This Month in Commercial Banking: Rates, Digital Investment and Pricing

Welcome to the November 2022 issue of “This Month in Commercial Banking,” which examines the latest trends in rates, plans for 2023 digital investments and the outlook for treasury management pricing.

The latest inflation report has created some cautious optimism because the 7.75% increase was lower than the previous 8.2%, but those glimmers of hope are being muted in the trenches of commercial banking. Deposits are now down 10.1% this year, while rates and betas are still rising.

That said, bankers are looking ahead to 2023 and digital investment plans are front and center. Recognizing the importance of this channel, bank executives have told Curinos that innovation will be an important focus for investment over business-as-usual programs.

Meanwhile, commercial bankers are assessing treasury management price increases to account for rising ECRs. It is a tricky balancing act, but we offer some suggestions to optimize pricing.


Balance Headwinds Continue

Commercial deposits slipped another 0.7% on average through the month of October. The average year-over-year decline was 7.9% while the average year-to-date decline dipped into double digits, and now stands at -10.1%. The most significant outflows have come from large corporate deposits, down an average of 15.8% from year-ago levels. Public funds balances (those that come from the government) fell by 14.8%, most likely driven by ongoing depletion of pandemic-related relief funds that compounded typical seasonality. Business banking balances, in contrast, remained a bastion of stability, up an average of 2.1% year over year. (See Figure 1.)

Curinos believes there are two factors driving disparities in relative portfolio stability among banks: the depth of customer primacy and the portfolio mix of smaller-balance clients.

To the first point, larger banks have been better at retaining large corporate deposits, by nearly seven percentage points so far this year, than a broader set of regional institutions. This isn’t surprising because the largest banks, which have an outsized share of the core operating deposits in this segment, are seeing less volatility than the regionals that are competing for reserve balances from corporate clients.

Figure 1: Average YTD Commercial Deposit Portfolio Growth (October 2022)

Source: Curinos CDA

To the second point, despite broad market declines in deposits, there are examples of banks with flat-to-positive growth. These banks tend to have portfolios concentrated in business banking and small commercial clients. On the other hand, those more heavily concentrated in reserve deposits from the largest middle market and corporate customers are facing a choice: double-digit outflows or very high betas.

As of the end of October, average IB DDA rates had risen to 1.13% while average MMDA rates were up to 1.42%. Business banking remained a comparatively safe harbor, with average MMDA rates at 0.56%.

The most rate-sensitive balances, however, are now commanding significantly higher rates. Average MMDA rates in the large corporate segment ended October at 2.02%, while the average total MMDA commercial rate from banks in the top quartile of betas was 2.24%.

The softer November inflation print and recent comments from FOMC members have given markets hope that a peak to rates is in sight. But while this may offer some relief, betas are likely to continue upward even as the Fed Funds rate plateaus. This is because the roughly one-third of commercial interest-bearing balances still priced at standard rates will move incrementally to exception pricing. In addition, as companies continue to strive for efficiencies in their working capital and liquidity management, non-interest-bearing balances will experience some additional rotation into higher-yielding alternatives.

Peter Serene (

Banks Target Commercial Digital Innovation For 2023

According to a recent Commercial CDA Executive Summary, more than half the banks in Curinos’ data set have invested at least 2% of their treasury management fee revenue in digital channels. Most of that was allocated to business-as-usual initiatives, such as platform maintenance and conventional customer support, with just a small portion being funneled into innovation.

That may be about to change. For 2023, banks will be placing their bets on new initiatives that transform client experience and drive revenue. Indeed, 43% of survey respondents said they plan to increase their investment in digital innovation by 10-25% from 2022 levels, while 14% said it would increase by more than 25%. The survey defines innovation as initiatives that transform client experience, such as remote onboarding and service models that promote customer self-sufficiency versus human contact.

On the other hand, none of the respondents said they would invest 10% or more in the business-as-usual activities that were popular in 2022 even though overall investment in the online platform is expected to grow by at least 10%. Fewer than half anticipate spending more than 5% on business-as-usual activities. (See Figure 2.)

Curinos believes that investment in digital channels will and should continue to be the centerpiece of a bank’s strategy, with a thoughtful balance of innovation and business as usual. Future issues of “This Month in Commercial Banking” will identify top digital investments driving platforms that support these growth initiatives.

Jennifer Sypal (

Figure 2: Relative to 2022, how do you anticipate your 2023 digital budget ask will compare?

Source: Curinos Commercial CDA Executive Summary Q3 2022

Pricing Treasury Services: What’s In Store For 2023

It was just a year ago that banks were planning assertive annual price increases for their treasury management (TM) services in anticipation of a more normal economy in 2022 following the worst of the pandemic. Rate increases were expected to be gradual, and inflation wasn’t on the radar. Those expectations changed dramatically in the first quarter as inflation rose to historic levels and the Fed responded by accelerating rate increases and reducing the money supply at historic rates.

While many banks have managed to secure higher TM price increases this year than they had in 2020 or 2021, those hikes haven’t fully accounted for the implications of these market dynamics, including the level of fees captured after earnings credit offsets.

This portion of fees has been at historic highs in recent years, allowing the leading banks to capture 80% or more of their fees after offsets. As recently as this year’s second quarter, these high capture rates remained unchanged as earnings credit rates (ECRs) stayed relatively flat. The third quarter, however, saw an abrupt surge in ECRs at a portfolio level, increasing from an average of 34 bp to 50 bp from June to September compared with only 29 bp to 34 bp from December 2021 to June 2022. (See Figure 3.)

Because we expect these ECR increases to continue (if not intensify), banks will capture a lower portion of their fees after ECR offsets. Indeed, we’ve begun to see fee capture rates decreasing, from 81% in the second quarter to 73% in the third. (See Figure 4.) This would indicate that optimizing TM pricing is increasingly important as both a means to protect hard dollar fees at risk and as a way to maintain high levels of stable operating balances.

When planning for 2023, banks should keep in mind three key levers for optimizing TM fee pricing.

  • Pricing levels: Set prices for individual services consistent with the bank’s desired competitive position

Figure 3: ECR Portfolio Rates

Note: All banks average (Dec. ’21 – Sept. ’22)
Source: Curinos CDA

Figure 4: Annual Fee Capture Rates (Net TM Fees After Earning Credits / Gross TM Fees), 3Q21 to 3Q22 by Quartiles

Note: All banks average (Dec. ’21 – Sept. ’22)
Source: Curinos CDA
  • Pricing structure: Have a comprehensive universe service codes to ensure that the bank is charging for all the services that it delivers
  • Negotiated client pricing: Allow exception pricing based on a client’s entire relationship, including the potential to increase primacy

It has also become standard industry practice to impose an annual pricing event, and we expect many banks will be looking to play some catch-up in 2023 for what they couldn’t plan for in 2022.

In the coming year, most banks have an opportunity to improve their TM pricing structure or negotiated client pricing even if it means being more assertive with their price increases at the beginning of the year. Increasing ECRs will help mitigate the immediate impact of introducing new billing points. It will also help provide a firmer foundation and create workable options when rates begin to fall. Negotiated pricing that considers customer primacy, potential and balances across the entire relationship will also be critical.

While many banks have already planned for their 2023 TM pricing event, the best-in-class players are looking beyond just the pricing of individual services. The rising-rate environment makes it not only opportune, but urgent, to continue to examine and enhance all levers that can optimize TM pricing.

Scott Musial (

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