Cash Management: Why Don’t Banks Follow Their Own Advice?
Payment products, especially for small businesses, are one of the most significant opportunities for financial institution revenue growth. In last month’s Newsletter we referenced recent BAI research that indicates the most attractive small business segments do not believe their bank has the right suite of payment products for their needs and would be willing to switch financial instutions to get it.
On the projects we’ve worked on, our clients’ goal was to encourage greater usage of electronic services: pay bills electronically, receive statements and perform account reconciliation on-line, etc. It’s simpler, faster, more accurate, less labor intensive for both the bank and the customer. And there are other benefits for the financial institution – customer relationships are stickier, leading to lower attrition and higher profitability.
As we described, this got us to thinking: how many banks take their own advice and use electronic services to pay their own vendors? The answer was, only one. Everyone else had the same process (probably the same one most of you use): “Mail me an invoice, I’ll initial it and forward to Accounts Payable, and they’ll mail you a check.” Visions of eyeshades and inkwells!
Since then we’ve heard from several of you who told us you preferred paying electronically and were happy to set up ACH payment for vendors who requested it. I’m glad to know that, but it reinforces our opinion that most banks have been slow to adopt their own advice when it comes to cash management services. If it is really that convenient (and it is!) why wait for clients to request it — why not tell your vendors that it is the standard way you pay your bills. There’s another benefit too. It helps your own sales force when you have the “successful witness” in your own Accounts Payable department. “We use it all the time, it’s more efficient for us, our vendors like it because the check goes right into their account, etc.”