Hyper-competition from Fintechs coupled with shrinking margins has spurred a seismic shift in how treasury management conducts business. Market conditions have made it imperative for treasury management to leave the back office and become a revenue-generator. The following details factors in treasury management evolution and how treasury management must change.
Why treasury management must transform
Several factors serve as catalysts for treasury management transformation, but the bottom line is treasury management must provide a new level of value for financial institutions that face considerable challenges in a modern, dynamic banking market. Here are some of the key drivers for change.
Competition from Fintechs
Some fintechs can be real threats to traditional financial institutions. These sexy startups cherry-pick the most profitable parts of treasury management and package them into standalone services that often deliver a better customer experience than traditional banks.
Fintechs tend to attract the brightest young minds — employees who previously would have worked for treasury — which can create talent woes for banks. Top talent often flocks to Fintechs for its cool factor as well as a perceived ability to make an immediate impact.
Competing with Fintechs means treasury management must catch up with modern technology, enhance the customer experience and find ways to attract top talent.
Shrinking margins and the war for low-fee deposits
Margins are shrinking across all lines of banking business as financial institutions compete to meet customer demands for low-fee deposits. Low interest rates and customers’ willingness to jump ship for better deals is a challenge because banks cannot simply increase rates to make up lost margins.
Treasury management has emerged as a way for financial institutions to make up lost ground and even achieve overall revenue gains. A transformed treasury management is a front-line sales engine capable of delivering greater deposit volume, more fee-based income and ultimately outstanding value for financial institutions.
Market changes and shifting demographics
Low interest rates and fees are only part of the equation. Demographic shifts demand financial institutions modernize and provide technology solutions that enhance the customer experience.
Today’s CFOs and corporate leaders are younger than ever, and they expect streamlined digital and mobile experiences often absent from many bank product offerings. An evolved treasury management works to develop products and services that meet modern expectations so it can attract and retain customers for financial institutions.
Mergers and acquisitions
The largest corporations consistently merge with or acquire smaller, profitable companies and bring them under their umbrellas. When longtime corporate customers merge with or are acquired, new leadership comes with new expectations — and if banks aren’t prepared, they risk losing their best customers to competitors.
A robust treasury management is a powerful way for a financial institution to keep customers post-merger or acquisition, and even increase revenue by attracting business from new “parent” companies.
As mentioned, a younger customer base expects an enhanced experience delivered via technology solutions. Cloud-based banking, mobile access, integrated receivables, remote deposit capture, payment processing, paperless onboarding and automation should be staples of today’s treasury management consolidated product offerings.
Meeting customer expectations and competing with Fintech means treasury must innovate new technology solutions. That’s an enormous obstacle for many small and mid-size banks; which is why many financial institutions are partnering with Fintech to deliver the automated, cloud-based technology solutions their customers demand.
How treasury management must transform
A new era of banking means treasury management must adopt a new way of thinking if it is to achieve its full potential as a sales engine for financial institutions. Indeed, the entire financial institution must regard treasury management in a new light if the bank is to survive — and thrive — in the digital age. Here’s what treasury management once was contrasted with what it is now.
Then: Back office service function
Now: Self-sustaining line of business
Where treasury management once relied on other departments for business, it is now a front-line sales engine responsible for driving FI revenue. Banks must give ample consideration not only to how treasury can compete for customers now, but also in the future.
That means identifying new ways to attract top talent back from Fintechs. Many young professionals are eschewing traditional banking in favor of the Fintech cool factor: ping pong tables, casual dress codes, flexible hours and even craft beer. Moreover, many banks do not have formal succession plans, resulting in a loss of knowledge and experience when senior staff retires.
While no one is saying treasury should install ping pong tables or serve beer over lunch break, it stands to reason that treasury must identify and promote its distinct advantages if it is to attract and retain top talent. Mentorship programs can put new employees on the fast track to success and grant the knowledge and experience required for natural succession when senior leaders retire. Banks can also identify clear paths to career advancement as well as ways for employees to make important contributions that result in job satisfaction.
While Fintech startups will always seem sexy, banks can also promote advantages such as long-term stability and market strength. By establishing mentorship and succession programs, offering career advancement opportunities and promoting their traditional strengths, treasury management can attract the top talent needed to compete now and in the future.
Then: Support role
Now: Visible and strategic partner
Treasury management was once a back-office function that existed solely to support other banking divisions such as commercial lending. Today’s treasury management must be granted greater visibility and be viewed as a strategic partner that benefits the entire financial institution.
To achieve these goals, treasury management must innovate new products designed to deliver an exceptional customer experience. It must collaborate with other departments and educate both staff and leaders on treasury management’s new role, where customers are sold on the bank because of the treasury products it offers. In this manner, treasury is perceived as a cross-functional component that integrates with all commercial banking divisions.
It’s important for leaders to work to elevate treasury’s status within the financial institution. Getting a seat at the table for strategic decision-making is key if treasury is to get the resources it needs for technology development and top talent. That’s why treasury should set key performance indicators (KPIs) and track metrics to illustrate how it increases revenue and creates value for the bank.
When treasury can prove its worth, it’s easy for executive leadership to allocate more resources for treasury and to elevate its status organization-wide. That fosters greater visibility and helps other divisions perceive treasury management as a strategic partner that can help them achieve their goals.
Then: Manages existing accounts
Now: Generates clients, deposits, revenue and value
As-mentioned, treasury management is now a front-line sales engine, and as such it must be granted the resources it needs to attract and retain customers. Today’s treasury management should establish a dedicated product development group that works to understand customer needs, then identify technology solutions that deliver an exceptional experience.
Technology is a critical component, but treasury management also needs extensive marketing support to reach its full potential. Gone are the days when a few flyers and banners placed at conferences is enough; to compete with Fintechs, treasury management must work with marketing partners to develop strategic campaigns that reach targeted customer segments across multiple channels: online/digital, mobile, print and media. Lead generation and nurturing are crucial to fostering a steady sales stream that yields new clients.
Treasury management should also have a dedicated sales team. Though treasury often relies on internal staff for sales, in many cases they’re too close to daily operations to achieve maximum efficacy. Marketing should work to hand off warm leads to dedicated sales staff, who can nurture those leads, close deals and then turn new customers over to account representatives for onboarding.
Indeed, treasury management’s new function is that of a business within a business. When treasury completes its transformation, it becomes a self-sustaining line of business that enjoys high visibility and is viewed as a strategic partner that yields clients, deposits, revenue and value for financial institutions.
Why partnerships propel today’s treasury management
As noted, treasury management faces significant challenges to modernization. This is especially true for small and mid-size financial institutions that do not have the resources to develop cloud-based technology solutions contemporary customers demand. Many banks even feel they’re “held hostage” by current core processor vendors that have slow development schedules and are practically indistinguishable from one another, which makes it impossible for financial institutions to differentiate themselves and gain competitive advantages in the marketplace.
That’s why many banks are partnering with Fintechs. Fintechs can bridge the gap between current offerings and superior technology that delivers an exceptional customer experience. Coupled with the distinct advantages banks already have — such as proven strength and stability — partnering with Fintechs is a powerful way for financial institutions to attract and retain customers now and in the future.
Fintechs enable banks to develop innovative products and bring them to market quickly, meet and exceed customer demands to deepen relationships and foster long-term loyalty, tap into top talent and capture all aspects of customers’ financial management to increase revenue — all without the need for massive investment or ongoing overhead. Thus, Fintechs facilitate profits for financial institutions that view them as strategic partners rather than direct competitors.
Key questions for treasury management
Change is difficult, but often necessary to survive — and thrive — in an evolving financial market. Treasury leaders should ask themselves the following questions to identify how they will compete.
1. What is the primary purpose of treasury management for the financial institution?
Is treasury management going to remain a back-office support function, or will it embrace its new role as a sales engine? What are the risks and benefits of each? Which best positions treasury to remain relevant and compete for valuable customers now and in the future?
2. What is treasury management’s approach to technology and Fintechs?
Do treasury leaders feel its current technology offering is adequate, or do opportunities exist to enhance the customer experience? Are current core processor vendors capable of innovating cutting-edge technologies and bringing them to market fast enough to compete? Is treasury management better off partnering with Fintechs, or are Fintechs regarded solely as competitors?
3. What is treasury management’s value proposition?
Is treasury management’s value that of an administrative function that serves other banking divisions? Or, does offer unique, innovative technology products that streamline banking for commercial customers? If the latter, does that then provide unique value to the financial institution?
4. How is treasury differentiating itself from other financial institutions and from Fintechs?
Does treasury currently offer the same thing as everyone else? Is it beholden to vendors that lack initiative and innovation? Or, does it seek to develop new technologies to compete against other banks and Fintech? Alternatively, can it partner with a Fintech to offer the best of both worlds: modern technology coupled with the strength and stability of a traditional bank?
5. How is the client experience better than the competition?
Does treasury offer convenient, efficient services such as integrated receivables, automated remittance matching, remote deposit capture, lockbox and paperless onboarding? Are these services available via intuitive digital and mobile platforms? Do customers feel valued during the entire end-to-end experience? Or, can customer expects the same experience they’ll get from competing banks?
6. What is treasury doing to attract, develop and retain the next generation of treasury management talent?
Is treasury hoping top talent will “come around” and recognize them as a better option than sexy Fintech startups? Or, is it actively working to establish a mentorship program, provide career advancement opportunities, enhance the daily work experience and offer opportunities for staff to make an immediate impact with its work? Is treasury working with senior leaders and HR to promote new initiatives and communicate the distinct advantages of working at a traditional bank versus Fintech?
There’s no doubt treasury management is at a crossroads. Banks that fail to understand its potential, elevate its status and allocate resources to drive treasury sales risk fading into obscurity as customers jump ship for competitors that can deliver a streamlined technology-based experience. Banks that recognize treasury management’s and invest in its transformation, however, are positioned to compete — and win — in today’s dynamic market.
The information provided in this blog does not, and is not intended to, constitute legal or financial advice.
Keep your business moving forward
Blog Financial Institution
You need a strong marketing strategy to compete, so FIs need to adopt the same consumer mindset and apply it to marketing in order to attract and retain customers.
Blog Financial Institution
Treasury management is transforming into a front-line revenue driver for FIs. Here's what to know and how to improve your bottom line.
Blog Financial Institution
Learn treasury’s top staffing challenges and how financial institutions can overcome them to hire, retain and train for treasury management success.