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Turning Treasury Management Services from Free to Fee

Turning Treasury Management Services from Free to Fee

One of the biggest challenges Community Banks and Credit Unions face today is turning Treasury Management services from free to fee. Regardless of where our clients are within the U.S., they share a common frustration: bankers are giving the Treasury Management services away for free. It’s a “culture thing,” they tell me. We need to then change the culture by learning about TM services and valuing the depository side of the balance sheet.

If you have been given the monumental task to start, formalize, or “fix” your Treasury Management department, this blog is for you! Below are five steps you can take in the right direction:

Stop Waiving Fees!

The first step should be to simply stop waiving fees immediately. Stop the bleeding! Nobody expects to go to a grocery store and walk out with a free pound of best quality steak, just because the cashier chose to give it away for free. The same way, bankers should not give away these important and valuable services. Bankers should have a good business reason to give away a TM service and document the reason. I make the analogy to a “best quality steak” because TM services are very expensive services to provide, and you are missing a huge fee income opportunity. When I coached a client to quantify how much the $2 billion dollar institution was waiving on TM fees, the total came to $1 million dollars a year! Can you afford to give away this kind of money?

Educate Your Business Bankers on Treasury Management Services

It is imperative that business development officers obtain the proper training on all the available Treasury Management services your organization offers and possibly obtaining the Certified Treasury Professional designation. If your business model is to service small businesses and/or mid to large corporations, those businesses expect you to offer the more sophisticated banking services they need to run their businesses. If you expect to attract larger companies, then you must offer the depository products (the correct type of checking account that produces an Account Analysis Statement) and the Treasury Management services they typically use to help them manage their cash and streamline their operations.

Educate Your Business Clients on Treasury Management

Now that your business development officers understand the value of each TM service, they are ready to offer these services to your business clients. The same way they explain how the appropriate loan structure deserves a specific rate due to the risk exposure the institution carries, they should explain why there is a fee to use the right depository services. Incentivizing your sales team to sell TM services is perfectly appropriate if you want to compete for and attract larger businesses.

Understand and Embrace that TM Services Are Technology Services

It is crucial to understand and embrace that all the TM services your institution offers are, in fact, technology-based services. Therefore, you must support them as such. How do you support technology services? Start with keeping track of all the issues (“tickets”) related to each product. Track the resolution time and ensure complete customer satisfaction with the results—consistently. When you take this approach, then your customer service level will truly achieve “excellence” which is what every institution strives to provide.

It All Starts with The Tone at the Top

As with every strategic objective a Board of Directors plans to achieve, it all starts with the tone at the top regarding the TM services. The directive to formalize or start or develop your Treasury Management department must come from the Board. When your institution embraces the incredible value that each TM service provides to your commercial clients, there will be no question as to why you must charge for these services. You are now on your way to turning Treasury Management services from “free to fee.”

Community Banks and Credit Unions are in dire need to attract core deposits as a primary funding source and to increase non-interest fee income. Treasury Management is a “treasure” your institution must mine to not only provide your commercial clients top of the line TM services, but to also provide or increase your non-interest fee income.

Struggling with Treasury Management services and how they fit into your business service offerings? As always, we’re here to help.

Managing Treasury Management Service Risk Is as Important as Managing Credits

Managing Treasury Management Service Risk

Managing Treasury Management service risk is as important as managing credits. There are several TM services that carry credit risk similar as if they were loan facilities to business customers, as well as other risks. Therefore, it is necessary to conduct service risk assessments and also ensure the businesses using these services are credit worthy.

So where do you begin? How do you identify those services and ensure they are used in a safe and sound manner? You ask similar questions as when you lend money to a business customer: Will the institution get paid back once the money is gone? Does this business have the capacity to support the debt in case the transaction is done and there are no funds to back it up? Let’s examine these services closer:

Wire Transfers

This product is probably the highest risk-rated service at your institution. If your employees don’t follow the appropriate policies, processes, and procedures, once you click “submit,” the money is gone. Therefore, it is imperative that your procedures are followed exactly as written to ensure the institution is not liable if the wire is fraudulent. Additionally, the platform used to initiate and approve wire transfers must have multifactor authentication capabilities and authority levels—both at the customer’s site as well as internally for employees to approve based on their own limits. There is Operational, Technology, Compliance/Regulatory, and Credit Risk when extending wire transfer capabilities to business customers.

Automated Clearing House (ACH)

Direct Deposit of Payroll is probably the most common service institutions offer to business customers. However, businesses are increasingly utilizing ACH to pay their bills because of the additional cash flow control and because it’s significantly cheaper than checks or wires. Businesses select the specific date for the batch of payments to clear their account. From the risk perspective, once the batch leaves, the institution can only retrieve the funds within a specified timeframe and following specific ACH rules. If the business account does not have collected funds, the institution is out the money. Therefore, ACH services are similar to an open Line of Credit and thus bankers must approve this TM service as a credit facility. As with wires, there is Operational, Technology, Compliance/Regulatory, and Credit Risk for ACH services offered to businesses.

Remote Deposit Capture (RDC)

The RDC carries the same risks as the other two services, but it works differently. The primary risk with RDC comes from customers potentially depositing the same physical check more than once, and in more than one institution.

Current scanners have technology to identify payee, routing number, account number, check number, amounts, and even the handwritten amounts. However, there is still a possibility of a fraudulent check deposited at different financial institutions within a certain period of time where it is undetected (at least for a few hours before posting to the accounts). Therefore, institutions must implement policies establishing daily and aggregate limits for checks deposited via RDC. The systems can automatically approve any amount, but the institution must approve each business customer up to a certain limit and treat each deposit as an extension of credit.

Unfortunately, many institutions review all checks deposited via RDC for all customers manually after a certain amount determined by the institution’s policy making this service costly and inefficient. In addition, most institutions grant immediate access to the funds deposited via RDC. For these two main reasons, businesses that utilize this product must obtain credit approval before they use it. Most institutions provide the credit approval at the time of making a loan to the business customer. For depository-only clients, the institution provides credit approval even if the customer does not have a loan.

Mobile Deposit

Consumers and very small businesses use the Mobile Deposit service with few exceptions. Mobile Deposit carries the same risks as RDC. The key determining factor as to which service a business should use, RDC or Mobile Deposit, is volume. Only businesses should use the RDC service. All consumers can use Mobile Deposit. However, the daily limits for consumers is typically lower than for businesses.

Managing treasury management service risk is as important as managing credits and is part of the overall enterprise risk management program of your institution. The purpose of this blog is to explain the various risk categories that each of these important treasury management products brings to the institution. Conduct service risk assessments on these services and ensure your institution is mitigating all the risks. In the end, all other risk categories affect your reputational risk.

Businesses expect community banks and now credit unions to offer these services. Otherwise, you are not competitive. Institutions price loans based on risk. The question I leave you with is this: Do you charge for these services especially now that you understand the additional risks your institution takes by offering them?

As always, we are here to help.

Books by Marcia Malzahn