The banks with the biggest cash-management businesses expect continued expansion of their technology investments despite a slowdown in revenue growth, a study from Ernst & Young has found.

According to the results of an annual survey, which includes responses from about half of the top 300 U.S. financial institutions, revenues from cash management grew by 7.5% last year, to $5.9 billion.

This represents a 1% slowdown in growth since last year and a dramatic dropoff from the double-digit expansion seen in the late 1980s.

Interpreting the Future

Despite these figures, the survey found that banks are committed to spending more on the types of technology-based products that many see as the future of cash management.

For instance, while only 3% of the survey's respondents currently employ image technology, 71 % of those with check clearing services say they plan to invest in the technology in the upcoming years. Many banks are also considering installing imaging systems in their wholesale lockbox areas, Emst & Young officials said.

The cash management business "is relatively mature, but there is still a lot of room for automation," said David L. Shafer, national director of Ernst & Young's cash management consulting practice.

"New technologies will almost always create a fixed hump of costs to get over, but improving technology is clearly going to be the best way to boost revenue in many areas of the business" in the future, Mr. Shafer said.

While its clear that much of the technology, such as imaging, is going to be expensive and long-term, some of the most profit-enhancing technology products for cash management require only a minimal investment.

Perhaps the best examples of this are automated clearing house (ACH) services, such as corporate cash concentration.

Even though clearing-house products have performed better than any other area of cash management in the last five years - revenues grew by 20.5% last year alone - the technology needed to support them usually consists of little more than software packages dedicated to the task of directing electronic transfers.

Middle Market Gaining

Ernst & Young officials said the technological changes in cash management are being driven mainly by large corporate customers. However, the clout carried by the middle-market companies is growing rapidly.

Medium-size businesses accounted last year for about 24% of cash management revenues up from 20% in 1990. Meanwhile, revenues from larger customers dropped from 51 % overall in 1990 to 48% last year, the survey found.

Despite the slowdown in overall revenue growth, experts said they are nonetheless encouraged by the resilience of the business, "especially given the low interest rates inhibiting the demand for cash management services," said Emst & Young's Mr. Shafer.

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