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BirdsEye View

In response to my last BirdsEve View, one of MidFirst's employees sent me this email: "Good inclusion of the HealthFirst program in your BV. It is the best program of this sort that I have ever been a part of. It is taken seriously by everyone. It is easy to understand and the Bank uses it well to motivate certain behaviors. When a HealthFirst luncheon is announced and you aren’t at your desk when the e-mail goes out then you may be out of luck. The bring-your-own brown bag luncheons fill up in seconds. The blood donations time slots also fill up quickly. The first year I was with MFB I had been an employee for about 6 months before my wife realized that I had cost the family 20% of our insurance cost by not participating in HealthFirst. She did not allow it to happen again. Not only does MFB provide the plan but generally MFB also provides almost all of the activities throughout the year to allow people to reach the objective (blood drives, health fairs, charity walks, HealthFirst luncheons, etc.) There really is not an excuse for everyone to enjoy the discount by hitting their numbers." Obviously, Dana Lorenson's program, and Dana herself, are a hit!

We have just completed our first Cash Management (redubbed Treasury management Services by the members) Forum with great success. It reminded me how pivotal the business is to any commercial bank, and how vast is the opportunity it yet represents for most banks. This week's column talks to that opportunity in detail.

The next TM Forum takes place in Chicago, IL June 11-12, 2009.

On a personal note, our Forum season is in full force, and Willie Nelson and I are "On The Road Again". I actually like this part of my life very much: reconnecting with old friends, learning more and getting in touch with the industry. Some of you remember how my kids used to come with me to every meeting. They're older now, in school and can't attend as they used to. I'm excited to report that Paul and two of his buddies from IU will be with us at the Marketing Forum (they want to learn), and Arik and Dick will join for the weekend. This is a very special treat for me!

Liat worked at a hospice this summer, and she wrote an amazing article about her experiences and what she learned. As an objective mother, I recommend you read it. It's posted on www.anatbird.com under BirdDroppings. She also posted a beautiful story she wrote in Hebrew for her class which I thought you and your kids might enjoy. I, of course, being a totally objective mother, love it!

Also, Dick and I were allowed to baby sit our two granddaughters for the first time. We basically asked the parents to have an afternoon off and leave us with the girls. As you can imagine, we all had a blast, and I only hope that Isabella won't tell how much excellent chocolate she had…

I hope winter isn't too freezing where you're at, and, if so, it's a great excuse for a crackling, blazing fire. Enjoy!

Article synopsis: Cash Management/Treasury Management is a great opportunity for 2009

Fee income businesses should receive a special premium for cultivation and growth in 2009. Capital scarcity and relative high growth should make such services a focus for the upcoming year. Treasury Management services (or Cash Management) offer a double benefit, since they can be used to also grow deposits for the bank. And, as we all know, 2009 is The Year Of The Deposit.

The year promises to offer higher than average deposit growth in general, given the dismal results in the stock market. However, mega-banks have captured more than their fare share of this deposit growth, using strong mass-marketing techniques and overly aggressive pricing. Even as some of the irrational players have been taken out, deposit pricing has not kept up with falling loan and Fed rates.

I have written about the Payments Business in the past, but it's time to revisit. Those who have attended my Forums know that Purchasing cards have been on my "hot list" for a while. They enjoyed the highest growth of all TM products, at 15.5% annualized in 2007. Wire transfers and information reporting, both high-margin products, are also growing at 9%+ rates. Overall, TM revenues reached $32B in 2007. Fee services contributed 48.5% of that volume, and the rest came from float, spread and excess balance income (read "deposits").

DDA services accounted for 23% of all TM revenues in 2007, followed by wire transfers at 15.5%, followed by information reporting, wholesale lockbox and check clearing and purchasing cards. These are "bread and butter" services among SuperCommunity Banks, and should not be beyond reach for most banks.

The profitability of these products is sometimes questionable. Most banks that measure it, per AY survey, include both direct and indirect costs in their calculations, and still are confident that wire transfers, DDA, purchasing cards, sweep accounts, ACH, information reporting and check clearing are all profitable services to the bank. In fact, sweeps were identified as the highest margin product by most banks, followed by information reporting and DDA.

As expected, smaller banks (under $13B) have a very small share of the pie. Yet, as you dig deeper, you'll find that these banks dominated the small business and middle market, with share of 47% in each, and are under-represented in the government and non profit segment at 3%. Other data come to mind: TM customers represent 49% of all the commercial deposits of banks in this size segment. Customer defections among commercial customers with TM are a low 5%. And, 30% of all small business customers that use TM are also credit customers of the bank. All these spell one word to me: OPPORTUNITY.

TM is a product suite that almost all bank business customers need. The products are complex, and should be appropriately matched with the client's needs. Technical expertise is important, and effective and economical fulfillment is key to success.

AS you consider your current TM operation, or whether to enter the business, here are some thoughts:

• Don't skimp on the talent. Considering the product complexity, it requires talented management, sales force and fulfillment staff to be both profitable and meet client needs. Make sure you have strong people in this function.

• Align operations with sales. In other words, treat the business as a line of business, and put the operational function under the same management that is accountable for sales and customer satisfaction. Coordination with Operations and IT is essential, but primary reporting is best residing at the line of business level. Being your own customer enhances accountability and effectiveness...

• Apply strong marketing and sales discipline. TM can benefit from a solid sales process and good marketing just like any other business, and perhaps even more, since typically TM resources are small relative to the market opportunity. Consider using free targeting tools for attractive segments like GuideStore for non-profit listings in your area, as well as focusing specifically on well-defined segments. Using incentives (current industry average for TM incentives is a meager 22% of base) based upon profit creation vs. base pay is another good practice whose time has come. And, as always, hoopla, sales trips etc. are always welcome.

• Leverage vendors. Working with your vendors to improve sales management (merchant card sales people are especially good) Aand even fund some of your marketing efforts is often a productive activity.

• Advisory boards and user groups. Banks have had both great and awful experience with both vehicles. Customer advisory boards can be extremely helpful in providing testimonials, leads and market intelligence. Treat them like a real board, pay them $100 a meeting and you'll reap benefits. Similarly, internal user groups are helpful in crafting your product message and packaging, customer targeting, join calling etc.

• Shadow accounting. The bane of CFOs, shadow accounting is one of the best tools to achieve cross-selling and cross-silo cooperation. Without it, competing sales forces play a zero-sum game where everyone loses: customer, shareholder and sales person. Doing shadow accounting effectively, i.e. without fooling ourselves to think we have more sales and profit than what we've got and without paying twice for the same sale more than what we'd otherwise pay, is difficult. Talented CFOs, though, can do it and the benefits are enormous. Wells Fargo and Norwest before it, practiced "blue dollars" for years, and the resultant cross-sell ratio is legendary.

• Fraud management. As the business grows, so will fraud attempts and opportunities. Beware.

• Remote deposit capture. Here I go on my high horse again: we under-sell this wonderful product. A study by one of our member banks indicates that the very sale customers, once they used RDC, increased their deposit volume 22-26%. This figure alone should propel you to reexamine your RDC volume goals for both customers and prospects, fulfillment processes, pricing etc.

• Key measurements. Once your TM is up and running, measure the following ratios relative to other businesses and to previous periods to see if you're making sufficient progress:

• Blended rate paid for TM deposits;
• RAROC;
• Contribution margin (many TM business enjoy 60-70% contribution margins, the best in the bank)
• Net income