As current economic conditions cause financial institutions to pay closer attention to their bottom lines, many are more closely scrutinizing all business lines to identify new revenue opportunities. In doing so, corporate banking initiatives, which have traditionally received only about one-third of total IT budgets, will gain more attention and share. The reason for this trend is that banks are increasingly looking to improve service and automation to businesses where technology up until recently has lagged that offered to retail customers. Banks are recognizing the potential for cross-sell and fee-based income amongst these customers, as they look to further diversify their portfolios at a time when business borrowing has stalled. This increased attention and investment in corporate customers will make the cash management space one to keep a close eye on over the next year. Bank strategies, vendor solutions, and even the vendors themselves, are likely to stray away from traditional practices, promising a very different marketplace in the near future.
While most banks have cash management solutions in place, a large number of transactions are still being completed on Windows-based solutions. Many banks have announced plans to migrate all of their customers over to browser-based solutions now that full functionality through this channel is available. This task has proven to be easier said than done though, as many large businesses have grown comfortable with Windows solutions. Nonetheless, business banking customers are slowly complying and the number of transactions completed online is expected to continue to increase. Many solution providers in fact have already begun to sunset their Windows solutions.
As corporations evolve and increasingly embrace Internet banking, the cash management solutions available to them are also receiving a makeover. Solution providers are focusing more on adding new capabilities that will increase fee-based revenues, as well as improving their usability by all-sized businesses including the intuitiveness of their menu-driven features. Over the next year, the market will begin to see an increasing number of vendors offering solutions with capabilities going beyond traditional cash management features such as greater FX functionalities, loan origination, international payment capabilities, and trade finance. Alerts will also become more advanced and "smarter" and imaging will play a larger role in improving service as well as preventing fraud, than it has in the past. Businesses of all sizes are becoming more demanding and more sophisticated in their needs, thereby forcing this evolution. As competition increases and customer loyalty remains low, banks must comply or risk losing valuable customers to their competitors.
Bank IT strategies are also changing. In their efforts to cut costs and increase efficiencies, many banks are showing a stronger preference for vendors that can meet all of their online banking needs through a single integrated platform. Many are beginning to stray away from past practices in which banks partnered with several best-of-breed solutions providers. While this scenario can still be found in several large banks, the majority of the market is attracted to greater integration and shared platforms. In fact, many solution providers have been able to leverage their corporate banking solution relationships to cross-sell small business banking platforms and visa-versa. Such a relationship enables cost savings as well as the ability to share functionalities on a common platform. Banks can also more easily grow with their customers as they grow in sophistication without having to migrate them over to a new application, thereby eliminating customer hassles.
Perhaps the greatest change within the cash management space however, will be amongst the vendors themselves. In an effort to comply with bank demands for integrated platforms, as well as troubled bottom lines due to the economy and longer decision cycles, the industry is expected to see greater merger and acquisition activity. This trend is already evidenced by the recent announcement of Digital Insight (a strong retail and small business banking vendor with a weaker presence in cash management) to acquire Magnet Communications. We are likely to see more acquisitions of this type as retail banking vendors are increasingly entering the corporate banking space. By joining forces with vendors already established in the corporate banking space, they can more quickly achieve brand awareness and a proven track record in a new space, as well as gain access to new target markets and technologies, as in the case of Digital Insight and Magnet.
A few dominant players have emerged in this arena leaving several second tier players struggling to gain new business. In addition, many of the cash management solution providers are faced with weak income statements, an inability to meet promised deadlines, and unsatisfied customers, making them prime targets for acquisition. Further consolidation in this relatively saturated market is therefore likely. At the same time however, the increased demand for business banking solutions is likely to attract the attention of some of the core banking providers consistently looking for ancillary business. Metavante and Fiserv (through BankLink) have already established a presence in this space and other core vendors with deep pockets are likely to follow to help out some of the financially weak cash management providers.
The cash management space has received little attention by banks in the past. While solutions were deployed and considered a necessity, businesses rarely saw the bells and whistles offered to retail banking customers. The advent of the Internet has been a huge driver of advancement however, creating several opportunities for banks to increase their operational efficiencies, provide better service, and put more control in the hands of their business customers. With greater demand from banks as well as the availability of more sophisticated and comprehensive cash management product suites, this space is ripe for change and we have already begun to see signs of that evolution.