What's Ahead for Cash Management?
The surplus of providers of cash management services that are chasing corporate America for business isn't news. What would be news would be a change in the current situation, in which no one provider enjoys more than 5% of the business--with the resulting buyer's market.
Consolidation among providers would be part of the answer, according to Thomas C. Theobald, chairman of Chicago's Continental Bank. Theobald believes banking is heading into a period of massive shrinkage. This will not only include mergers, takeovers, and failures, in Theobald's view, but also the spinning off of product lines by some and the snapping up of those by others.
The former Citibank senior executive believes the financial institutions that will weather this period will be those that focus on the markets they serve best.
"Banking is filled with people trying to do way too many things for way too many people," said Theobald. Indeed, Continental's strategy is to concentrate on corporate business-including cash management.
Theobald made these remarks as he introduced a panel discussion on cash management sponsored by Continental. The discussion was held concurrently with the recent New York Cash Exchange Conference--a cash management meeting. Participants represented the views of banks, corporate customers, and consulting firms. The discussion was moderated by Kenneth L. Parkinson, editor-in-chief, Journal of Cash Management.
Consolidation inevitable. In their opening statements and through the discussion, participants generally agreed that some degree of consolidation is coming for cash management. Overall, they see it as a business that, at least as traditionally conceived, has matured.
There's overcapacity in the business--there's no doubt about that, " said Percival B. Moser III, executive vice-president, corporate and institutional products and services group, CoreStates Financial Corp., Philadelphia.
Moser said cash management operations that want to be purchasers rather than purchased need to readjust their attitude on their role.
Traditionally," said Moser, "we've thought of ourselves as parts of banks who provide services to corporate relationships. In the future, we're going to have to think of ourselves as independent companies that provide services as ends in themselves with an aim to make money. "
Nonbanking cash management providers already operate on this basis, Moser pointed out.
Mature business. There isn't a lot that's new" in cash management, said consultant Susan S. Gleason, "and that's clearly a sign of a maturing industry. " Gleason is senior manager of the national cash management consulting practice of Ernst & Young.
Gleason agreed with Theobald that specialization will be an important overall strategy, but said she doubted any of the banks presently providing cash management service would wholly exit the business. Instead, she said, they will choose among the various pieces that make up the business and concentrate on the functions they can do best.
Picking up on this point, John R. Rodelli, vice-president and manager at Continental's treasury management/ product management group, said cost accounting will be a critical tool. He said many banks still lack the systems that would indicate where they make their money in cash management. Once they adopt them, eyes will be opened.
The companies that can't afford to play will get out of the business, "and the sooner the better, " according to consultant Robert M. …