Treasury Management Customers:“Serve Us Differently”
Novantas research shows that treasury management sales practices are out of step with the preferences of many customers. New approaches are needed to fuel sales growth.
Commercial banks were greatly relieved to see their treasury management operations hold up relatively well during the recession. But now they are questioning how to grow this important line of business as the market, though stabilized, struggles for momentum.
Most of the growth potential is concentrated in two avenues — gaining share of wallet among established customers; and forging new relationships among smaller mid-market companies which have less experience with treasury management (TM) services. To these ends, there has been a strong tendency to focus on refining current sales practices, with the thought that most of the basics are firmly in place.
But many customers would like to see visible departures from current norms in sales and distribution, based on results from a national survey of 294 companies, conducted in the spring of 2012 for Novantas by Greenwich Associates LLC. Most conspicuously, TM customers want a stronger banking emphasis on directly solving problems and meeting particular needs, as opposed to promotional discussions about products and features and/or referrals to sales specialists.
Respondents, whose companies ranged from $1 million to $500 million in annual sales, also called for more effective use of all communication channels by their banks, including web site information about new developments and more extensive banker use of e-mail and the telephone.
These and other findings hold major implications for commercial banks as they consider options to grow treasury management. Relationship managers will need improved information tools that will accelerate their understanding of client profiles and likely needs, for example, while commercial banks need to become more adaptable in contacting TM customers in the manner they prefer, including by telephone or e-mail.
Ultimately, winning players will need to flesh out a multi-channel sales model that is based on a comprehensive understanding of customer buying behaviors. This model will also consider key circumstances in which buyers make purchase decisions, such as in the course of interacting with customer service representatives.
Breaking the Barriers to Growth
Treasury management is a cornerstone of commercial banking, providing roughly a third of the revenue stream among major players. The benefits of this line of business are well known, including a strong source of fee income; a magnet for deposit balances; added glue for “sticky,” long-lasting customer relationships; and low capital requirements.
Currently, however, the business simply is not growing. Banks are generally coping well with the transition from paper-based transactions to electronic delivery, but for many, TM revenues are either flat or declining year-over-year.
One opportunity is winning a greater share of wallet among larger, established treasury management customers, many of which turn to two or more providers, both for current services and when shopping. Here the barrier to growth is the stagnation that has beset deep-seated practices — with relationship managers already working hard and traditional product sets and market coverage models already fleshed out, what can be done to tilt more of the customers available business to the bank?
A second opportunity is serving smaller enterprises, primarily ranging between $2 million to $10 million annual revenues, but occasionally extending up to $20 million. Often, the buyers at these companies do not have an extensive treasury background and are unaware of cash management practices. Following the wrenching U.S. recession, however, owners and executives at these companies are freshly sensitized to the need for robust financial management, including timely financial information; careful management of inventories, receivables and payrolls; and preservation of cash flow.
Commercial banks can bring needed sophistication to these activities, yet prospects will need a certain level of education about using bank TM services. The complication is that out in the field, relationship bankers generally are less knowledgeable about cash management, and it is too expensive to deploy cash management specialists for companies of this size. Meanwhile, branch managers (a major contact point even for larger local businesses) also struggle to present TM solutions.
In exploring these issues, the Novantas 2012 treasury management survey sought direct feedback from customers. Respondents included chief financial officers, treasurers, assistant treasurers and cash managers, all at U.S. companies drawn from the various market segments of services, manufacturing, wholesale and retail.
Three major categories of findings emerged from the survey, including customer interaction; competitive dynamics; and multi-channel sales.
Customer interaction — One of the biggest issues coming out of the study is that TM customers still feel that products are being pushed at them. When reporting the top selling factors used by bank representatives, customers cited “product features and functionality” as the number one sales emphasis, and they said the objective of meeting “specific company needs” received less than half as much banker emphasis. Branch managers received an abysmal score in needs-based selling, although branches were rated as a significant point of contact by small business survey respondents.
Treasury management customers are looking for advisors who understand their businesses and can solve problems. When survey respondents were asked which traits differentiate an excellent banker, the most frequently cited answer was “knows my business” (Figure 1, “Little Appetite for Product Push”).
While survey many respondents said they ideally prefer to deal with relationship managers even on routine matters, the overall survey group expressed far more contact flexibility than what is commonly perceived. Telephone conversations are as common as in-person visits in contact frequency with RMs, for example, and most respondents reported that they rarely meet cash management specialists in person. Also, survey respondents reported active usage of customer service specialists by telephone, both for routine inquiries and problem resolution (Figure 2, “High Customer Receptivity to Alternative Channels”).
Competitive dynamics — Overwhelmingly, respondents cited online cash management as the most significant point of product differentiation and innovation — more than double the rating assigned to any other factor. This feedback reflects the central role that online portals now play in the delivery of treasury management services to small and mid-sized companies.
Other products had special resonance with certain market segments. Liquidity management was especially cited by service companies; purchase cards stood out with retailers; and large manufacturers cited international payments and foreign exchange.
As to how companies choose among TM providers, prices and fees were the top swing factor among small companies with sales up to $20 million. Product functionality ranked highest among companies in the $20 million to $100 million range (which typically are in transition from basic banking to full-featured cash management).
With larger companies in the $100 million to $500 million range, customer service made the biggest difference. Importantly, the credit relationship with the bank was a remote consideration in TM provider selection for mid-market companies that range from $20 million to $500 million in sales. This is contrary to conventional wisdom.
Multi-channel sales — When treasury management customers want to learn about new products, many are inquiring via alternative channels, including customer service and bank websites. Indeed, following relationship managers, nearly twice as many buyers turn to their banks website for cash management information than any other source, including peer referrals, magazines, newspapers or treasury management associations.
Survey respondents also expressed high receptivity to sales offers coming from sources other than relationship managers and product specialists. Customer service, for example, ranked second only to “RM visit” as an effective way of being introduced to new products. Telephone and e-mail contacts also were rated as effective, to the point that many respondents expressed an actual preference to use those channels when purchasing treasury management solutions.
Implications for Commercial Banks
Based on the Novantas survey findings, one of the biggest questions for banks is how to drive useful sales knowledge to the various points of customer contact, including relationship managers, branch managers and customer service representatives.
Commercial customers want to deal with bankers who understand their businesses and can make recommendations within an advisory context, yet individual representatives can hardly be expected to demonstrate instant expertise with each client.
The answer for many banks will be improved customer analytics and sales preparation. As relationship managers prepare for calls, they will need access to extensive information about clients, as provided by systems devoted to customer relationship management. They also must be able to broach conversations with specific, appropriate recommendations, as gleaned from treasury management specialists who are familiar with the client, and from automated “next best product” reports. RMs should also have access to real-time reporting on the status of current product usage and service requests.
As companion effort is also needed with branch managers, considering their major role in anchoring local business relationships. Based on survey feedback, most branch managers are unprepared to sell within an advisory context for businesses.
One precaution is that new levels of flexibility will be needed in deploying relationship managers, as guided by customer preferences. Currently, many banks assign RMs based on the size of the client, with emphasis on the largest account. Survey respondents, however, showed a weak correlation between company size and contact preference — many larger clients are not looking for on-site calls from relationship managers, while such visits might be highly effective in winning some smaller accounts.
Factors such as the preferred form of contact and purchase decision criteria seem to be based more on the buyers personality than the size or industry of the company, and it will be up to the bank to detect personal preferences. Banks should also be flexible in allowing clients to move between levels of support as their needs evolve and the bank learns more about their requirements and sales potential.
A further implication of the Novantas survey is that there probably is a lot more opportunity to let specialists serve clients via remote channels, such as the phone and e-mail, versus having staff on the ground in local markets. It turns out that most clients have sparse interactions with sales specialists in person, perhaps an inevitable consequence of the typically high client loads that specialists carry. In addition to improved productivity and cost effectiveness, a more centralized TM sales force should be easier to manage and to train, and can accommodate more product and industry specialization.
Beyond these specifics, the bigger vision for treasury management growth will entail a multi-channel sales model. As evidenced by the Novantas survey, customer buying behaviors are not narrowly proscribed, nor are they consistent from one client to the next. In a sense-and-respond marketplace, banks must stand ready to pursue sales opportunities wherever they may surface.
There are many aspects to multi-channel sales growth. For example, banks should train customer service reps to identify sales opportunities and gather service data to generate leads. To effectively manage inquiries via bank websites, capabilities in online qualification, tracking and referrals will be needed. To support phone-based interaction, major players will need to deploy telesales units and telephone automation capabilities for relationship managers and sales officers. There is also a need for e-mail management and automation systems for electronic communications, both broadcast and interactive. The result should be higher sales productivity and improved customer satisfaction.
Agenda for 2013
Treasury management leadership teams will need to orchestrate a series of enhancements and adaptations in order to win more business starting in 2013.
Clients and prospects are hungry for an advisory context, as reflected in the attitudes, skill levels and company-specific knowledge of TM representatives. Mirroring trends across virtually all U.S. industries, customers also want a much stronger online proposition, including access to product information; interaction with representatives; and essential product functionality. At the same time, customers are flexible about service delivery, providing options to establish lower-cost centralized teams that can interact with customers through multiple channels.
Based on the survey findings and the general state of competition among major players in treasury management, leadership teams should be asking three main questions as they set the agenda for next year:
“Are we selling effectively?” — It is time to take a good hard look at the treasury management sales function and, at many institutions, honestly acknowledge that it could work a lot better. The impetus for change will come from a broad recognition — both within management and among relationship bankers — that current arrangements will not be sufficient for tomorrows challenges and opportunities.
“Are we using all channels?” — In TM sales, the age-old organizing principle is face-to-face interaction, but that model is rapidly decaying as customers flock to multi-channel delivery. Future market leaders will study the spectrum of customer touch-points and establish coordinated sales goals and tactics for all of the major conduits.
“What about data and analytics?” — While relationship managers still will be expected to exercise a great deal of personal judgment in their respective territories, the overall treasury management organization will need far more analytical guidance as it makes multi-channel decisions about targeted prospecting and cross-sell; physical versus virtual interaction with clients; and consultative product recommendations.
The good news is that in a growth-challenged market for treasury management, the Novantas survey findings offer encouragement for commercial banks that can refine their customer outreach. Instead of incremental improvements to current practices, it is time to focus on more transformational initiatives that will enable the institution to respond for more effectively to changing customer preferences.
Steve Ledford is a partner in the Chicago office of Novantas LLC, a management consultancy.