Growth in Cash Management Fees Tapered off in 1992, Survey Finds

Article excerpt

Revenues from cash management stagnated in 1992, reflecting general economic trends and the inability of financial institutions to differentiate their services, according to a survey.

Declines in interest rates and an increase in deposit-insurance premiums exacerbated the longterm trends, encouraging corporate customers to scrutinize their cash management costs more closely and drop nonessential services.

Average prices for the fee-based services increased only 0.82% in 1992, according to the fifth annual study by Phoenix-Hicht, a consulting firm based in Research Triangle Park, N.C. That represents a significant decline from the 3.7% increase in 1991, and the 5.3% rise in 1990.

Concern over Costs

"The users of cash management services, because of the recession, are more concerned with the cost of banking services than in previous eras," said Peter Stein, first vice president, NBD Bancorp, Detroit. "That has caused corporations to streamline and eliminate unnecessary services that can't be cost-justified in labor savings or in the creation of investment opportunities."

"There's a feeling there's only so much the market will bear," said Lisa Margosian, vice president of cash management at Continental Bank, Chicago.

While overall cash management fees remained flat, there was a wide disparity in pricing for individual services. Most banks raised prices on low-volume or labor-intensive services and lowered prices for electronic-based services to encourage customers to move their business.

Prices that Rose Most

The biggest 1992 price increases were for international incoming wire transfers, up by an average of 15%; cash concentration maintenance, up 10%; and debit posting, up an average of 9%.

But prices declined for automated clearing house credits by an average of 16%. This contrasts with an 12% increase in prices for cash concentration through the Depository Trust Co., as bankers tried to move their customers to the less expensive automated clearing house system. …