and nuanced, but without the complete picture you're basically making uninformed decisions. And maybe, with the right place in your heart but the wrong fundamental business motivations.
Jim Young: You mentioned about the outreach part of it. I'm curious, from a bank perspective, how do you determine ... We're talking about primacy and that sort of thing. But from the opposite side, whose primary in terms of reaching out to it? Is it hey, if it's a treasury idea, you have the go ahead to reach out to them? Or, does the relationship manager say, "You have to run it through me and I will handle of that?" Or, are both treasury and credit on calls and that sort of thing? How does that part get handled?
Jason Carr: Yeah, that's a great question. I think for top performing banks, the answer is different from name to name. The way you get there is by literally walking through and talking through every target name and every relationship name carefully, and thinking about those clients and those businesses worlds and what messaging will resonate with them. It really doesn't matter who takes point. You have to anchor it with the right member of the team, at the right time, to deliver that compelling message because what you're trying to get them to do is engage.
The best way to do that is by signaling value. Businesses are smart and well informed, so they know what a sales pitch sounds like and they know what an offer of value sounds like. That's what you're trying to get to. By collaborating as a team, you can figure out whose best to run point on that and how to tailor that message.
Jim Young: Yeah. I guess, with all of these things, you mentioned a bit earlier on, pay structures and incentives, you've got to have it set up in a system so that hey, it's in everybody's interest and that sort of thing. It's not freezing someone out because you want to be able to essentially get more of the incentive for a particular deal.
I guess the other part I'm curious about is the technology side of this. What you've talked about, in a lot of ways, sounds great but I can hear a banker telling me, "Well that's awesome, but how in the world can I bring all this together? Even if I want to do it, how can I make sure that when treasury is pricing something, they know what credit's doing?"
Jason Carr: Yeah, right. Great point. There's a number of things that have to happen to bring everyone together. One of those things is certainly technology platform. But again, I think context is important here. Let me just explain a little bit.
First of all, if you were to put all this in a nutshell, it's process integration. It's insistence on recurring cross sell revenue to support the extension of credit not just the pursuit of profitability. First of all, bank leadership has to define behavior and activity expectations, and they have to design processes and insist on deal economies. And, adopt technology that results in consistent collaboration throughout the sales, and relationship and deal cycle. They have to adopt technology that ensures execution and follow through. But why, really?
If you're a Star Wars fan and you've watched The Mandolorian you know the saying, "This is the way." This way has to be client-centric and anchored in delivering differentiated experience. That's the name of the game now, especially for banks with largely commoditized services, it's all about the skillful combination of ideas, and insights, and tailoring solutions with the right amount of well-coordinated human touch, which especially for the middle tier of banks, is really where they excel. And that's what you need to be, a strategic partner.
But of course, earning risk adjusted return is important, too. A credit-centric model is neither client-centric nor a path to sustainable profitability. You have to have, again, standards, routines, processes and systems that bring everyone together, including treasury management, for every step of the process. When you think about arguably the most important part of the deal cycle, once an opportunity's in play, it's pricing, structuring and negotiation. That's where deals are won and lost, and where margins are eroded or optimized relative to risk.
Even if you source opportunities well, and the calling goes well, and the solution set design is great and they're all well executed, if you have a fragmented and siloed approach to pricing and to structuring, and you have inconsistent performance measuring and no risk adjusted return goal, you can kill a deal. Or, you can kill relationship economies. And then, you also have the notion, as I said before, of lack of follow through to ensure that cross sell occurs. If you say you need it to support relationship economics, it has to happen. If you don't have the right systems, and processes and teams in place, it's just not going to work.
Jim Young: Yeah. My takeaway from what you said is it's a steep wall to climb, but climbable. It can be done. Has to be done and can be done.
Jason Carr: Yeah. Yeah. There are absolutely platforms out there, and of course PrecisionLender is one of them. It is the platform out there, which is actually the powerful value of this platform is what drew me to PrecisionLender after 26 years in corporate banking. I was blown away by the notion of pulling the entire deal team together around well coordinated pictures of relationship economics, competitive dynamics, all the information that bankers and leadership teams need to make the right decisions at the right point in the deal cycle.
Jim Young: Yeah. As you mentioned, so much of it too, is about getting the culture right, getting the mindset right, getting everybody on the same page. All the software in the world won't save you if you're not using it in the right way.
Jason Carr: Well said. The leadership has to be there, the culture has to be there. The system is just a tool and a process. A powerful one, if used well and deployed well, but it has to be part of an overall philosophy in terms of how deal collaboration's going to take place, or how the relationship and deal cycles should be managed.
Jim Young: All right. Well, Jason, thanks so much for giving us that treasury management perspective.
Jason Carr: Hey, I did the same thing as we were talking.
Jim Young: But, really appreciate it because again, like you said, we spend a lot of time on this talking about it from the credit side of things. That's been PrecisionLender's bread and butter so that's a big reason for it, so it's great to get that treasury management perspective. I hate to break this to you, but you did a great job in your debut and that means probably I'll be asking you to come on the show again soon.
Jason Carr: Well, very kind of you. I really appreciate the opportunity, and especially thankful for the opportunity to help this industry, which I love very much, so thanks so much.
Jim Young: All right. Thanks so much for listening. And now, for a few friendly reminders. If you want to listen to more podcast or check out more of our content, you can visit the resource page at precisionlender.com. Head over to our homepage to learn more about the company behind the content. If you like what you've been hearing, make sure to subscribe to the feed in Apple Podcast, Google Play or Stitcher. We love to get ratings and feedback on any of those platforms. Until next time, this is Jim Young for Jason Carr and you've been listening to Purposeful Banker.
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