In this episode of The Purposeful Banker, The Aite Group's Christine Barry shares what commercial banks should look for when adding cash management technology and how lenders can better cross-sell cash management and treasury services.
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Hi, and welcome to The Purposeful Banker, the podcast brought to you by Precision Lender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, Director of Content at Precision Lender, and I'm joined today by Christine Barry. Christine is Research Director for Aite Group, and we're going to talk about a report Aite recently published called, "The Leading Providers of U.S. Cash Management Technology."
Full disclosure, I feel compelled to mention that Precision Lender's parent company, Q2, is one of those leading providers of US cash management technology and is featured within the report.
Christine, welcome to the show.
Christine Barry: Thank you. It's a pleasure to be here.
Jim Young: Why don't we start by just telling our listeners a little bit about yourself, about Aite, and then about this report?
Sure. So as mentioned, I'm a Research Director at Aite Group
and Aite Group
as a research and advisory company, so we focus on key trends that are shaping the financial services industry. My group focuses specifically on corporate or commercial banking and the cash management space is one that I'm extremely passionate about. I've been covering it for a long time and I've really enjoyed watching the technology evolve. It's become a big area of focus right now. So I'm looking forward to today's conversation.
Jim Young: Great. Well, as you know, this podcast is primarily about commercial lending, so let's start there. Full disclosure here, we don't normally talk about treasury management on this show. So why is treasury management, or why should be treasury management, be important to our audience, which is, again, is primarily in commercial lending?
The credit side of the bank really is where the corporate and the business customer relationship begins. But it's the treasury side that anchors those customers with sticky products.
Christine Barry: It's a really important topic and more and more each day. It's really important for lenders and treasury services folks to collaborate a lot more than they have historically in the past, especially in a low interest rate environment that we're currently in.
The credit side of the bank really is, and always has been, where the corporate and the business customer relationship begins. But when you think about it, it's the treasury side that anchors those customers with sticky products. So products like lockbox or other receivables capabilities or payments. Those are the products that become deeply entwined in a company's processes, and when they're using those products from a bank, it makes them very difficult to switch banks.
If banks or the lenders that are listening to today's podcast, don't focus more on cross-selling treasury services, they put themselves at risk of losing those customers once they pay back the loan.
Also, treasury products may not always be the sexiest ones to talk about, but strategically they're very important to banks and they represent a very large share of a bank's revenue. It provides streams of fee-based recurring revenue that are critical to banks.
In today's environment, when credit margins are low, cross-selling treasury increases the overall relationship profitability for each of those customers. It's also an important source of much needed deposits, which, as you know, are also very important to the bank.
Jim Young: Yeah. You just said a bunch of magic words there with relationship, profitability, fee-based business, and deposits. You've definitely made the case for why this is an important topic here for commercial lenders.
What are some, I guess, if I'm a commercial lender, what would be some of the, I guess, best practices or recommendations for how to cross-sell this along with their commercial credits?
The first step is to change the mindset of the lender - to get them to to think of themselves less as just extenders of credit, and more as that trusted advisor for the customer.
Christine Barry: Sure. A lot of banks are still very siloed, so the industry hasn't made a ton of progress as far as successfully cross-selling, but I'm seeing more and more banks focusing a lot of attention on it. So while there isn't a model bank that I can share all the best practices from, we're definitely seeing some practices that are seeing success.
I'd say the first step is really to change the mindset of the lender. Getting lenders to think of themselves less as just lenders or extenders of credit, and more as that trusted advisor for the customer. This is going to position them to help their clients beyond just the credit needs. I'm even coming across some lenders that are dropping the title lender and calling themselves more of a relationship manager.
Of course this strategy is also going to require some training. Lenders don't have to be experts in treasury management, so nobody needs to be concerned there, but they should at least be familiar with some of the key products and services across the bank.
Also, bringing treasury experts along with them to client meetings and selling together as more of a team I'd say is another best practice. And then of course not surprisingly there's the sales incentives, the contests, the award recognition, those are also very effective. And we're starting to see a lot of banks even making cross-selling of treasury management products a part of annual performance goals.
Jim Young: Yeah, I think that's critical as to say the movement. If you move away a little bit from simply loan growth, loan volume, and toward the type of incentives you're talking about, that can have a huge effect. I actually started to catch myself a little bit earlier when I mentioned about lenders, that really what we should be talking about and you're right, we've gotten the same sort of feedback is really we call them relationship managers, or a lot of times we just called them bankers, which really fits into that.
You made it very clear about why treasury management, there's a value prop for the bank here, why this is important to the bank. And maybe just, again, as you mentioned, if you can bring along treasury management experts to a meeting, you pass that conversation on to them, but maybe at least in an initial conversation before you sort of identify initially that they could be a candidate for treasury management services, if you're a relationship manager, what's that initial value prop that they would offer to a business owner to say, hey, this is a good idea to have both of these things at the same bank?
Christine Barry: Sure. You know, as I speak with banks, one thing that always comes up as a goal for banks is, we need to make it easy to bank with us. So I'd say that first value proposition is just convenience. I mean, the ability to pay down a loan directly from your deposit account, or to quickly request a line of credit. Maybe you receive a notification that you have insufficient funds for a payment that's about to go out. That ability to just request a line of credit to make that payment, it saves so much time for customers and offers a high level of convenience. Today, as you know, it's all user experience and the customers.
Also, of course, the more products that you're using as an institution, the more the bank knows about you and the more valuable insights it's able to provide to their customer to help them grow their business, operate efficiently. And then also there's the bundled pricing aspect that they can also potentially get.
When I think about cross-selling credit and treasury management, there's definitely a clear value proposition for the bank, but I really do see it as a win-win situation for both the bank and the customer.
Jim Young: All right, so let's then pivot a little bit at this point to just a little bit of treasury management 101, and talk a little bit about this report and sort of when you're taking a look at the best in class systems out there. Tell me a little bit about some of the key features when you're identifying the best systems out there. What are some of the key features and what makes a system best in class?
Christine Barry: Sure. So the report that we're talking about today is one that I've been writing for several years. I do updates every year and it's been so interesting to watch how the technology and the strategies and the technology providers continue to evolve.
When I first started looking at this space, most of the conversations were very focused on functionality, information reporting, and the ability to make payments, positive pay to help with fraud, lots of very core capabilities that banks offered. And there were differences across the banks on the robustness of the capabilities they offered. Today, it's no longer about that. Most corporate treasurers don't see major differences with the exception of maybe the larger banks having more global capabilities, especially around payments. There aren't a lot of differences, at least not perceived differences, on the part of corporate treasures.
Today when they do their comparisons, they're not looking at functionality, instead, they're looking at user experience, they're looking at the level of connectivity to third-party systems. They want flexibility. They want an integrated experience. They want insights. It's all about that end user and their experience, and just making things as easy and integrated as possible for them.
When you think about an integrated experience, it's the customers don't want that siloed experience. They don't want to have to log into a system multiple times. They don't want to have to consolidate information on their own. They also want the flexibility to interact with the bank from wherever, whenever. They want that multichannel experience. And more importantly, they don't want to have to keep logging into multiple systems across the bank, so they want that tight integration there.
But they also want to be able to perform transactions maybe outside of the bank portal. This is especially important to larger businesses. They're looking for insights and intelligent engagement. They want to know that their bank understands their business and is able to solve their problems.
Next generation systems have a lot more insights. They have embedded analytics in them to better position banks to provide more actionable data to customers.
We're also seeing the importance of fintechs playing a role in customer's needs being met. You know, banks can no longer go at this alone. When customers are looking at banks, they're looking at that integration with fintechs.
Today, 60% of US businesses go beyond their bank to meet at least one financial need, so these platforms need to be flexible enough and offer that integration through APIs to be able to meet the needs of customers.
Finally, I'd say a forward-looking roadmap. You know, one challenge that comes to mind is forecasting. I always hear that from corporate treasurers that they struggle to forecast. So we're starting to see some of the technology platforms embedding those types of capabilities, or again, looking for FinTech partners to help them to deliver that. So those are the capabilities that I'm seeing in best of class solutions.
Jim Young: Let's say I'm a customer and I've had my treasury management at a different bank. I'm interested in what your bank has to offer, but changing from that sort of stuff, all those accounts and all that sort of stuff, from one bank to another, seems like a daunting task. I guess, how much of that, the ability to onboard and switch, is being built into these systems and sort of how does it... If I'm the banker trying to get them to switch over, what am I telling them about how they can do this in a way that honestly won't scare them off?
Christine Barry: Yeah, it is a daunting task. I'll be honest. And the onboarding process is one that most banks struggle with. I'd say it's probably one of the highest priority initiatives right now at most banks, especially with COVID and customers need quick access to your products. And it's taking some banks months. I spoke with one corporate, it was going to take them a year to get access to a product. That's just unacceptable to a society today where we expect everything to be done immediately.
We're spoiled by the companies like Amazon and other online retailers just moving quickly, knowing what we need. But we are starting to see some of these treasury management platforms with embedded onboarding capabilities that are really creating a lot more automation, making the process a lot more efficient to get some of those onboarding times down, preventing customers from having to enter the same information over and over again. The ability to start applying for a product in one channel and being able to complete the process in another channel, to be able to take a picture with your phone and upload documents. So the onboarding process has really come a long way in a lot of these systems and that's critical.
A lot of vendors also have created tools for banks that help carrying over some of the information as well, just to make that switching process a little easier. But it's still one that's challenging and I think, to a certain degree, that's by design, because banks don't want to make it easy for their clients to leave.
Jim Young: Yeah, that is a fair point. Finally, how does this conversation change based on bank size? How is this different for, say, the Bank of Americas and Wells Fargos of the world versus regional banks or community banks?
Christine Barry: You know, honestly the conversation doesn't change too much depending on the size of the bank. I'd say all banks, regardless of size, need to be investing in new next generation technology platforms. Luckily the technology has come down significantly in price, so it really is affordable to all size institutions. Then when you factor in cloud deployments, that's bringing down the costs even more. So more and more I'm seeing small banks fighting for the same customers as the larger banks and the technology really helping to level the playing field.
All banks, whether they're large, small, need to be continually investing in technology, they need to be rolling out the right strategies, and they need to be choosing the right partners. Over the next few years, I do believe though that we will see a lot more smaller banks making the investments. A lot of them up until now have been trying to serve their business customers some of the consumer capabilities and clearly that's not an effective strategy.
We're starting to see them recognize more and more the importance of business customers. The value of selling treasury management. A lot of them are strong in the lending side. Haven't historically cross-sold those treasury products, but they're seeing the benefits and they're making the investments in it. So again, I'd say it really comes down to technology strategy, having the right partner regardless of the size of the institution.
Jim Young: Well, Christine, thank you so much for really covering that in a way that I think really makes it clear why it's important for our listening audience. And along those lines, if they're interested in getting ahold of the report, Leading Providers of US Cash Management Technology, how would they go about doing that?
Christine Barry: They can go to our website. Reach out to me. The name of the company is aitegroup.com. So just go to the website and the report is available for purchase. It's really a great report. It covers a lot of the key trends in the industry, evaluations of leading providers. We really just touched on a small portion of it today, but check out the website, check out the report. And if you have any questions, feel free to reach out to me as well. My contact information is on the website.
Jim Young: And we can link to that as well in our show notes for this. And I should mention again, Aite, A-I-T-E, correct?
Christine Barry: Yes, that's it.
Jim Young: Not always clear for people. Well, again, Christine, thanks so much for coming on the show.
Christine Barry: Absolutely. It's my pleasure.
Jim Young: Thanks so much for listening. Now for a few friendly reminders. If you want to listen to more podcasts, check out more of our content, you can visit the resource page at precisionlender.com or head over to our homepage to learn more about the company behind the content.
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Until next time. This is Jim Young for Christine Barry, and you've been listening to The Purposeful Banker.
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