The banking industry is increasingly housing its credit and cash management lines of business under one roof, according to a study from Ernst & Young LLP.
Though the two banking businesses have historically served different areas of corporations, banks are finding an increasingly receptive market when they propose integrating credit and noncredit services, said Lawrence Forman, an analyst at Ernst & Young in New York.
He said the shift was evidence of the growing popularity of the relationship banking concept, which is spurring corporations to concentrate more of their banking among fewer financial institutions.
"There are plenty of banks that do a great job of just selling credit and making money at it," Mr. Forman said.
But "banks are under a lot of pressure to make cash management profitable," he said, so it makes sense to bundle credit and cash services, which ultimately are used by the same customers.
The New York-based management consulting firm asked the nation's top 100 treasury management banks where they housed their cash management operations.
Thirty-eight percent of those responding said the business was in their commercial services divisions, up from 21% in 1995.
Commercial services, as defined by Ernst & Young, generally encompasses both credit product sales and noncredit fee-based services intended for corporate customers.
Only 19% of the survey's respondents said cash management was run as a separate division, down from 25% two years earlier.
Anthony J. Carfang, partner at Treasury Strategies Inc., Chicago, said his organization has begun advocating that banks shut down cash management offices and put them under the scrutiny of a credit officer or relationship manager who could be a "quarterback" for serving corporate customers.
Such an action would remove "a redundant distribution channel," Mr. Carfang said, and would "eliminate customer confusion."
"But it does require a change in banking culture, which is usually the biggest stumbling block," he said.
Wachovia Corp., Winston-Salem, N.C., is one banking company that bills itself as a relationship bank.
Robert E. Wilson, a Wachovia senior vice president, said the "trick is in selling the entire bank" to a prospect, including the bundling of trade finance, capital markets, and trust products.
"It's getting harder and harder to make money out of the components," he said. "Cross-selling becomes important as margins disappear on the credit side."
Fifth Third Bancorp, Cincinnati, started moving its cash management sales staff this year to its corporate services division.
Edward Silva, senior vice president of commercial banking at Fifth Third, said cash managers and credit officers now work side by side in selling the bank's products. The banking industry's lock on the payment system is a unique advantage, he said, over nonbank financing.
"The lending business has become ultra-competitive; pricing has been pushed through the floorboards," Mr. Silva said. "What you give up on the margin side of the loan is picked up with what you tie in from the cash management side."
He said the bank has cash management relationships with about 90% of its corporate borrowers.
Customers are willing to pay for the bank's credit products when they are combined with cash management services such as integrated payables or financial electronic data interchange, Mr. Silva said.