Key market trends and drivers of change
The U.S. cash management industry is evolving at an accelerating pace. As customer needs expand beyond the basics and bank products historically offered, most of the industry is finding itself in lesser-known territory. Gaps are increasingly appearing between what customers expect and what their banks are offering. Bank strategies must evolve and technology must effectively be leveraged or the institution is vulnerable to losing business to its more forward-looking and agile competitors.
There are several key trends currently shaping the market and driving banks toward system replacement. Explore 5 of these trends or download the full report to uncover all the in-depth insights.
The bar has raised significantly for customer user experience expectations. Corporate treasurers no longer compare their user experience with one bank to that of other banks, but rather to their best digital experience in general. As a result, they increasingly expect banks to understand their customer journeys, to know who they are, and to be able to provide recommendations through analytics as online retailers do. Additionally, across all their transaction executions and interactions with the bank, they expect the same ease of use, simplicity of navigation, and modern presentation offered by other industries. They see great value in dashboards and wizards and seek a tablet-like look and feel with self-service capabilities.
As the pace of change in payments technology continues to increase, corporate user needs are evolving with those changes. Bank clients are faced with an increasingly complex landscape of receivables and payables, requiring automation for quick action and decision-making. Outdated cash management platforms do not always provide the capabilities for cash flow forecasting, integrated reporting, and efficient accounts receivable and accounts payable processing and automation. Banks that cannot solve for these challenges are finding themselves at a competitive disadvantage and are losing market share to other banks and sometimes even fintech providers that have found strategic offerings to disintermediate banks.
While most banks continue to segment their client base by revenue size, many find that the lines distinguishing needs across segments are beginning to blur. Most business customers, regardless of size, are growing in sophistication and demonstrating a growing comfort level with technology. This is resulting in a greater willingness to leverage it to manage their financial transactions and automate once-manual processes. It is also leading to faster adoption of newly rolled-out capabilities. A comparison of past Aite Group research found that in August 2011, approximately 15% of businesses reported being first adopters of new technology made available at their bank, compared to 41% in July 2017.
As competition becomes more intense, banks are looking to deepen relationships and position themselves as the customer’s primary bank. Establishing the bank as the primary bank provides more stable and predictable noninterest income. Cross-selling cash management also makes it harder for a business to leave the bank, referred to as “anchoring” clients. Currently, 38% of banks report tracking the percentage of clients for whom they are the primary bank (Figure 4). The majority of the 62% of banks that are not tracking this state that they desire to do so. Of the banks that are tracking the metric, regional banks are most likely to believe they are the primary bank for their clients, reporting that on average they are the primary bank for 65% of their cash management customers.
Finally, banks need to identify ways to stand out in an industry in which many of products and services are increasingly viewed as commodities. Bank customers report few major functionality gaps in the offerings provided by their banks. All financial institutions in the U.S. allow clients to make and receive payments and have some sort of reporting of account activity. What bank clients desire is for the experience to meet their consumer expectations in the corporate world, with tighter integration across products that are easy to use with bells and whistles that create a superior experience. Planned enhancements are what banks hope will make them stand out to retain existing clients and gain more market share with features that go beyond the basic product capabilities. Forty percent of large and midsize banks view technology as a way to differentiate themselves, and their cash management platform is the most obvious customer-facing investment.
Bank Plans to Replace their Cash Management Solutions
The growing gaps between bank offerings and new customer expectations and demands are leaving most banks with little choice but to replace their cash management solutions. In fact, several have already begun to do so.
Of banks interviewed, five have recently replaced their solutions, and six more are far along with their replacement plans and either are already in the process of migrating to a new platform or have already selected a new vendor partner. An additional six have either already sent out their requests for proposal (RFPs) or plan to in the next six months. Only three stated they have no plans for system replacement; thus, 86% of bank participants have already upgraded their cash management solutions or are about to.
Given the high number of banks likely to replace their solutions, it is not surprising to find that the need to replace is not limited to a particular segment of the bank market. Regional banks are just as likely to be planning to replace their cash management solutions as are super-regional banks—though their key drivers are slightly different.
Based on bank interviews, those banks will spend approximately US$310 million on vendor contracts during that period. Aite Group forecasts the average spend by each bank asset subsegment to be the following:
- Banks with US$10 billion to US$49 billion in assets will spend an average of US$7 million.
- Banks with US$50 billion to US$99 billion in assets will spend an average of US$11 million.
- Banks with US$100 billion to US$299 billion in assets will spend an average of US$11 million.
- Banks with greater than US$300 billion in assets will spend an average of US$30 million.
Forecasts also factor in some additional spend for upgrades to new releases and enhancements. The slight drop-off in forecast 2020 spend is due to the largest banks with the highest average spend replacing their systems in the earlier years.
Finally, most (81%) regional and super-regional banks expect their bank’s cash management technology spend to increase over the next two to three years. This represents the growing importance being placed on cash management products and services by banks as a way to generate additional fee-based revenue and also a high level of urgency to invest in the largely dated technologies in place at many institutions.
Those banks not investing in more modern and flexible architectures risk placing themselves at a disadvantage when trying to attract new customers and retain existing customers.
Even in the smaller, downstream market, businesses are reporting that their banks’ current offerings are not solving for these pain points, which they believe to be considerable or major problems.
With the cash management platform being the gateway into the bank, providing corporate treasurers and small-business owners with the capabilities that directly address their pain points is key to the long-term generation of revenue from reoccurring business banking and treasury management fees.
Cash Management Platform Vendor Landscape and Selection Criteria
The U.S. cash management landscape is a competitive one, especially given the significant consolidation due to mergers and acquisitions over the last few years. This has led to fewer options for banks and new opportunities for vendors that can offer something different. Having fewer U.S.-based vendors has also led some of the largest U.S. banks to consider non-U.S. vendors to meet their needs.
Vendor selection criteria
When selecting a vendor for its cash management platform, banks need to seek a partner that provides solutions to the key demand drivers of solving customer pain points, reaching the needs of small businesses, becoming the primary bank, and standing out from primary competitors.
The following list ranks vendor criteria as reported by banks:
1. Modern user interface with intuitive navigation and functionality for use by both small businesses and large corporate customers
2. Componentization, not customization—a unique customer experience that is user persona-based but doesn’t make banks touch code preventing them from taking new releases easily
3. A well-thought-out and forward-thinking product roadmap that addresses expected market needs and aligns with the bank’s strategy
4. Customer-driven dashboards and widgets
5. Single code base across channels—vendors talk about it, but many don't have it
6. A vendor culture that aligns with that of the bank
7. Regular, small upgrades, as opposed to two to three large upgrades each year
Leading Cash Management Platform Vendors
The following is a list of vendors that were mentioned as leaders in the space by U.S. regional and super-regional bank interview participants:
ACI Worldwide - Founded 1975 - Naples, Florida
Bottomline Technologies - Founded 1989 - Portsmouth, New Hampshire
Finastra (Fundtech) - Founded 2017 - London, England
FIS - Founded 1968 - Jacksonville, Florida
Fiserv - Founded 1984 - Brookfield, Wisconsin
iGTB (Intellect) - Founded 1985 - London, England
Infosys - Founded 1981 - Bengaluru, India
Q2 - Founded 2005 - Austin, Texas
To remain relevant to their business clients, banks need to provide a cash management platform that rises to the demands of the market.
- Gaps between what bank customers expect and what most banks are providing in the areas of user experience, consolidated technology infrastructure, consolidated data and delivery, and products and services offered to small businesses can be improved through an updated cash management platform.
- Most banks are committing increased investment dollars to their treasury management and cash management platforms; the ones that are not investing are at greater risk of falling behind their competitors.
- Improving user experience, solving customer pain points, capturing new and different market share, expanding the product set of existing customers, and differentiating the bank’s offering are all key drivers for replacing a cash management platform.
- An estimated 86% of banks have already upgraded their cash management solutions or are actively planning to, leaving the remaining banks with little to no choice but to do the same.
Digital Banking: How to Win in a Digitally Competitive World
An industry that has historically been dominated by banks is now littered with emerging technology companies offering innovative financial products to solve specific business problems – and they are starting to win. To survive, banks need to radically shift their growth strategies to digital, and provide an experience that businesses need and now expect.
AIM Evaluation: The Leading Providers of U.S. Cash Management
This Impact Report from Aite explores some of the key trends within the U.S. cash management market and discusses the ways in which technology is evolving to address new market needs and challenges. This Impact Report also compares and contrasts the offerings and strategies of the leading vendors and highlights their primary strengths and challenges.
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