Why FIs must rethink their treasury function’s potential
It’s a dynamic time for financial institutions (FIs). Low rates are jeopardizing fee income. Aggressive competition exists for commercial deposits. Customer experience goals often collide with resource realities. Fintechs are disrupting the status quo of the industry.
The pressures for FIs are not new, but they are changing the conventional wisdom—with treasury management a critical part of the solution. Financial institutions are recognizing the strategic importance of treasury management and examining ways to expand and enhance their treasury business.
However, rapid industry change and complex challenges have stretched treasury departments thin. How are treasury executives positioning their departments to grapple with heightened demands for growth and value?
Treasury management at the crossroads
Recent interviews with select treasury management executives and senior managers at FIs of varying asset sizes, completed by Capital Performance Group on behalf of Deluxe, took a deep dive into the opportunities and challenges facing treasury management.
As one participant confirmed, “Expectations are being raised for treasury management as a place for more growth potential; this is a change from the old days when treasury management was looked at as a secondary group.”
For treasury management, it presents a crossroads. Once regarded as a back-office support group for commercial and business relationships, leading FIs now view the treasury management function as the next horizon for a healthy and successful commercial business.
With this shift in thinking, treasury becomes a more visible and strategic partner; a critical contributor to the strength, stability and success of a financial institution’s future.
Grappling with treasury management’s changing roles
- Back office service function or self-sustaining line of business?
- Support role or visible and strategic?
- Manages existing accounts or generates clients, deposits, revenue, value?
However, a treasury management group that’s solely focused on customer service and back-office support is typically ill-equipped to chart a new, strategic course for the financial institution. As our executives candidly shared, treasury routinely suffers from lack of resources, as well as appropriate visibility to lead and enact change within the organization.
Among the FIs interviewed, over half organize treasury as a department within their commercial division, and the rest operate it as an independent line of business within the broader financial institution. All but one define treasury as a service organization, in support of commercial relationships.
This finding reinforces the traditional role of treasury, as secondary to commercial lending. Yet in most financial institutions, treasury does have additional responsibilities—even if it has not blossomed into an independent line of business. Slightly more than half the FIs interviewed maintain a separate P&L for treasury management. This speaks to treasury’s potential to impact more than just back-office systems and customer service.
New opportunities for treasury management to add value
FIs increasingly see a more strategic treasury management group as essential. In fact, the most critical success factor identified is an FI’s ability to elevate treasury management’s stature within the organization.
“Treasury management needs to be and is a critical component of delivering value to commercial customers. We’re still a credit-driven institution, but treasury management has more visibility with senior and executive management than in the past,” noted one leader.
In this model, treasury does far more than simply support deposit and fee income growth. When properly structured, it becomes a self-sustaining sales and service organization that generates clients, revenue and value for the financial institution.
A robust treasury can:
- Deepen customer relationships
- Differentiate a financial institution in the market
- Generate new revenue streams
- Help protect the business from Fintech disruptors
Dynamic times call for a new identity
Today’s industry backdrop is yielding some exciting new thinking as FIs large and small work to grow revenue, enhance profitability and stay relevant with younger, tech-savvy customers. Prioritizing investments in treasury management demands significant—but powerful—changes.
Successful, strong treasury leaders will:
- Break down organizational silos
- Educate key stakeholders on the increasing benefits of a strong treasury group
- Discover overlooked opportunities to maximize treasury’s impact
- Measure the full value treasury management delivers to the financial institution
The rest of our treasury management blog series will share ideas and strategies from financial peers to help treasury management leaders not only survive, but thrive, in this new reality.
Up next in our treasury management series: How should leaders size up the value of their treasury management department? We’ll share key questions every financial institution needs to ask.