Cash Management Gains Importance in New Era for Financial Services

NEW YORK, Feb. 7, 2012 /PRNewswire/ -- "In the new regulatory environment, treasury services specialists within banks are more important than ever," says Jim Gifas, Executive Vice President of RBS Citizens. "With the repeal of Reg Q, which prohibited banks from paying interest on demand deposits, these cash management experts have become increasingly prominent – both for their corporate customers and for the banking institutions they work for – and are now at the center of the plate."

To successfully serve their business customers and their responsibility to also deliver value to their shareholders, Mr. Gifas has proposed a "Double-Duty" agenda for treasury services executives to follow – an approach that takes into account the regulatory and competitive challenges faced by the bank itself in addition to the evolving client needs. He presented his concept in remarks to senior banking executives at a recent Cash Management Forum hosted by McKinsey & Company.

Shifting priorities among banks' corporate clients

The primary reason for the newfound prominence of cash management is that the priorities of business clients have changed. "Throughout my 25-year career," says Mr. Gifas, "I've told my customers to 'maximize returns and reduce interest expense.' But today's clients are reprioritizing. Their level of sophistication, their banking needs, and what they value and are willing to pay for are also changing."

"For corporates today, safety and soundness take precedence. Our role as bankers is to reassure them that we will be there for them throughout this difficult period."

"Enormous" financial pressure on treasury services divisions

Corporations in the United States and around the world today are sitting on massive amounts of cash, uncertain about what to do, says Mr. Gifas. Faced with continuing economic uncertainty, credit-worthy banking customers aren't borrowing. This makes treasury services revenue an increasingly important part of the business model for banks today.

"The financial implications to banks are enormous," he says. "Estimates are all over the board, from millions of dollars needed to implement regulatory requirements to billions in lost revenue."

"To address these market conditions, our organizations are looking to us – treasury services – to generate a larger portion of 'sticky' annuity revenue from clients."

In the past, a significant share of treasury services' revenue – some reports say as much as 80 percent – came from net interest margin and sweep fees. This is no longer the case.

Says Mr. Gifas, "Sweep products and the associated revenue streams may never recover fully or could become obsolete. Revenues are also shrinking from lending because of smaller spreads and greater competition from all banks looking to offer credit to the same set of clients. And demand deposit account balances are not as valuable to banks as they had been previously."

The "Double-Duty" agenda

To succeed in this transformed environment, Mr. Gifas proposes that treasury services specialists within banks follow a "Double-Duty" agenda – a program that serves both their corporate clients and the banks that employ them: 

• Embrace change. "First of all, we must accept the fact that treasury services has radically changed, and we must evaluate our business through a different lens," says Mr. Gifas. "At the same time, it is critical that our internal stakeholders are on board and that we all apply the same criteria as we evaluate the business."
• Rethink the client-facing model. "Like never before, we need to measure customer touch points, product effectiveness, implementation timeframes and quality. What are the revenue drivers for each customer segment? How should that be measured going forward? With that definitive market intelligence, relationship managers need to be the quarterback for the bank, ensuring we're maximizing share of our customers' wallet by cross-selling the breadth of services the bank offers. By leveraging the capabilities of product managers and technical sales specialists, we can bring expertise to the table."
• Develop truly value-added products/services. "At the end of the day we MUST create value for our clients while generating revenue for our shareholders by investing in innovative products that bring efficiency to the customer. For example, we can improve the existing product set that balances investment with short-term gains but with an eye on the future. Product bundling is also valuable. And simpler solutions with simplified pricing help create extended distribution channels to sell our products."
• Explore new verticals and lines of businesses. "But be prepared to rationalize new initiatives in the context of the changing environment for our industry and the evolving needs of your customers."
• Optimize product pricing. "Clients are laser-focused on pricing, but price per se is not their sole criterion for awarding business. They are looking for comprehensive solutions from their treasury services providers. As a result, banks can't rely on pricing as their only value proposition."

In this era, Mr. Gifas says that treasury services specialists within banks need to leverage and capitalize on their strengths. "This is our opportunity to ask our managements for resources such as people and investment dollars to create value for our customers in the short term as well as the long term." Because corporate clients are very sophisticated, they expect sophisticated solutions at cost-effective prices. "By improving on-boarding and the ease of doing business through automation, electronic agreements, electronic bank account management, and back-end integration, we will both enhance the client experience and realize revenue more quickly."

Concludes Mr. Gifas: "The 'Double-Duty' agenda enables treasury services bankers to focus on new opportunities, not on 'what was,' because 'what was' will never return."

For more information, or to speak with Jim Gifas, please contact Suzanne Oaks or Jim Daniels of Temin and Company at 212-588-8788 or [email protected].

SOURCE RBS Citizens