bg-arrow-down icon-arrow-up icon-back-to-top icon-linkedin icon-menu icon-search icon-twitter logo-white slider-arrow-left-gray slider-arrow-left slider-arrow-right-gray slider-arrow-right

This Month In Commercial Banking | January 2021

In January’s edition of This Month in Commercial Banking, we start with a discussion of how banks are allocating their commercial technology spend (while lamenting the lack of investment dollars for TM). We lay out a corporate treasurer’s perspective on how banks can offer better products for optimizing working capital. Then we provide a snapshot of the commercial deposit market (spoiler: boatloads of volume, still a few ounces of rate). Finally, we have a postcard from the M&A trenches, encouraging banks to invest in customer-level analytics that allow optimal client relationship decisions right away.


Digital and More Digital

The reduction in in-person interactions during the pandemic has exposed the need to accelerate technology spending to enhance the digital experience. Most of the focus has been on consumer businesses, leaving commercial units without their fair share of the bank’s overall technology spend. (See Figure 1.)

Figure 1: TM Annual Technology Spend

(BAU and New Products)

Source: Novantas Research

Novantas breaks down current spending into four levels:

  • BAU (1-2.5%): these are investments that “keep the bank running,” such as necessary platform upgrades and required products; typically, not competing on capabilities
  • Product-Centric (3-4%): targeted investments to create differentiated product capabilities; strategically picking spots
  • Transform the Business Model (5-6%): in addition to leading product/solution capabilities, increased focus on the CX and internal capabilities (e.g., analytics, client insights, marketing automation)
  • Innovation (7%+): making technology central to the strategy; innovating the go-to-market plan, including product development, customer engagement (e.g., virtual sales, marketing automation) and infrastructure capabilities (applying AI, ML broadly)

Regardless of spend level, many commercial banks recognize that enhancing the digital client experience is a major theme for 2021 tech investment. In response to a question about 2021 priorities in the Novantas Q3 2020 CDA Executive Summary, the vast majority of banks said that digital onboarding and digital servicing/self-servicing are planned investments this year, with 68% investing in digital onboarding and 64% in digital servicing/self-serving. The only other investment that a majority of banks cited was for new/enhanced packaging of existing/new products. (See Figure 2.)

Figure 2: Which liquidity products do you plan to invest in during 2021?

Source: Novantas Q3 2020 Comparative Deposit Analytics Executive Summary

It is clear that better digital onboarding, servicing and self-servicing all benefit both the client and the bank. They enhance the client experience by streamlining common, manual and repetitive processes and also free bank employees from large time commitments to execute these tasks (e.g., TM sales officers are heavily involved with on-boarding). Better digital capabilities will allow these employees to focus on more value-add activities.

But despite the mutually beneficial nature, it is often hard for management to connect revenue benefits to these enhancements – leading to difficulty in securing the required funding. While these investments don’t generate revenue in and of themselves, they can accelerate revenue growth because a best-in-class digital client experience is critical to winning client primacy – a goal that 45% of the banks in our CDA Executive Summary report as a strategic focus for 2021.

In order to secure more funding to improve the digital experience, commercial units must work harder to incorporate the revenue benefits – revenue acceleration and positioning the bank to win primary relationships – into their business cases when they present their budgets to whomever holds the purse strings.

Scott Musial ( and Mike Rice (


With Working Capital Optimization

Corporations recognize how beneficial working capital optimization can be, but they struggle on their own to achieve it. The COVID-19 pandemic has highlighted this growing need amid concerns about economic uncertainty, rising corporate debt levels and increased attention from shareholders and analysts. The benefits are many: working capital optimization can increase production, reduce risk, cut costs and improve cash flow management. Furthermore, available working capital generates liquidity to fund M&A activities, capital expenditures, debt repayment and other executive-level strategic initiatives.

The good news is that banks can help. Some have tiptoed into this area, but they can do much more. So why not develop and pitch the service to corporate clients?

The working capital equation is simple:

Days Sales Outstanding


Days Inventory Outstanding

Days Payable Outstanding


Cash Conversion Cycle (CCC)

Key components of a successful working capital management program are electronic invoicing, supply chain financing and early payment discounts (or dynamic discounting). This involves the coordination of efforts across the enterprise because all key internal stakeholders must be involved in the process, including accounts payable, procurement, treasury, IT and credit departments. In addition, effective working capital programs also involve developing close partnerships with some external stakeholders such as suppliers, banks and customers.

An ideal bank solution would revolve around automating some of the pain points within the cash conversion cycle, which suffers from inefficient and manual processes. On the order-to-cash (OTC) side, credit and collections teams struggle to bill customers, send invoices and receive cash and apply it to open receivables. This reality has only been exacerbated by delays in receiving payments from customers during the pandemic. On the procure-to-pay (P2P) side, A/P and procurement teams plod to receive invoices, voucher purchase orders and reconcile payment terms. The COVID-19 pandemic has forced companies to adopt digital solutions for employees who are working remotely, but opportunities still abound for banks even though some fintechs and global banks already offer solutions.

For example, banks could take a page from supplier finance programs and customer portals to provide these services for their corporate clients, generating interest income along the way.


The key for the banks is to develop a network of suppliers and customers that are willing to outsource their invoices and digitize their payments. Banks can tap their existing clients to discuss their pressing needs. Another option for the banks is to white label working-capital solutions that have been developed by small fintechs – or even buy those fintechs outright.

Corporates are paying increased attention to these dilemmas during the pandemic. Banks would be wise to jump on the opportunity while they can.


Commercial deposits grew rapidly through the fourth quarter, up nearly 10% from Oct. 1 to Dec. 31. (See Figure 3.) Interest rates, meanwhile, inched lower, with average MMDA rates falling from 27.1 bp in October to 21.6 bp at year-end. Interest-bearing DDA rates also fell from 15.8 bp in October to 14.5 bp at year-end. (See Figure 4.)

Figure 3: Average Weekly Deposit Growth

(October – December)

Source: Novantas Comparative Deposit Analytics

Figure 4: Average Interest Rate

(October vs. December)


Source: Novantas Comparative Deposit Analytics

An additional $284 billion in PPP money became available earlier this month, adding another potential 4% growth to the total commercial deposit pool that is already bursting with excess funds. With what is normally a typical year’s worth of deposit growth flooding an already-flush market, we expect to see continued downward pressure on rates and a sustained focus on primacy as banks continue the novel exercise of reviewing balance sheet allocations for large customer deposits.

Peter Serene (


Deploy Client-Level Analytics to Optimize LD1 Activities

M&A activity was slow for most of 2020, but there was a flurry of deals late in the year, including a couple of notable announcements. With more clarity around vaccine rollouts and planned future government actions, the banking industry now has a view towards what the future will look like. Buyers are eager to jump back into the market and pick up where they left off pre-COVID-19 when there was a strong market for mergers, including at the mid-tier bank level.

Just as data and analytics are becoming a bigger part in day-to-day banking management, they should also play a role in M&A integration. Better-performing acquirers leverage customer-level data, sometimes in the form of a “clean room” that is often run by a third party and allows for the sharing of sensitive data between acquirer and target bank before the deal closes. This data can help the buyer make more informed decisions about one-time integration decisions, such as product migration. They can also jump-start revenue opportunities for the go-forward bank in key areas such as customer cross-sell and banker deployment.

Historically, commercial divisions have relied less on customer-level data during integration than did retail units, instead relying on banker intuition with respect to customer integration strategies. But advancements to commercial banking analytics around customer primacy scores and other analytics can augment banker-driven decisions with a supporting fact-base to make more informed decisions.

Key questions that commercial banking divisions can better answer by leveraging customer-level data:

Pricing (Deposits and TM Services):

What are the optimal rates on deposits and/or prices on TM services for customers from the acquired bank?  What rates and prices should they migrate to at conversion compared with the longer-term re-pricing opportunities?

Cross-Sell Opportunity/Deepening Customer Primacy:

Which acquired customers have the greatest share of wallet opportunity? Which are most likely to respond to offers to deepen their relationship with the bank, especially given any expanded product capabilities or balance sheet capacity from the combined institution? When is the best time to reach out to priority customers, relative to the deal timeline?

Banker Coverage/Deployment:

What is the optimal banker coverage (RMs/TMOs/PMs) to cover the combined prospective footprint based on current penetration and market opportunity? For customers tied to dislocated bankers, what is the most appropriate banker reassignment? How should banker goals be refined to account for these potential changes?

Acquirers that perform better than the rest score commercial customers across assorted dimensions to determine how best to treat them. Where possible, banks are incorporating market data (such as benchmarks and market opportunity) to help inform decisions as well. Those who don’t leverage these types of analytics run the risk of running a sub-optimal integration, leaving a hole for the bank to dig out of post-merger.

Mike Jiwani (

Stay up to date on the latest banking news