Dub Newman, a global product management executive at Bank of America Corp., said the financial crisis has many business customers using the latest high-tech tools to improve on the basics of banking, such as monitoring transactions, collecting payments and disbursing funds transparently.
"In challenging times, your clients think very much about management of working capital and optimization," Newman said.
The Charlotte company offers a variety of tools built on the concept of improving on the basics, he said. "We can take integrated payments files. We can make those payments. We can manage the order-to-pay process in ways that automatically update customer's accounting systems. Those are very focused kinds of services."
Lawrence Forman, an executive in the banking and capital markets practice of Ernst & Young's financial services office, said electronic payments generate a bigger part of banks' corporate transaction volume and revenue than they did during the last recession, which began in 2001.
"I would say it's an irreversible trend," he said. "Paper is shrinking. All the growth is on the electronic side," such as wire transfers, automated clearing house payments, purchasing card transactions and information reporting.
However, there has not been much growth in total revenue, he said, and that is part of the reason bankers are looking for ways to capture new business.
Ernst & Young estimates that the industry's cash management revenue increased 3% last year over 2007, though it did not give a dollar value.
"For 2009, it's hard to see how things are not going to be worse than that." Forman said. "The industry should be happy if it continues to remain positive, with any revenue growth."
Banks' cash management income is highly correlated with the federal funds rate, which is near zero, he said. Low interest rates reduce the value of compensating balances that offset banks' service fees, and corporate clients make fewer transactions during an economic slowdown. "It's a double whammy."
One way bankers are trying to get more revenue from their cash management operations is reselling their technology through correspondent banks.
This year Citigroup Inc. plans to introduce a series of upgrades with the correspondent market specifically in mind, according to Gary E. Greenwald, the global head of capabilities and information products in its global transaction services unit.
The New York company plans to roll out an analytical capability that central treasury operations can use to analyze the efficiency of their payments. One likely use for this would identifying wire transfer payments that could have been sent through the much-cheaper ACH network, he said.
Citi expects to have 10 to 15 corporate clients involved in the initial release, and will make it available later to its global network of correspondents, he said.
The idea is to develop cash management applications by working with a small group of customers that have expressed strong interest in specific capabilities, then leveraging the economies of scale by offering the tools through correspondents, he said. "Once I nail it for one client, I can scale it out."
JPMorgan Chase & Co. also is also trying to expand its cash management revenue by working closely with correspondents. Lloyd O'Connor, a managing director and regional product executive at the New York company's treasury services unit, said it is pursuing "a shift from a pure correspondent relationship to more of a collaborative network where there is more mutuality between the parties."
