In the Lifecycle of a Business, Treasury Management Needs are Constant

Capturing business banking dollars is a growing priority for financial institutions as they pursue customers with long-term relationship and profitability potential. Throughout the lifecycle of these enterprises, banks delivering tailored treasury management services can support customers’ evolving financial needs while earning high margin returns.  

From small businesses using basic banking services to larger corporations with sophisticated treasury management needs, profitable opportunities exist to identify and nurture these business relationships as companies grow. Increasingly, data analytics are important for deciding which of these customers fit banks’ target demographic and what services to offer as operations expand. 

Cash management is an increasingly competitive space, said Claude A. Hanley, Jr., a partner with Capital Performance Group LLC. But banks can charge fees for low capital-intensive services as they continue to build relationships. For small business customers, business checking products are increasingly being simplified with a basic entry-level account, a mid-tier checking account with limited items, and an analysis account, Hanley said. Additional value at higher price points centers on cash management solutions and personal banking options. 

Some banks are beginning to package simple cash management features into basic or mid-tier checking accounts for smaller businesses with more specific cash management needs. 

“Small businesses are charged a monthly fee rather than numerous—and unpredictable—monthly fees, and bundles are easier for branch staff to sell,” Hanley said. An example bundle for a small business could include online banking, remote deposit, merchant services, ACH, wires, positive pay, purchasing cards, information reporting, account reconciliation, and payroll. 

From Products to Service 

Banks have moved away from differentiating their offerings by product and pricing to delivering better service and digital solutions that enable business customers to manage cash flow, payments, payroll, and taxes, among other needs, he said. 

Within specific industry niches, many banks are employing “industry vertical segmentation” to package products and cash management solutions to cater to a niche, Hanley said. This helps banks demonstrate industry knowledge, deepen relationships, and capture more deposits with larger middle-market and corporate prospects and clients. 

As businesses grow, they start to need additional treasury management services including advanced analysis capabilities as their cash management, liquidity needs, and accounting structure become more complex, said Onker Basu, a senior director at Cornerstone Advisors, a bank consulting firm.  

“With more sophisticated products, businesses have more controls and the ability to ensure more checks and balances,” he said. 

Treasury management services tend to be highly profitable and “highly sticky,” he added. Customers are willing to pay for those services, which are not capital intensive to put in place. “Anytime a bank is lending money they have to think about how it’s getting funded, but not so with treasury management services,” Basu said. “Once a bank has the capability, they don’t have to worry about additional capital­—and they can use the business line to acquire  
low-cost funding.” 

Data analytics are helping banks understand which products and services their business customers are buying, so banks can segment accordingly to profitably target customers. 

“It’s about understanding the competitive landscape and being able to adapt marketing campaigns to be really targeted,” Basu said. 

Larger community banks are shifting from a dependency on commercial real estate lending, which tends to be transactional, to focusing more on extended relationship-based banking, which means more C&I lending and more treasury management services, he said. “There’s still a lot more upside in terms of growth opportunity, for both banks just getting into this and also for the banks already offering this,” Basu said. 

Technology Shifts 

While treasury management represents a highly attractive growth opportunity in commercial banking due to its capital-light, fee-rich nature, and potential for durable revenue growth, the marketplace is highly competitive and is experiencing technological shifts that will elevate the expectations of modern, AI-guided finance teams, said Stephen Popiela, a principal with Deloitte Consulting LLP based in New York City. 

As instant payments, real-time banking, tokenization, and intelligent treasury converge, commercial customers will gravitate toward the financial institutions that deliver these capabilities first with a suite of modern offerings, Popiela said. “These forward-thinking banks will become indispensable partners, extending a modern commercial banking operating system with their own AI intelligence fabric that seamlessly integrates alongside their clients’ ERP and finance platforms,” he said. 

Regions Financial Corp., based in Birmingham, Alabama, is deploying AI capabilities across its business lines, including treasury management, said Greg Miles, EVP, head of treasury management products and services. “We want to find ways to use AI to learn our customers and prospects and align our 49 treasury management solutions to help them run their business more efficiently, solve problems, and reduce risks,” Miles said. “AI has a lot of power to do all of that, but we won’t use it blindly without consideration of the relevant risk associated with it.” 

Regions continues to invest in solutions focused on improving client visibility into their cash flow needs and streamlining the management of their business, said Bryan Ford, Region’s EVP, head of corporate sales and treasury management. Solutions include automation that helps small to midsized businesses facilitate their payments, invoicing, and cash forecasting, and products to link ERP systems with Regions’ data, Ford said. That way, businesses can review their bank account data in real-time within their ERP platforms to manage cash positions more effectively, reduce idle cash, optimize liquidity and mitigate risk. 

“Embedded ERP finance has become a very interesting topic, mainly in the larger and middle market business segments, but we are seeing opportunities for smaller businesses to integrate their bank account data into simpler accounting software,” he said. 

Regions also runs a comprehensive platform for businesses of all sizes to manage cash flow, payments, and reporting, though the smallest companies can just use the payment capabilities within their personal mobile banking app, Ford said. Regions wants all these segments as customers, but those growing from one or two employees into a larger middle market business represent a particularly profitable opportunity for the bank. “We are very much trying to support their growth, by looking at capabilities and products within the treasury management space to help them navigate that transition,”  
he said. 

To accomplish this, the bank analyzes the payment activity of existing business customers to determine if they may now need more streamlined services at a more sophisticated level. Outside the bank, Regions’ consultants sit with prospective clients to analyze their company’s cash flow based on working capital, accounts receivable, accounts payable and inventory data. The analytics tool then compares that to others in the same industry to determine how Regions can improve the company’s cash-conversion cycle. 

No matter the business segment, treasury management overall is very profitable for Regions, as practically every business needs help with making payments, getting paid by customers and reducing risks associated with fraud, Regions’ Miles said. 

The non-interest income generated by the business line helps improve the overall return on investment on the customer relationship, Ford said. Treasury management also greatly helps further cement primacy with business customers. “That establishes a base for the bank to serve that client with other capabilities, like credit, trust services, and personal banking solutions,” he said. “Treasury management is often a gateway that leads to much more.”