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!

Technology and strategy must be aligned. Community banks and credit unions need to align technology with overall strategy to achieve success and maintain growth going forward. Institutions must develop a formal Technology Strategic Plan that supports the overall Strategic Plan. And it should include how the organization plans to incorporate technology in all its operations to increase efficiency organization wide. In this blog, we explore the five key areas of technology and how each area must align to the institution’s strategic plan.

Internal Technology – Network and tools for employees

Internal technology that is slow and unreliable frustrates employees, decreases efficiency, and ultimately impacts customer service. Financial institutions need to invest in modern network technology to secure its systems and customer sensitive information. The investment may include outsourcing the high-level IT network and user support to an IT managed services provider (MSP). Simultaneously, institutions must invest in quicker Internet connectivity and solutions that integrate to the core seamlessly. These solutions include everything from the Teller Module to Online Banking Platform, to internal processes such as loan workflows.

Core System & Auxiliary Modules

We facilitate strategic planning sessions around the nation for community financial institutions. During these meetings, we often discover that their core system is obsolete or simply old. This creates huge issues for the employees and customers. Starting with the unreliability of the system, the inflexibility, to the lack of integration capabilities that limit the institutions. These core providers are keeping them behind! Larger institutions have the resources to invest in developing their own core systems. Smaller institutions don’t have that luxury and therefore depend on core providers to offer modern products and services to customers. Additionally, community banks and credit unions are stuck doing processes manually. The main reason being that the core provider “doesn’t integrate well” with a new internal system like a CRM.

The easiest way to get through a core system renewal is to do nothing. Stay with the current provider to not upset the staff or customers. Often institutions extend their current contract for another 18 or 24 months and push the hard decision down the road. They just delayed improving their technology for two years and are now behind two more years! Going through a core conversion is painful. But staying with an old one will be more painful in the long run. Again, the technology and strategy must be aligned.

We also hear about core providers offer a “new modern” tool, but it doesn’t even integrate to its own core! How can that be? They sell these tools to their clients but don’t offer proper connectivity or integration. Therefore, now the institutions have new manual processes and go backwards instead of moving forward with technology. One strategy in the Technology Strategic Plan should always be to ensure flawless integration of new systems to the core.

Technology Products & Services

Business and consumer customers now require modern technologies for their banking experience. It all starts with your Online Banking Platform. Consumers want to see all their accounts under the same login. They want to see transaction history, make transfers, bank statements, images of checks and deposited items, and bill paying capabilities. These are considered “old services” and are expected as a minimum technology. Now consumers want more. They want to see ALL their banking relationships under the same umbrella or portal. This is “Open Banking” and it will be the norm soon.

And guess what? Businesses want the same. Small business owners want to see and access their personal and business accounts under the same login and platform. They want the ability to transfer between personal and business accounts as well as paying bills online. Larger businesses have different needs including using treasury management services.

Treasury Management: Business customers or members who use TM services want to access them all via the OLB platform. They want to use one login and not have to visit separate sites for each service – a single banking portal. Businesses want to upload ACH files, Remote Deposit Capture (RDC) deposits, or approve their Positive Pay exceptions in one site. Businesses are looking for unified, real-time reporting, easier cash flow forecasting tools, seamless ERP and accounting integration with various solutions. These are no longer wishes but a requirement.

Payments Technology

Stablecoins, Tokenized Deposits, FedNow, and RTP are here to stay. And business customers want the ability to choose which payment service they want to use. Therefore, institutions may have to offer them all. These capabilities will become what Bill Pay is now – a standard offer by all institutions. Below are the definitions of these important payment services:

Stablecoin (USA Stablecoin): A digital asset designed to maintain a stable value relative to a specific reference such as the U.S. dollar. Uses a blockchain platform and is backed by reserves such as United States Dollars, U.S. Treasuries and other financial instruments as defined by the Genius Act. The primary goal is to provide the benefits of digital currencies: speed, transparency, and programmability while avoiding price fluctuations.

Tokenized Deposit: A digital representation of a traditional deposit held at a regulated financial institution. Use a blockchain or distributed ledger technology platform. Each tokenized deposit corresponds to actual funds held in a bank account. Deposits are subject to the same regulatory protections and oversight as conventional deposits; therefore they are FDIC insured. They are fast and programmable and a secure way for transfers and settlement of funds.

Real Time Payment (RTP): Uses the ACH payment system, provides immediate availability of funds, only available to issue credits, and payments are irrevocable. Owned by a consortium of banks.

FedNow Service: Uses its own payment rails in a “closed loop” meaning both sending and receiving institutions most be in the network. Provides immediate availability of funds, transfers are irrevocable and settlement is instant in real time.

These payment solutions are technology based and are simultaneously receivable solutions as businesses can pay bills and also receive payments. They each bring risks as well as benefits. The Technology Strategic Plan must include the process to assess both the risks as well as the opportunities they bring.

Technology and strategy must be aligned with AI usage throughout the organization

Community banks and credit unions can no longer “wait and see” where AI is going. It’s here to stay and larger institutions are already using it and embracing it in full. Of course, the AI Policy must be clear as to what’s not allowed to do or use it for. However, the use cases list is growing by the minute. Employees are finding ways to incorporate AI in their daily work functions to make them more efficient.

The embrace of AI starts with the “tone at the top.” While understanding the risks, institutions must incorporate AI wherever possible to increase efficiency in every department and in every function. Once you identify the risks, implement the appropriate mitigating strategies and move forward. Technology and strategy must be aligned in order for the institution to embrace new technologies including AI.

Technology decisions should never exist in a vacuum. When technology, payments, treasury management, and AI are aligned with your institution’s strategic plan, they become drivers of efficiency, growth, and long-term relevance rather than ongoing pain points. If your organization has not taken a step back to evaluate whether your technology strategy truly supports where you are headed, now is the time. Start the conversation internally, involve the right stakeholders, and consider engaging an experienced partner to help assess gaps, priorities, and next steps. Alignment today prevents disruption tomorrow.