Blind to Interest Rates, Cash Management Keeps Generating Steady Income

Article excerpt

If there were a Richter scale for the impact of low interest rates on various banking functions, recent rate trends would barely register for cash management.

While low rates have challenged banks' deposit, investment, and lending operations (see the special report in this issue), bank cash management service executives say their business has been affected very little.

"It's pretty much been business as usual," says John Rodelli, senior vice-president-product management, at Chicago's Continental Bank.

The executives and other experts in the field say cash management service has become so ingrained in corporations' way of doing modem business that usage has little to do with the level of rates anymore.

"Even in this environment, there are still advantages to getting cash in earlier," says Jack M. Meckler, president of cash management consultants Phoenix-Hecht, Research Triangle Park, N.C. Besides, Meckler says, "I think everybody realizes this is probably a temporary phenomenon."

The high rates of past years enticed more corporations to adopt cash management techniques, and they have stuck around.

"It was the high rates that drove banks to the wide array of products we have today," says Cornelia Foster, senior vice-president in the global payment services product management section at San Francisco's Bank of America.

Now, Foster continues, the value of cash management is as much a matter of control as return. "We're telling our customers where their payables and receivables are in the cycle of payment," she explains, "and the control aspect holds no matter what the interest-rate environment is."

As evidence of this, Foster points out that corporations used to resist use of the automated clearinghouse for payments. They felt the ACH robbed them of float. Since then, the rising cost of handling checks and the increased control granted by electronics encourages them to make the switch.

Quest for efficiency. More and more, corporations are looking to cash management service as a means of improving internal efficiency.

In many cases, this is a matter of tapping banks as a replacement for internal resources. Companies have discovered that many treasury department functions can be outsourced, according to David D. Fox, partner in the Greenwich Associates consulting firm, Greenwich, Conn.

"Overall, there's a lot of talk about `right-sizing' the company," says Fox.

"People are looking to wring costs out of the treasury operation to become more competitive," says James S. Wolf, a certified cash manager who is first vice-president and national sales director for Mellon Bank's global cash management service.

Functions that outsiders can automate while spreading costs among many users are a particular target, says Wolf. Take reconcilement. Wolf says the advent of desktop copiers and related technology has made check fraud easier and more widespread. The prevalence of faked corporate checks not only exposes the customer to losses, but adds to the burden of reconcilement. Wolf says bank services that produce lists of suspect checks trim losses and staff time.

Larger customers "are very focused on reducing back-office cost," says William M. Fenimore Jr., executive vice-president at Philadelphia National Bank, a subsidiary of CoreStates Financial Corp. He refers to a recent day spent with a large Chicago corporate customer. "They are typical of most of the Fortune 1,000 companies," he says. The firm has wrung virtually all the excess out of its balance sheet already and has explored means of automating employee-intensive functions.

"The challenge to banks is going to be replacing customers' staffs with our resources while still making a profit," says Fenimore.

Impact on banks. Corporations' desire for increased efficiency hasn't always worked to each bank provider's advantage. Some providers get dropped, and even the winners may find themselves facing thinner returns on what they've won. …