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Strategic planning conversations for 2017 and 2018 are focusing more intently on funding/deposit gathering and fee income. And, increasingly, mid-size and community banks are looking to take on the Big 5 banks in corporate banking, particularly in offering cash management services. No Mensa membership needed to figure out why. Corporate customers carry big deposit balances and are very used to fee-based services. When’s the last time you could say both of those things about most of your retail or small business deposit base?
So, the simple lines of demarcation between the small business and the corporate market (other than larger credit needs) center on three things:
So, that’s the simple tee-up. Being successful at meeting these needs and competing with the national banks requires a big step-up in knowledge, technology and support. Are you thinking about becoming a cash management star? Here’s our take on some of the keys to success we see in our client base:
1. They find niches. Niches abound in business banking: health care, education, legal, import/export, non-profit, property management, etc. And that’s just the beginning of the list in your business area. They all have unique business knowledge, operating models, and payments ecosystems and needs. Succeeding in the upscale business banking market requires that you understand how your targeted niches are unique, how they operate, and what their business banking system needs are. You already may be dealing with some of these niches on the lending side. Leverage that.
2. They get in the middle of client business reinvention via partnerships. These businesses are being reinvented, but they’re not being reinvented by banks. If you look at every niche there will be a vendor changing the business model. Some examples:
These are just four examples of companies that are providing solutions to specific industries that you will need to understand and partner with going forward.
3. They are comfortable sharing business with the national banks and not replacing them. Let’s understand who the cash management “gold standard” is you’ll need to match. The truth about bigger companies is that they are just fine with having multiple banking relationships. In many cases, they want several. This can be for credit reasons, or because subsidiaries are all over the country and need local relationships. But a small business “100% share of wallet” strategy really doesn’t play here.
This also means these companies will use multiple cash management systems. If you ask the poor controller who has the best business banking solutions, you’ll hear Wells, B of A, Chase and all the big players. Say what you will about their Wells-like PR woes from branch retail banking miscues and bad behavior, it has not translated to business banking. The Wells CEO product is still where you are aiming to be competitive.
4. They romance the controller. In many companies, the chief financial officer may lead the finance group and be the strategic thinker, and end users might be the heaviest users of your cash management system, but it’s the controller who gets slammed by all the business banking noise, complexity and work – reconciling, reporting, forecasting and money movement being just the beginning. In fact, I have decided after learning what they do that being the controller of a multi-entity holding company is one of the hardest jobs I have ever seen. If you can make their lives easier, your chance of getting the company’s business goes up a lot.
One big way to do this is to understand their reporting needs. Their cash position, forecasting and budget reporting will involve several entities and, in many cases, several source and destination systems. There are many treasury solutions providers (for example, Kyriba and Reval) that focus on these reporting needs. You can work with them, or you can try to provide what they do (tough road) but, regardless, you need to have a very good understanding of their data needs and how your solution plays in what will likely be a bigger information ecosystem.
5. They make payment processing easier – whatever else they do. Very strong wire and ACH processing is the ante to even talk to these clients. But let’s go further. If you listen to a retail distributor client, hospital, municipality or college tell you what their payment collections look like for just one day, you’ll immediately realize what a hot mess it still is. These many sources of payments, every method on earth used, and every frequency you can imagine are all being processed by multiple subsidiaries in need of consolidation. Then it all needs to be entered into your cash management system. You cannot expect to get business from bigger companies unless you can help them with payments.
6. They have re-thought system integration strategies for this market. Everybody gets that cash management systems need to integrate tightly to core systems. The next wave is to integrate to all the systems we discussed here. Automated file transfers, money transfers, data exchange between your cash management system and the other management systems they use can and will be a key differentiator. If you start thinking about anything, it should be how to push your cash management vendor into taking the lead in integrating with niche industry solutions. The big banks do this and do it well.
Lastly, and importantly, successful banks have a “go big or go home” approach to entering or expanding corporate banking. While one large client can result in impressive deposit balances and fees, there is no upside to trying to cobble together something for that one client. The investments in sales and support expertise and enhanced system capabilities are big ones that need to be made up front, and they will only be justified by a strong and diverse client base.
That said, here’s some good news: these companies are gettable. So go get.