Making Treasury Management Profitable with Chris Nichols & Richard Buttermore

Richard Buttermo

Richard Buttermore:
So again, as you mentioned, Chris, the fact that such a small percentage of a bank’s portfolio are actively using their cash management services infers a couple of things. That their bank does not have the full share of wallet of their customers, as every business has a need for some sort of even rudimentary online business banking to check balances, make payments, et cetera. The other part of that can be that they’re not doing a good job, as you mentioned. advertising what services they have. A customer may just assume their bank is too small. They have their loan from that bank. The bank may not have required them to have a full banking relationship, and therefore they’re doing their transaction processing someplace else. So it’s really understanding, again, your customer base and what services they are currently using and how many more of your customers look like those existing and how could you cross-sell to them. That’s the biggest part of it is what we find is that there’s that lack of awareness. And in many cases, the lack of reporting or data to show that. That very often the metric is how many customers have enrolled in online banking. That does not mean that they’ve actively enrolled in any of your cash management services, nor does it mean that you, the bank, have understood what their needs are. So that gets down to, are your lenders? to have conversations with their customers about what are your full banking needs, not just your borrowing needs. And if it’s not the model for the lenders to have that responsibility or experience, does the bank have the proper sales infrastructure to have specialists who can partner with their business lenders or their branch managers, business development officers to probe for those banking needs and turn them not just talk about I have a product, but listen to what the needs are, and then present to the bank services in terms of a solution to meet their accounts payable or protect them from fraud or make processing cash deposits easier, et cetera. So it comes right down to having communication and listening to your customers.

Caleb Stevens:
And by way of background, as Richard and I talk about, different strategies, we always kind of compare that to the benchmarks of your average deposit and your average deposit performance profile. And when we look at that one, and I think Richard, you brought this to my attention, particularly the average customer, I think by your statistics are about 31% more in terms of balances.

Richard Buttermore:
Yes.

Caleb Stevens:
And then by our analysis, that customer performs much better. It’s less interest rate sensitive. the balances stay on the balance sheet longer. So the weighted average life and the duration of those is greater helping out the whole balance sheet. And the profitability has increased, products per sale five or more with treasury management customers. And so that combination not only builds balances, but builds the right type of balances for a bank. So it adds so much value across the way. And I think that’s different than how many banks look at it as they just look at their cost of funds or just look at balances alone without looking at. So that alone

Richard Buttermore:
Very

Caleb Stevens:
I

Richard Buttermore:
good

Caleb Stevens:
think

Richard Buttermore:
point.

Caleb Stevens:
is important. Richard, you mentioned kind of the sales process and marketing. You know, obviously banks should stop here first before they think about offering that 5% rate in the one year or what have you for a CD special or money market special. They should be thinking about spending money on marketing. But you also mentioned sales structure. Tell us more about kind of one of the best practice tips for community banks there for treasure management.

Richard Buttermore:
Sure, and again, what we see is banks that really have what we like to call a mature cash management strategy have a dedicated cash management sales and service team. Where it reports to varies depending on the bank and there’s lots of options. The key is to have a team that’s dedicated to cash management that understands all the nuances of the products and how they work, and most importantly, how to tie that function of the product. to a banking need, a customer need. And then the other half of that is the ability to go and meet with your customers on site, have the conversation, often cash management services, especially for smaller, closely held businesses, they may not have the bench strength, the capacity to understand and get into all the nuances of what an accounts payable or receivable service could do for them. So be able to explain that and turn it into simple terms for them is important. The other half of that is we find the, what I like to call the onboarding. Once a prospect or customer is interested in a specific service, how long does it take to actually get them to be able to put fingers to keyboard and actually use it? So that onboarding approval process needs to be very well defined. If there are handoffs that have to happen for all the appropriate operational reasons, how efficient are they? the banks that we see that have a more mature cash management process have a paperless signature process so that paper forms can be moved around electronically and not have to be delivered via paper, both to clients, but also internally within the bank. So that efficiency and being able to set expectations with a customer that it should be X number of business days before you can actively use this, and being able to explain to the customer what is the sequence of information they have to provide to either get loaded into the system, and then what are the activities they need to provide for all the appropriate administrative access and security access is important as well. It’s not just using the system, it’s how do you protect both your customer but also the bank from potential fraud. That’s as equally important.

Caleb Stevens:
So Richard, I think you opened up my eyes and made me sensitive to this part about how much time industry, treasury management salespeople spend onboarding versus sales. And we all spend some time onboarding, but I think you kind of expressed the view that we spend too much time onboarding. What advice do you have there? Do we separate the functions or is there a benchmark that I target? Like I should be spending 30% of my time onboarding. How do we think

Richard Buttermore:
Right.

Caleb Stevens:
about that?

Richard Buttermore:
Sure, and as you mentioned, the survey was asking one of those very specific questions. Like is it 25% onboarding, 75% servicing, which feels like that’s the right mix. That there has to be appropriate time to set a business customer up on the administrative access to any service, all the appropriate controls that go into that. So you need to have a specialist who understands all the nuances and can go into one or multiple systems to provide the access. So. If a bank is spending 50 or 75% of their time onboarding, that infers to us, again, a very inefficient process where there’s probably, what I do is, I probably am only doing cash management onboarding as one of my many functions within the bank. I’m probably also doing deposit operations, reconcilements, or other appropriate because of the size of the bank. And that’s sometimes what we find, especially for smaller banks, that chicken and the egg, At what point do I have to add staff or have dedicated functions to support a service? And at what point does the volume of those services require that staffing? So the benchmark again, we see is 25% onboarding, 75% day-to-day servicing, which also means problem shooting, helping customers with their file processing, those kinds of things.

Caleb Stevens:
And in terms of benchmarks and my existing portfolio of customers, what’s the appropriate range you think for the average treasure management salesperson in terms of how many customers they can handle, existing customers?

Richard Buttermore:
That’s a very good question. And I think, so we’re beginning to see like 50 to 75 customers per dedicated sales slash service rep, but also again, depending on the structure of the bank, if I’m a sales person, can they also be the service person? If I’m out on the road meeting with a prospect or a client, I can’t be available 24 seven for a servicing call. So that again gets into the, what is my responsibility? If I’m expected to do servicing problem shooting. problem solving as well as sales, that becomes a little bit more complicated. But 50 to 75 is a good number is what we’re seeing. That assumes that not every customer has a very high level of contact touch need.

Caleb Stevens:
So for banks, banks listening, I think, you know, some of that’s a balance between the complexity of your treasury management offerings, more products, obviously the more complex and the complexity of your organization, you know, take a step that you can separate the support function and the onboarding function from sales, the better. Richard mentioned some benchmarks there that I think is a good rule of thumb, but also as you, you know, if you should take the survey or as you think about your structure, kind of look at, you know, do I offer a more complex set of services? If so, that may mean closer to 40 accounts per RM. And if it’s, you know, simple cash management, maybe that’s 120, 140 is, I think what we see in terms of our, uh, you

Richard Buttermore:
Right.

Caleb Stevens:
know, pure banks, et cetera.

Richard Buttermore:
It’s a good point. And just another point that comes to mind, Chris,

Caleb Stevens:
Yeah.

Richard Buttermore:
when you talk about that, it’s also what is the training documentation that the bank can provide to their customers? What’s the how-to guide to set up an ACH file? To assume a bookkeeper knows all the natural rules can be a pitfall. So again, how does a bank train their customers on how to use the various services? Also, how do they train a customer on the data security, hardware security requirements? all of that can become overwhelming. So how well that’s documented and how well the bank can be a trusted resource to help educate their customers and help them through the process as opposed to just dump it and say you’re not using the service. Is that because I don’t know how to or it’s not, I feel it’s too complicated.

Caleb Stevens:
Great point, great point. On that topic, what are some of the other pitfalls that you might see community banks making in terms of either hurting profitability for Treasury Management Services or not optimizing profitability? So, I think that’s a great question.

Richard Buttermore:
Sure, so we mentioned part of his just not understanding your existing portfolio is one of them just assuming that everybody’s using it and oh look they’re not. The other part of that is assuming that I need to offer every type of product or service that just because I have a full laundry list doesn’t mean that everybody needs it. And that gets into the in some cases a specialized service positive pay as an example that not every business customer needs. Typically, it’s a larger customer who has lots of checks or ACH going out that would have that type of need to prevent fraud or detect fraud. So a bank may try to do a manual workaround to provide that type of service for one or two big customers or good customers. The downside of that is as more and more customers come on that need that type of service, now my manual processing becomes a roadblock because I can’t process the volume. So anticipating where technology needs to come in is important. Another part of that I would say is the. I guess going to the sales service structure, having an incentive plan, very often bankers, branch bankers and lenders are incented for balances, deposit or loan balances they bring in, usually more on the deposit side. A cash management salesperson, how are they incented? Is it balances as well? And does the bank have the ability to assign me credit for the balances for the cash management products that are being used as well as the branch banker who opened the account? that sometimes gets into a me and they type conversation that becomes contentious. So how well the bank works together and is the sales incentive structure designed to incent cooperation referrals across lines of business, or is it inadvertently creating some sort of, I’m not gonna refer because if I do, I’m not gonna get credit for the balances. So that’s one of the small kind of unintended pitfalls of an overall referral plan or incentive plan that can be out there. So that’s, I guess we talked about some of the others before. So I think those are probably the biggest ones, Chris.

Caleb Stevens:
Yeah, and that incentive structure is, I think, huge and probably should be moved up the list. We probably should have mentioned it sooner, but I think that’s the biggest way to grow this product and grow balances and grow performance fees, et cetera. Overall, is making sure you have your sales structure aligned as you alluded to, you have the right number of salespeople, and then you have the right incentive structure. That is probably the first place

Richard Buttermore:
Right.

Caleb Stevens:
to focus, agreed? And

Richard Buttermore:
And then the reporting that goes with that. So

Caleb Stevens:
recording.

Richard Buttermore:
is it automated reporting versus a manual checklist that I sold X number of products? So that goes again back to some of the pitfalls, especially for cash management. While there are many systems that can offer cash management services, if they’re all disparate, I have to go to multiple sources to understand how many services have been sold or how many services are being used. So the reporting is an important component. And that gets into the bank’s core processor. what services for cash management and overall account analysis does the core processor provide and is the bank leveraging those services and reports that come with that or are they trying to create their own. So that’s another important component of both the sales incentive plan but also an overall understanding of my portfolio.

Caleb Stevens:
Now on training, we see, or at least my opinion is, that we train our people in products, but not necessarily the sales process. Would you agree or any thoughts on where banks could do a better job in training and hiring and talent management?

Richard Buttermore:
I would, and I think the key there is to not push a solution without understanding the need. So, it’s understanding how does a specific cash management service, what does it solve, what banking problem does it solve? So, I’m listening to my customers and they say, hey, I’m having a problem with reconciling my accounts or having a problem with detecting fraud. I’m listening for those triggers. So, the sales process has to have a listening, a trigger for a need. and then tying that back to a bank solution specifically or series of solutions that could help with that. The other half of that is, and it could be a pitfall to assume or presume that my branch bankers have to have all the product knowledge for every service the bank offers. I need to be able to understand what the needs are of my customers and if there’s the appropriate, in this case, cash management salesperson who I can have a joint call with or put the customer in touch with. to have that conversation and have a deeper dive into that. Same thing with the lenders, is there having conversations around borrowing needs? Are they listening for other comments that the customer’s making about? Their receivables aren’t coming in quick enough, so what does that mean? Is there a trigger there for the bank’s cash management service to come in and talk about how the bank can assist with it?

Caleb Stevens:
And some of the things that we found helpful is, you know, having services that kind of talk to you about the industry. We vertical IQ, IBIS world, a couple of these, you know, RMA data. Many S&P Global has it has an application. Many of these services help our salespeople and relationship managers and lenders get more conversant on each industry. So study up in the industry. We talked about the sales process, doing your discovery work. Like you said, making sure you have the right. you understand the problem and you have the right solution to fit the customer, all help. Excellent. As we look ahead, tell us about what the future of treasury management and cash management look like. You and I have talked about the rise of instant payments, faster payments with both the clearing house RTP and real-time payments there and then FedNow. There’s a place for that. What else is out there on the horizon in terms of upgrading your product offerings and your solutions for modern treasury management.

Richard Buttermore:
Yeah, I think the biggest, probably the two things are that more real-time payments, that consumers are becoming comfortable with that, that they can make a payment online and expect goods to be delivered next business day, et cetera, et cetera. So that instant payment and then having services that a bank can provide to their customers to accept instant payments or have real-time payments. So it’s not relying on the customer to go out to a third or fourth party to get that type of payment. The other half of that, I think, is the self-service nature. we are more and more tied to our mobile devices that have all the services and functions I can do on my phone for ordering merchandise. So my banking should be able to be all on the phone as well. So there’s gonna be more expectation that a bank, a customer can issue and authorize an ACH file through their mobile device when they’re on the road, you know, that has been submitted. So that’s gonna become of those kind of continuing emerging technologies. That also have with it. additional security risks that have to be addressed as well. If you make it too complicated, there’s that trade-off obviously. You have to protect the customer from potential fraud, but you also can’t make it so complicated that they can’t approve a wire transfer while they’re you know flying home from some business trip. So I think the self-service nature and then as you mentioned the real-time payments the Fed now is going to be an important understanding how that improves changes the payment world.

Caleb Stevens:
And then I’ll add one more in terms of cash management or cashflow projections. Every time I talk to a treasury manager, a controller at one of our commercial customers, I always hear, hey, you guys could really help on being, helping us get more accurate in our cashflow and cash management position and projections going forward. I think everyone is real comfortable in the one to three month area. After that, it starts to get real murky, real fast and. very few bankers advise in the one year and 18 month and two year area. I think that’s kind of the new focus of many banks. I know JP Morgan Chase has an application out there that does just that, leveraging AI. So I encourage our listeners to kind of keep tabs on that because I think that is also another battleground over the next couple of years for banks getting those kinds of capabilities.

Richard Buttermore:
Sure, that’s a very good point. And that both addresses the normal seasonality of my business, but also as the economic environment changes, I can project, but then as things, the world changes, as are my projections adjusting accordingly. So it’s not a surprise.

Caleb Stevens:
Any particular industries that you think are underserved by community banks that are, you know, heavy and natural cash management and treasury management users? Any favorites of yours out there?

Richard Buttermore:
Yeah, I think probably the two that come to mind are manufacturing. Again, more for the CNI loan borrowing needs. There are unique lending. So that’s unique and needs to be, you know, a specialized specialty there. But then also the on the on the banking side, there are accounts payable and receivables. Does the bank does the customer know, number one, that the bank offers that solution? So I think that’s manufacturing in a broad category is one of them. The other. I think is more in the professional services. And attorneys come to mind as they tend to be deposit heavy as they’re doing a lot of escrow accounting for their customers. How easy can the bank make it for the attorney to open multiple escrow accounts for multiple purposes and then move money around as need be? The other part of that is the re-off and the wire transferring of those funds and the time cutoffs that banks have sometimes becomes a roadblock. Are they underserved? Maybe not. Are they underserviced? If you ask the attorneys, I need a five o’clock PM cutoff. Why can’t the bank account for that? We’re on the banking side. We obviously have to account for our balance reconcilements, what the day’s end is going to look like, borrowings, et cetera. So that trade-off has to happen in there someplace.

Caleb Stevens:
point. All right. I like those suggestions. I particularly like the under serviced aspect. That was a different way that I was thinking about it. But you’re absolutely right. I particularly like your manufacturing suggestion too. I just think not only do they have the need as you brought up, but also I think implicit in your point that kind of dawned on me is it’s probably overlooked customer base where I can walk in and be a trusted advisor quickly by giving some expertise where a you know, a manager of a venture fund or something like that probably has a lot of in-house expertise in finance manufacture, maybe not. So that’s an area where I can impart value and show the need for better banking advisory services.

Richard Buttermore:
Good points.

Caleb Stevens:
Excellent. Well, let’s wrap up here. You and I have a treasury survey out, I think, as we get updated in 2023, handling pricing and what have you. Tell us, you know, what the banks should be looking at the survey and what can it do for them?

Richard Buttermore:
Sure, so from our view, as you mentioned at the beginning of the podcast here, the need for growing deposits is an important component. And then with those deposits, have customers that have banking needs, and that gets to what does your cash management structure look like, your services, your products, but also the sales and servicing structure of that. So the survey is just that, asking banks of different asset size, what is their current structure? So we can compare it to both the benchmarks of best in class, but also begin seeing banks with smaller asset size and maybe a different mix of lenders or portfolio. We’re inferring that they probably have cash management as one of the many functions that a person does, where the larger mid-sized banks and larger banks have dedicated groups. So that gets to that best practice. Then also that gets into the product mix, the penetration mix. And what are the drivers of increasing penetration? We’re seeing that having dedicated sales teams and sales incentives are clearly one of those key drivers there. And then what’s that trade-off and incentive to get to that outcome?

Caleb Stevens:
All right, so banks that fill that out can get some immediate benchmarks back. They get a good smattering of information that kind of leads them on where to focus, particularly in this era of strategic planning for the season, gives

Richard Buttermore:
Correct.

Caleb Stevens:
them some pricing data, get some comparisons there, helps them with product mix. You know, maybe we highlight what products, particularly asset size bank may be missing or may want to double down on. And then if they want to go farther, they can even get an expanded report off of that. So many different avenues that I think it helps a bank understand where it fits into the industry and hopefully uncovers some shortcomings or some areas where they could better optimize in order to make more profit and gain more customers and have a better customer experience. So.

Richard Buttermore:
absolutely inform and then justify investments both in technology and staffing infrastructure to achieve their goals.

Caleb Stevens:
Excellent. Well, for the banks listening, we’ll put that link in the show notes or along with this podcast. You can send that to your Treasury Management person if you’re not in. And he or she can kind of help guide, fill that out and send it back. And then we’ll give the report out. Richard, anything else you want to add?

Richard Buttermore:
No, I think we’ve covered a lot here and I appreciate the time and opportunity to chat with you. So thanks.

Caleb Stevens:
Richard, thanks for being on as usual, your wealth of knowledge in treasury management and cash management. We appreciate working with you up to this point and wanna keep going. Look forward to work with you on the survey results and we’ll be publishing more. So appreciate it and we’ll get you back on after the survey results are in. All right,

Richard Buttermore:
Okay, terrific. Thank you, Chris.

Caleb Stevens:
thanks Richard.

Richard Buttermore:
All right, have a great day.

Caleb Stevens:
and we’re out.