Pick Your Spot in Treasury Management

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It isn’t easy to carve out a winning strategy in treasury management, a business that is increasingly dominated by a handle of giant providers.

Excluding the largest banks, there are more than 4,000 banks competing for just 20% of the market and roughly $3 billion in gross fees. New research from Curinos reveals executives are frustrated by the slow pace in getting the investments they need to compete with the behemoths. In fact, by the time they get the essential funds, they are often even further behind.

The solution for smaller banks is to pick their spots carefully by specializing in specific size clients and segments. It also doesn’t hurt to remind the senior executives that treasury management brings in stable fee revenue and can be a starting point to capture primary relationships.

HOW BIG BANKS CAPTURED THE TM PRIZE

The 2008 financial crisis accelerated the decades-long consolidation that had already been occurring among treasury management providers. Many transactions were initiated due to distress and/or at the behest of the government. As larger institutions merged or acquired similar-sized players, the market began to consolidate, with market share concentrated among only a handful of providers. This dynamic was magnified in treasury management due to the capital and sophistication required to participate. This consolidation has continued in more recent years, highlighted by multiple acquisitions by Huntington Bank and the 2019 merger of SunTrust and BB&T.

As a result, the treasury management market has become much more concentrated. Curinos estimates that the top four treasury management banks in the U.S. account for 59% of the market and the top 18 banks hold close to 85% market share. (See Figure 1.)

Figure 1: Estimated U.S. Treasury Management Market Share Concentration

Source: Curinos estimates and analysis using CDA Executive Summary and publicly available financial reporting

These top providers have the reputation, presence and, most importantly, resources to effectively defend and grow their businesses. Curinos estimates that the largest treasury management players on average generate more than $4 billion in fees annually across the globe. (See Figure 2.) This is more than seven times larger than the average fees generated by the second tier of banks, which are then three times larger than the third tier and 10 times larger than the fourth tier.

Figure 2: Average Annual Gross TM Fees by Bank Tier

Note: Tier 1 — Annual Gross TM Fees of $1B+; Tier 2 — Annual Gross TM Fees of $300M — $1B; Tier 3 — Annual Gross TM Fees of $100M — $300M; Tier 4 — Annual Gross TM Fees of <$100M
Source: Curinos estimates and analysis using CDA Executive Summary and publicly available financial reporting

The big question, then, is how can the smaller banks compete against other businesses that are so much larger and have outsized budgets to match?

INVESTING IN THE TM BUSINESS

Given the disparity in size and resources across the tiers of treasury management banks, it is critical to invest in capabilities. The largest providers have the deep pockets to continue to enhance product and servicing capabilities, raising the bar for the bare minimum. Banks that cannot maintain at least these minimum requirements just won’t compete effectively. Even worse, they may be forced to deeply discount or waive charges just to get a foot in the door. But those basics don’t come easily for many. In a recent survey, treasury management executives ranked the investment process an average 2 on a scale of 1 to 5 (difficult/complex to easy/ straightforward). Among the concerns and frustrations with the investment process, a handful of key themes emerged — some different from what would be expected. (See Figure 3.) For example, we anticipated that gaining approval for funding or competing with the retail bank for investments would be the top frustration for commercial banking executives. While those are common themes, the most common frustrations were around the length of the application process and the availability of technology resources to implement enhancements. Many banks noted that it takes so long to approve or implement investments that they are often behind the market by the time everything is completed.

Figure 3: Common Frustrations And Risks In The Tm Investment Process

Source: Curinos 2021 Treasury Management Investment Spend Survey

The big question, then, is how can the smaller banks compete against other businesses that are so much larger and have outsized budgets to match?

PUSH HARDER, FOCUS ON SPECIALIZATION

Commercial lines of business must have greater control over their bank’s investment process. We believe there is an opportunity to advocate more effectively for the treasury management business. Treasury management provides a stable deposit base, fee revenues and can be a pillar for capturing primary relationships. These things are valuable to the bank in any environment, not just the current one. Coupling the message of the value of treasury management with a message of the intense competitive dynamics should create the urgency needed to make investments in a timely matter. Getting the funds versus using them effectively are two different issues. The key to winning is specialization. One downside with large banks is that it is difficult to gain in-depth knowledge about the needs and behaviors of specific clients and segments. Smaller banks don’t have to navigate organizational burdens in order to specialize. This means they have more freedom and flexibility to innovate. We have seen this specialization succeed even in segments like healthcare, where large institutions have heavily invested. Smaller institutions have notched success in healthcare by focusing on subsegments like senior housing or specific needs like patient financing or refunds. Successful industry specialization often starts from existing institutional knowledge about a specific segment. Using that in-depth knowledge to innovate beyond the traditional scope of treasury can put banks in space where they don’t have to compete with the larger players. Competing against the dominant players in a concentrated market is difficult, but not impossible. Smaller banks can compete and innovate in treasury management if they specialize and more aggressively seek investment dollars that can deliver a strong return.
Scott Musial
Principal, Chicago
scott.musial@curinos.com
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