Managing Treasury Management Service Providers is a must. One of the most common topics discussed at our Treasury Management Forums is the challenge of relying on third-party providers. Every Treasury Management service is provided by a third-party vendor, and they must seamlessly integrate into the core system. Many banks experience multiple challenges with their vendors to provide the “white glove” service to businesses they strive for. Most core systems come with a “default” module for multiple Treasury Management services. However, most of the default services are not ideal and some don’t even integrate well with their own core.
In this blog, we list several challenges community banks face with their Treasury Management services providers and ideas on how to approach them.
Managing Treasury Management Service Providers: Critical Systems
One of the first steps in formalizing your TM department is to “turn on” the Account Analysis System (AAS). The AAS is one of the most critical and foundational systems for your TM department. The major decision you must make is which AAS to use. The AAS is not a service nor a product. It’s your bank’s “billing system” for all the account activity and TM services you provide to your business customers. Most core systems come with a “default” AAS and with the “paid version” of the AAS. The paid version is the one you want! It comes with all the additional features you need to provide the best experience for your customers. Some of the key features you need to look for are:
- Tiered ECR capability
- Flexibility with Account Analysis statement cycles and choosing the day of the month to assess service charges
- Multiple Account Analysis types
- Ability to retain earnings history for life (not just for 12 months)
- Ability to allow exception pricing on an account-by-account basis
- Ability to carry over Earnings Credit Allowance if customers have a surplus (to assess services charge charges quarterly versus monthly, for example)
- Able to create billing notices versus directly debiting customer’s account
- Multiple tiers to charge for Negative Average Collected Balances
- ECR variances on account-by-account basis
- Ability to pay interest on the same account that earns an Earnings Credit Allowance (allows businesses to offset service charges first and earn interest on surplus balances – on the same account)
- Separate Account Analysis statement from regular bank statement
- Modeling Module to provide customers and prospects with a comparative sample AA statement
Another critical system that supports your Treasury Management offerings is the Online Banking platform. Once again, the OLB platform is not a TM service or product. It is the platform through which your business customers access their TM services along with doing their normal banking activities. In our Forum discussions we learn about community banks struggling with their OLB platform. Because it doesn’t integrate well with the core system or with the Account Analysis System. Additionally, many institutions’ OLB platforms fail to integrate the TM services such as RDC, ACH, and Positive Pay correctly. This problem results in additional manual labor for the TM Support and/or the Operations teams. They must enter billing manually into the AAS or perform other manual duties.
Treasury Management Services that Need Third-Party Providers
In addition to choosing the right AAS and OLB platform for your institution, you need to choose the right providers for all the TM services you want to offer. Below is a list of the most common Treasury Management services in the market grouped by type of service. Each service needs a third-party service provider.
As you can see from these charts, there are multiple Treasury Management services, and your bank must manage each vendor. Often the core provider also offers several of these services. However, due to reasons stated above (mostly lack of integration), banks use multiple providers to ensure they work well together.
Aside from the integration issue, there are multiple providers that still offer old, antiquated systems that no longer work. These systems are keeping banks behind and impacting their ability to offer top notch customer service to their business customers. These old systems also introduce additional third-party risk to your bank which includes reputational risk. This is unacceptable and community banks must raise their voice and require their vendors to upgrade their systems. One way you can do this is by forming a Treasury Management Users Group or Core System Users Groups. You can then collectively formally complain and pressure them to change.
Below are tips to manage your Treasury Management vendors successfully:
- Ensure each vendor is part of your Vendor Management Program and goes through the appropriate due diligence.
- Assign a Vendor Owner to each Treasury Management third-party provider.
- Require each TM provider to sign a Non-Disclosure Agreement before you sign the contract.
- Always ask the key integration questions before you sign up. Talk to the technical team not the sales rep.
- Research minimum three providers for the specific Treasury Management service you’re looking to implement.
- Stay in touch with your providers to ensure you get serviced when needed. It’s all about building relationships with them so they get to know your bank.
- Follow up on the references. Talk to peer banks that are actually using the services or products you’re researching.
- Enforce the Service Level Agreements if you have one. Hold them accountable when they don’t deliver on their promises.
- Always ask as part of your due diligence if the provider uses third-party vendors. These become your bank’s fourth-party vendors.
Managing Treasury Management service providers requires time and effort. But in the end, it’s always worth it to establish good relationships and to communicate your needs as they arise. It’s a must to mitigate your third and fourth-party risks.
If you’re thinking of formalizing or implementing your Treasury Management department, feel free to reach out. We’re here to help!
