Commercial bankers are hoping this year will not be a repeat of 2002, when the dot-com bubble burst and the ensuing economic slump flattened revenue in cash management businesses.
There are plenty of parallels — the collapse of the housing bubble, a potential recession, and plunging interest rates that give corporate treasurers little incentive to use cash management to move balances in search of higher returns.
But executives from some of the major banking companies in the cash management business say that electronic tools, many of which were not available during the last cycle, are helping corporate customers transfer balances, keep track of their positions, and process incoming payments faster.
As a result, these tools could offset the factors that made 2002 to 2004 dark years for this business, executives say.
Julie Monaco, Citigroup Inc.'s head of global transaction services for North America, said a variety of electronic payment products and services that are common today were unavailable in 2002. Citi's TreasuryVision, for example, which was introduced in 2005, gives corporate treasurers a comprehensive view of positions, enables easy transfers between accounts in different countries, and minimizes costs for investing and borrowing. This kind of technology, which lowers cash management costs, can also encourage companies to consolidate their deposits with Citi, Ms. Monaco said.
Several other bankers agreed that electronic tools introduced over the past six years have dramatically changed the ways corporate customers are able to keep track of their money.
Keith Theisen, a senior vice president in Wells Fargo & Co.'s treasury management unit, said that services such as remote deposit and converting paper checks into automated clearing house transactions, neither of which were widely available in 2002, offer customers faster access to deposits, while online services can help them keep track of when payments settle.
The San Francisco company's Desktop Deposit service is "the hottest treasury management service we've introduced in many years," Mr. Theisen said, and its smart decisioning service, which can determine whether checks should be cleared as ACH payments or images, is also very popular.
A slowing economy could prompt more companies to sign up for electronic money management services, Mr. Theisen said. "We see this as an opportunity, not a challenge."
Craig Martin, a staff director at the Association for Financial Professionals, a trade group for corporate treasurers, said a growing number of his clients are relying more heavily on such receivables management tools, to make sure their business has adequate available capital, instead of taking advantage of short-term bank loans.
Any service that helps companies process incoming payments faster or determine exactly when deposited funds will be available for them to use, will have plenty of takers, Mr. Martin said.
"Banks have tightened credit," he said, and many companies have found that "their ability to fund themselves has changed quite dramatically."
Jeffrey M. Pape, the senior vice president of product management for U.S. Bancorp's corporate payment systems unit, said that businesses also are hoping to use electronic payment tools to monitor their own spending.
A feature the Minneapolis company added last month to its commercial card data-reporting service lets corporate treasurers execute payments online using purchasing cards.
Next quarter U.S. Bancorp plans to integrate purchasing card payments with PowerTrack, its electronic invoice presentment and payment system, to facilitate payments to corporate suppliers, he said.
"We have started to bridge the gap between purchasing cards and EIPP," Mr. Pape said. The integrated system will give corporate treasurers the choice of using cards or ACH transactions to cover purchases, and is expected to provide "very tight reconciliation for higher and higher transaction amounts."
Lawrence Forman, the associate director of the national cash management practice at the accounting firm Ernst & Young, said falling interest rates undercut the value of cash management products such as sweep accounts, because the time and expense of transferring the money outweigh the returns a corporate client can expect to earn from such short-term investments.
In 2002 this phenomenon drove down bankers' revenue as corporate treasurers cut back on cash management activities, Mr. Forman said.
He warned that the effect could be repeated this year, and "it might happen a little quicker this time," unless other services can offset the declines.
Ms. Monaco said that banking companies are making efforts to avoid the cash management slump of 2002, and that electronic payment tools are a critical part of that effort.
"Banks learned from last time," she said.
