Sovereign Bancorp Inc. of Philadelphia is betting that it can capture customers from larger northeastern rivals by offering more sophisticated online banking services for small businesses.
The $59.9 billion-asset company announced plans Monday to move all of its business customers, down to the smallest home-based entrepreneur, to a single online cash management system.
Analysts said the plan reflects both the growing financial sophistication of smaller companies and the general sluggishness of demand for cash management capabilities.
Marshall Soura, an executive vice president at Sovereign and the managing director of its global solutions group, said many banks offer their small-business customers the same online banking system that consumers use.
"As business grow larger they need additional services" that they cannot get through a consumer product, Mr. Soura said. "We're going to differentiate ourselves in the market."
For example, Sovereign's retail customers cannot view their canceled checks online, but its cash management clients can, Mr. Soura said.
The cash management system also provides better financial reporting and more online bill payment functions, he said. In addition, it can give different kinds of access to different people. A payroll clerk might be able to initiate payments, but from only a few accounts; an outside accountant might be able to view details of more accounts but be barred from setting up payments.
Sovereign has already upgraded its business-banking services in its branches. It has now begun a marketing campaign to encourage smaller business clients to convert to the corporate system.
"We think they will want to do this," Mr. Soura said. "We will have a product that will be more attractive to them than the one that they are on."
Sovereign has about 200,000 companies as business banking customers, he said, but only 11,000 individuals use its online cash management system. Its largest customer, Massachusetts, manages a $17.4 billion budget on the Pennsylvania company's cash management system, he said.
Since 2002, Sovereign has outsourced its cash management services to P&H Solutions Inc., formerly Politzer & Haney Inc. Ralph Dangelmaier, the president of the Newton, Mass., company, said the expansion plans it announced last week partly reflect Sovereign's initiative.
"Sovereign has been one of our flagship partners," Mr. Dangelmaier said.
Last week P&H said it is upgrading its data center to automate more processes because it expects corporate users, who now total 80,000, to hit 400,000 next year and more than 1 million by the end of 2007.
Mr. Soura would not discuss plans for converting business customers from other banks' systems - for example, those of Independence Community Bank Corp. of Brooklyn, N.Y., which Sovereign is buying. (Last month Sovereign said it would sell 19.8% of itself to Banco Santander Central Hispano SA of Madrid and use the proceeds to acquire Independence for $3.6 billion.)
How Sovereign will serve Independence's customers "is under study," Mr. Soura said. It is a matter of putting a strategy in place "and segmenting it the right way," he said.
Lawrence Forman, the associate director of Ernst & Young LLP's national cash management practice, said putting all business customers on the cash management system could give Sovereign an advantage.
The banking giants with which it competes in the Northeast and New England grew by acquisition and so wound up with many banking systems, Mr. Forman said.
"You will find banks that do everything on one platform," Mr. Forman said, "but not money-center banks."
Focusing more on smaller businesses could also help Sovereign, he said.
Ernst & Young says banks are coming back from a cash management revenue slump. In September it said they expected such revenue to rise 3.5% this year, to almost $13 billion. The figure had grown twice as fast in 2000-2002 but dropped 0.5% in 2003 and been flat 2004, Ernst said.
"The cash management business is in a period of slow growth," Mr. Forman said, because banks' business services are oriented toward paper-based activities, which constitute "a tremendous drag on portfolio growth."
"It's not going to get better until the industry shifts over to more electronics," he said.
Maggie Scarborough, a senior analyst at the Financial Insights Inc. research firm in Framingham, Mass., said P&H could get a needed boost from helping Sovereign carry out its plan.
P&H has not "had an excellent reputation for service," she said. "That reputation is improving, but that's been their biggest weakness."
Sovereign's plans constitute a big win for the technology firm, which "gets somebody to grow out and really expand a relationship, " said Ms. Scarborough, whose firm is owned by International Data Group Inc., a Boston technology publisher.
