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 During these meetings, we often discover that their core system is obsolete or simply old.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.

As we work with our consulting clients, a challenge they frequently face is how to present their treasury management services pricing. There are several key components of effective Treasury Management Fee Schedules and today, we’re going to visit a way to present your fee schedules to your business customers.

The Fee Schedule is a document that Treasury Management and Business Banking Officers use to disclose service pricing in a consistent manner. Additionally, it can help your team with the negotiation process with larger business customers over recurring fees. The Fee Schedule should not be a secret, but please do not post it on your website – your competitors will use it against you. It should list all TM services your institution offers in addition to regular “banking services” fees. The goal is to establish a clear understanding of your fee structure and incentivizes your business customers to offset those fees with their Earnings Credit Allowance.

What is the Earnings Credit Allowance?

To explain what the Earnings Credit Allowance is, let’s first describe what the Account Analysis System is and why it’s important to have this system implemented correctly. The Account Analysis System is your “billing system.” Your TM business customers should receive an itemized monthly statement listing all their service charges. This Account Analysis Statement should also show the customers their average collected balances and the Earnings Credit Allowance.

To make the billing system work, you set an Earnings Credit Rate that is applied to the customers’ average collected balances minus the reserve requirement. This is called the “investable balance.” This formula results in the Earnings Credit Allowance that customers can use to offset their service charges.

What is the Treasury Management Fee Schedule?

The TM Fee Schedule is different than the business analyzed checking account activity fee schedule. The goal is to differentiate the account maintenance and activity fees from the TM services fees. It is also important to list only the “Analyzed” business checking account fees. You may have a brochure listing all the business checking and savings account types. However, it’s clearer for customers to see fees just for the business analyzed checking account that produces the Account Analysis Statement.

Key Components of Effective Treasury Management Fee Schedules

It’s a best practice to have one Fee Schedule document with two sections. The first section describes the account maintenance and activity fees. The second section contains the itemized list of TM services fees. We’ve typically seen these two schedules combined into a single document, with Business Analyzed Account Maintenance and Activity Fees on one side and Treasury Management Service Fees on the other.

Again, do not post this document on your public website, but make it freely available to your banking staff and customers.

Section 1: Business Analyzed Checking Account Fees. The name of the actual account varies based on what your institution chooses to call it.

• Column 1: Type of service. In this section, you describe the types of services you offer for this checking account which includes maintenance fee. Examples are transaction fees, business online banking, paper statement fee, physical security token, stop payments, return items, coin/currency orders, etc.
• Column 2: Description of service. Enter the type of service detail. For example, for transactions, enter if it’s a debit or credit transactions, on-us or non-on-us checks, or foreign checks.
• Column 3: Fee. Enter the fee you charge for the service.
• Column 4: Charge/Frequency. Enter how often you charge for this item. For example: the fee for each debit transaction is $.15 and it’s charged “per transaction.” The account maintenance is charged “monthly.”

Section 2: Treasury Management Services Fees.

• Column 1: TM Service Name. Example: ACH Origination, Remote Deposit Capture, Wire Transfers, Check & ACH Positive Pay, etc.
• Column 2: Description of the type of fee. Example: Maintenance, ACH debits, ACH credits, Incoming or Outgoing Domestic Wire, etc.
• Column 3: Example: $35.00 (enter the fee for each service and transaction)
• Column 4: Charge/Frequency. Example: Monthly, per transaction, per item, per batch, etc.

The goal of offering a combined Account Maintenance and Transaction Fee Schedule with the Treasury Management Fee Schedule is clarity. Transparency is also key so customers can corelate the service charges from the Fee Schedule to the Account Analysis Statement.

We hope these examples and best practices of key components of effective Treasury Management Fee Schedules help you develop yours.

As always, we’re here to help.