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Pricing Is Driving TM Fee Growth, But We See Headwinds Ahead

This Month In Commercial Banking

Despite market disruptions in the spring, commercial banks have been able to hold the line on treasury management (TM) fees in 2023. According to Curinos’ TM Analyzer Executive Summary for the second quarter, the average bank grew gross TM fees by 3% YoY. There was some churn at the individual bank level, however, as evidenced by a higher variance between topperforming (+8%) and bottomperforming (-2%) banks QoQ. (Figure 1). 

Figure 1: Average YoY & QoQ Gross TM Fee Growth​ Q2 '22 To Q3 '22 & Q1 ‘23 To Q2 ‘23 By Quartile​

Source(s): Curinos Commercial Analyzer Executive Summary; Curinos Analyzer

But even with overall TM fee growth steady, the sources of that growth have changed dramatically. In the second half of 2022, volume across most product families was the key driver. By contrast, so far this year it has been price increases in multiple products, most notably paper disbursements and lockbox services. This concentration reflects an industry focus to realize less price-driven revenue from laborintensive and costly services, especially where electronic alternatives are available (Figure 2). 

Figure 2: YoY Changes In Gross Fees, Volume And Price By Major TM Product Family​

Note(s): YoY changes are calculated based on an average across banks; exclusions applied​
Source: Curinos TM Analyzer

Exception pricing also appears to be a significant factor, even though the level of discounting has remained within a couple of percentage points over the last two reporting periods – a slight increase in Q1 that was mostly corrected in Q2. The stability in discount percentages suggests that exception price changes have largely mirrored changes to standard price, regardless of whether opportunities to rationalize discounting exist (Figure 3). But while these actions reveal effective pricing discipline, it also means that few banks have had success simultaneously optimizing pricing and lowering the overall rate of discounting  

Figure 3: Weighted Average Discounting Over Time​

Source: Curinos TM Analyzer

Coming out of the pandemic, banks were focused on using TM pricing to drive growth – pricing events were muted during the pandemic and inflation was climbing. Growth has been consistent, especially in the face of lower deposit administration fees (DAF) given declining DDA levels, but will the trend last?  

An initial Curinos forecast for 2024 suggests headwinds kicked up by many factors. These include a cooling on price increases and the increased pressure on discounting to win or retain primary relationships (and their related operating balances) on the margin.  

To be sure, many of these factors will be beyond banks’ control, but being armed with the best market data and analytics will help them make the decisions necessary to protect their financial returns.  

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