Seeking to help banks capitalize on the boom in investment products, SEI Financial Services Co. has introduced a new service that allows investors to easily move cash in and out of money market mutual funds.
The service, called Cash Management Investment Services, provides financial institutions with the technology to automatically invest excess cash from checking accounts in designated money market mutual funds.
Using SEI's systems, banks can "sweep" cash balances into their own proprietary mutual funds or into the Wayne, Pa.-based company's family of investment instruments, including a money market mutual fund with more than $18 billion under management.
Repurchase Programs Devalued
Until now, most banks have swept excess customer cash into repurchase agreements in order to provide higher returns than traditional savings instruments.
According to Tony Carfang, a consultant with Treasury Strategies Inc., a Chicago-based consulting firm, the value of assets in repurchase programs has begun to decline as both companies and individuals demonstrate a preference for money market mutual funds.
"Traditionally, sweep products have been viewed as cannibalizing bank deposits, but the attractive feature of the SEI program is that it enables a banker to generate fee income from the flow of funds rather than rely on generating income from interest spreads," he said.
Mr. Carfang also said that it is critical that banks come up with ways to benefit from the movement of funds out of demand and savings accounts.
A Competitive Imperative
Treasury Services recently completed a study which indicated that for every dollar a midsize corporate customer had in a savings account, it had $4 in a money market account or mutual fund. "In order to compete, banks have to recapture these assets and increase profitability," Mr. Carfang said.
Cash Management Investment Services is targeted to banks of all sizes. Rick Lieb, President of SEI Investment Services, indicated that both a money-center bank and a community bank had recently made verbal commitments to use the sweep service. He declined to name either institution.
"Bank customers enjoy higher yields on their excess operating cash and still retain daily liquidity" while boosting a bank's fee income, Mr. Lieb said.
Ms. Sullivan is a freelance writer based in New York.