Adding a new stream of business can be a daunting and arduous task, particularly when it comes to navigating around the risks and pitfalls associated with learning new guidelines, regulations and operating procedures previously unchartered. For many, the hardest part of adding treasury management solutions is simply understanding what to offer, who to offer to, and how to provide these solutions. It can be critical to the growth of your credit union to be able to provide needed services to the ever-evolving landscape of small and midrange businesses, and now more than ever there is a need for those businesses to find solutions that can help them most effectively manage their day-to-day operations. With new offerings, however, come increased costs, risks, and resource requirements. Making things a little more complicated, the impact of offering these services changes drastically as the U.S. economy evolves its interest strategy.
To best understand the impact and importance of providing treasury solutions, there are several key factors to explore: What are the benefits to business members, who are ideal candidates for these solutions, what are the risk associated with providing these solutions, what are the resource requirements on the credit union, what are the costs to provide and, of course, what are the monetary benefits? There are a lot of different ways to answer those questions, so the goal of this article is to focus specifically on how to keep your business members happy while maintaining a healthy margin of profitability.
You’ve probably heard the term before. What options do I have to make a member happy who has a specific requirement that others may not have? How do I evolve my offerings when the environment around my solutions changes? In the world of treasury management, levers are king. As a credit union, you need to be able to serve your community in different ways, regardless of the hurdles thrown at you by the surrounding environment; this is no easy task. The term “Lever”, in this situation, is defined as a strategy you can use to offer one solution to offset another.
One of the most significant factors that can change the course of your offerings is a change in deposit strategy. When interest rates change, particularly in quick order, the impact to deposit revenue is considerable. One minute you are in a high-octane rush for deposits, while the next minute you can’t get them off the books fast enough. Your business members can provide that much needed stability through multiple sources of revenue streams.
Levers work because when one revenue stream becomes less profitable, another stream becomes more important. One of the most effective levers to pull can be found in treasury solutions. When rates increase, and you fall back into that rush for deposits, there are opportunities that can be found to offer businesses services at decreased prices. A pricing strategy will evolve with the market, and you may find yourself requiring services to maintain a certain level of profitability when rates get low to offset the decreased revenue from deposits. Having the ability to adapt your pricing strategy bears benefits both your credit union and your business members and can drive satisfaction and loyalty to your brand.
In the example of rates changing, when interest rates decrease there is a need to find revenue opportunities outside of deposits. You may find yourself trying to lock in members for shorter terms on loans, to withstand the potential for further decreases. Similarly, when rates increase it becomes increasingly attractive to offer variable rates or longer-term contracts. A member may have a desire to more frequently move their funds in a rising rate environment, as they will continuously seek more attractive offerings. Your credit union can employ a variety of levers, such as increased rates when multiple products are utilized or waiving fees for a target deposit amount.
Treasury Management solutions, by themselves, are not significantly profitable; they are a means to an end. Offering a business solution such as digital wire origination or fraud protection are great for cash management efficiency but have associated costs for both the credit union and business alike. While margin on these solutions can drive profitability for the credit union, the impact is negligible compared to the most important factor which is your member’s satisfaction. A business who can see the benefits of having specific products with your credit union is more likely to move a larger amount of their deposits to your institution, as there is less need to find alternative solutions. For a business, the ability to operate day-to-day at maximum efficiency is often more important than a small discrepancy in rates between two financial institutions. Keeping a member happy and their deposits on the books is what we call “Stickiness”.
Stickiness is essentially another word for loyalty. For a variety of reasons, when a business has more services and product offerings with your credit union they are significantly less likely to leave. Not only does the process uproot their daily operations, but it is a time consuming and difficult process to move to another financial institution for the same offerings. Providing a member with treasury solutions gives your credit union a way to not only attract larger, more sophisticated businesses, but also to retain them as market conditions fluctuate.
How We Can Help
Working in the treasury management space comes with daily lessons, and both wins and losses. It is no secret that the market for business deposits is a competitive landscape, entrenched in keeping your members happy while also driving in revenue for your credit union. The adoption of a new program, particularly if you lack the knowledge or experience of previous offerings, can be cumbersome and difficult to navigate.
When implementing a treasury management program, it is vital to have a team of experienced treasury management consultants with expertise in cash management and working capital strategy. Our team of treasury consultants are all Certified Treasury Professional (CTP) accredited with the Association of Financial Professionals (AFP). Tru Treasury was formed to help build and develop a comprehensive treasury management program for credit unions to generate additional fee and deposit revenue, attract new prospective business members, retrain current business members, provide a valued service, and strongly compete with banks. To learn more, visit us at trutreasury.com.