What can treasury management solutions do for financial institutions' bottom line?

The battle for low-cost deposits, shrinking margins and the looming threat of fintech competitors has financial institutions (FIs) pursuing new paths to profitability. In a rapidly evolving financial services market, many banks are turning to treasury management as a powerful tool to generate clients, revenue and value. Read on to explore the role of treasury department leaders and how investing in this department help a financial institution’s bottom line.  

Treasury transformation: From back-office support to sales engine

Long regarded as a back office service unit that existed solely to manage existing accounts, treasury has the potential to be transformed from a support role to a self-sustaining sales driver that helps financial institutions attract and retain customers, enhance the customer experience and fuel revenue through greater deposit income and increased fee-based income.

Such benefits are achieved by adopting a new way of thinking about treasury. Rather than being limited to servicing other departments, today’s treasury management function can be aggressively marketed as a technology leader that delivers a suite of compelling services corporate customers find attractive.

As with any change, treasury management transformation requires investment; but that investment is justified by its potential to yield excellent ROI.

What treasury can do to help support an FI's bottom line

A transformed treasury management team can have a dramatic impact on a financial institution’s bottom line. When banks commit to investing in this critical area, they can realize:

• Increased deposit volume
• More fee-based, non-interest income
• Enhanced customer attraction and retention

Quantifying the possibilities makes a strong case for treasury management technology investment. For example, with remote deposit capture, image-based clearing costs around five cents less than image return document-based clearing. That means for every 100,000 items banks send for forward clearing per day, the annual savings can amount to more than $1.2 million per year.

Automated receivables can reduce in-house labor costs by 50% or more, and integrated receivables can improve straight-through processing rates by up to 95%.

90% of corporate customers say they would switch banks for a better treasury onboarding experience. Paperless onboarding can improve time to revenue by up to 35% and reduce manual follow-up activities by up to 80%. That frees sales teams to focus on higher value tasks, such as closing accounts.

Treasury management innovation, then, has enormous potential to slash expenses and increase revenues. In fact, committing strategic investments in treasury management can be a game-changer for banks that must compete against both fintech startups and rival cross-town branches. It can even secure a financial institution’s long-term viability.

How treasury management investments help improve the bottom line

There’s no doubt a transformed treasury can yield significant returns. Multiple factors influence treasury management’s success, not the least of which is executive leadership buy-in. In other words, banks must commit to transforming treasury management into a revenue engine — but first, it’s important for treasury and executive leadership to understand exactly how treasury management solutions improve the bottom line.

1. Deepens customer relationships

Contemporary customers demand streamlined, intuitive technology solutions that meet their needs. A transformed treasury is well-positioned to deliver an enhanced customer experience that caters to customers on their terms with automated solutions, cloud-based platforms and mobile access.

Transparency plays a critical role in enhancing customer relationships; when customers can log in and see what is going on their money, which fees they are paying — and why — they’re apt to trust financial institutions.

Customer service, however, is at the core of treasury management. Customers must feel valued and appreciated, and they must feel they’re getting the best quality service.

2. Differentiates a financial institution in the market

When every competing bank of similar scale offers the same services, no one financial institution stands out. This is especially true for small and mid-sized FIs that rely on the same pool of core processor vendors. Held hostage by vendors’ limited capabilities and slow development schedules, as well as a lack of differentiated options, banks struggle to communicate distinct advantages that compel customers to choose them over other options.

Banks should recognize demographic shifts and cater their product and service offerings accordingly. Today’s CFOs and senior corporate leaders are younger than ever, and they’re heavily influenced by the fintech/retail marketing mindset they’re accustomed to. This is the generation of Apple and Instagram, and FIs can develop innovative intuitive solutions younger customers are likely to respond to — a powerful way to differentiate themselves.

By implementing modern technology that caters to shifting demographics, FIs position themselves as the most capable option in the market.

3. Helps generate new revenue streams

State-of-the-art technology makes banks more competitive, reduces labor costs and ultimately boosts profitability. Technology enables banks to offer integrated receivables, automated invoice and remittance data matching, cloud-based platforms, mobile access, paperless billing and remote deposit capture to help financial institutions attract and retain more customers.

Technology also facilitates transparency. For example, paperless treasury solutions eliminate the risk of misplaced paper documents and offer a transparent view into the onboarding process. Such transparency is not only attractive to customers, it can enhance compliance and reduce audit and validation efforts by as much as 80%.

Automation lends banks control over daily cash position, a powerful way to speed cash management and forecasting abilities. It’s also a marketable service banks can use to their advantage: most corporate money managers manually calculate their daily cash positions, thereby wasting a lot of time just to figure out a company’s financial position. With automated technology, banks can offer instant visibility into a company’s liquidity.

Treasury can also offer collections services to manage bad debt and late payments. Taking these chores off corporate plates makes banks a compelling option for over-tasked CFOs and yields yet another revenue stream for financial institutions. With the right technology, banks can maximize speed, centralize clearing and posting to get to collections faster, mitigate late payments and settle bad debt.

Forward-thinking banks are establishing dedicated treasury product development teams to understand exactly what customers want and need, then identify technology-based solutions that deliver an exceptional customer experience – and ultimately increase treasury profits.

4. Protects the institution from fintech disruptors

Fintechs cherry-pick the most profitable portions of treasury management offerings, and often perform them better. The problem is twofold: first, banks struggle to keep up with technology, victims of digital dwarfism that risk losing their best clients to laser focused Fintechs. Second, top talent is flocking to the cool factor afforded by sexy fintech startups: casual dress codes, flexible schedules, ping pong tables, craft beer and the ability to make an immediate impact.

Combating technology restrictions often means cutting ties with outdated vendors and either investing in expensive bespoke solutions or partnering with fintechs. The latter is a common approach for small and mid-sized banks that do not have the capital or in-house capabilities to develop and support custom technology. Rather than view fintech as competitors, they partner with them to offer customers the best of both worlds: contemporary technology plus the strength, stability and often local access of traditional banks.

Talent woes can be overcome by identifying ways to make the job more attractive to the brightest young minds. Mentorship programs, opportunities to serve on product development teams and clear paths to career advancement coupled with the long-term prospects of a career in banking versus the fleeting nature of startups can make a compelling pitch that appeals to prospects. When banks attract top talent, they can develop innovative solutions that empower them to outcompete industry newcomers.

By pursuing advanced technology solutions and attracting top talent, treasury management leaders can propel financial institutions into a new era of banking and position them to compete — and win — against fintech disruptors. Ultimately, that can yield enormous bottom line dividends.

A new emphasis on treasury boosts bank revenue

To achieve treasury management’s full potential, treasury leaders must work to elevate its status within the financial institution. That means documenting the end-to-end customer experience and sharing wins with leadership and other banking departments.

Treasury teams should establish key performance indicators (KPIs) and track metrics that illustrate its impact on the bottom line. Reports should be shared with executive banking leaders so treasury earns a seat at the table for strategic decisions. Proving treasury’s value makes it easier for stakeholders to justify additional investment; and forecasting treasury’s investment-contingent ROI is a powerful way to secure buy-in bank-wide.

Moving forward, treasury should not be siloed within commercial banking, but regarded as its own self-sustaining function capable of yielding significant ROI. Banks should grant treasury a dedicated sales team to nurture leads, close deals and hand new accounts off to account representatives. This could represent a shift for smaller FIs, where account reps often wear many hats. The problem is they’re often too close to the solution to effectively communicate its benefits to potential customers.

Indeed, treasury management’s final milestone on the road to becoming a more strategic, revenue-generating force is developing robust sales capabilities. Working hand-in-hand with marketing, this function is essential to driving leads, generating sales, acquiring customers and boosting revenue. The ultimate goal is to create a more self-sustaining, revenue-generating treasury management group.

Evolving from reactive support to proactive sales

Most treasury sales reps work in support of a relationship manager or commercial lending counterpart; few have independent sales targets or revenue goals specific to treasury management products and services. This tends to make the role reactive rather than proactive.

When supporting relationships is the top priority, treasury management teams are not cold calling or sourcing independent business.

Shifting from a service to sales mindset

FIs may be able to enhance treasury sales with attention to four elements:

• Make sales a priority: Shifting treasury’s mindset from service and support to revenue and sales doesn’t happen automatically or without training, clear goals and support from other parts of the FI. Leaders must make a concerted effort to realign the organization’s culture for the shift to be successful. It takes active communication to reinforce effective sales habits and inject them into the daily routine
• Aggressively market: Gone are the days when a conference banner or a few flyers is enough. Today’s treasury management services must be aggressively marketed to generate leads, nurture them through the sales process and hand off warm leads to the sales team.  Treasury management teams must partner with their marketing department to deploy campaigns via multiple channels: print, digital, online, mobile, email and media. An omnichannel approach to treasury management marketing speaks to a new generation of customers and drives leads that ultimately convert to customers
• Establish treasury-specific goals: Nothing drives sales faster than the right goals and incentives. Treasury leaders must develop objectives that tie directly to the FI’s strategic plan, then create targets for each key treasury product or service. The more sales goals speak to treasury (rather than the overall commercial business), the easier it becomes for staff to focus their efforts appropriately. Acknowledging who has responsibility for deposit goals is also essential
• Provide adequate training: FIs must not underestimate the power of training — especially if they’re expecting current staff to take on new responsibilities. Account management, administration and support functions demand different skill sets than prospecting, generating leads and closing sales. It’s also smart for FIs to communicate best practices that achieve a consistent, professional approach.

Although it won’t happen overnight, the results of greater sales and marketing activity can be transformative for treasury management organizations.

Financial institutions that wish to remain relevant in the future — and indeed, capitalize on current opportunities — would be wise to recognize treasury management’s evolving role. No longer a back-office support group, the treasury management function can be a front-line sales engine that ushers in a new era of competitiveness and profitability to make a significant impact on a financial institution’s bottom line.

The information provided in this blog does not, and is not intended to, constitute legal or financial advice.