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Cash management business on the upswing BS&T 4/25 Amid the credit crunch & recession fears, banks may find a bright spot: cash management. The cash management business in 2006 enjoyed a 6% revenue increase - double the gain of the previous year - according to E&Ys 24th Annual Cash Management Survey (CMS). CMS respondents predicted a 6.5% growth in revenue from cash management services for the upcoming year, continuing the industry’s move away from the unremarkable period of 2002 to 2004 when increases were less than 1% per year. This was good news for the survey’s 51 respondents (48 financial institutions & 3 vendors) & by extension, all banks that actively market cash management services to their wholesale or commercial customers. According to E&Y’s Larry Forman, who has directed the firm’s annual CMS since 1990, the survey serves the dual purposes of information gathering on cash management products & services, & tracking trends & technologies within the business - which produced $14.6b in fee-equivalent revenue in the US during 2006. Strong growth in electronic products - wire transfer, information reporting, ACH & EDI - contributed to the revenue increase reported in the survey. EDI, the electronic communication of business transactions, ‘had a record-breaking year,’ with revenue in the space up 18%. The banks explained the growth in wire transfers as a result of increased globalization & trade, more cross-border pooling & netting by corporations, & a need for real-time or same-day settlements. Given the strong growth in cash management demands by corporate clients, banks have been investing in their cash management capabilities. The CMS identified 3 factors as the most influential on recent cash management investments by banks: the decline in check volume, large-scale conversion of checks to ACH debits & Check 21 acceptance of images as the legal equivalent of original paper instruments. Another cash management area in which Forman expects banks to continue to invest is account reconciliation. By employing check imaging & positive pay solutions, banks are increasing their ability to fight fraud. Payee positive pay - an antifraud process in which the payee is identified in a transaction, along with the check number, the account number & the amount - is starting to make some headway among banks. Forman estimates that 80% - 90% of banks have added positive pay, but just 27 banks in the CMS survey (½) had payee positive pay, which requires image recognition software to capture the name of the payee. Just how prevalent is the use of check images in the industry? Responding to a new question on the survey this year (‘Do you accept check images at your CDA point?’), 69% of respondents said they required substitute checks at all of their controlled disbursement points (down from 74% the previous year). 2/3 added that they likely would accept check images within the next year, pointing to another area of investment. The good news surrounding the cash management business is somewhat tempered by the larger economic picture. Higher interest rates ‘enhance the value proposition of many cash management products & services.’ With the Fed dropping rates to combat a recession, ‘There’s no positive light to put on lower interest rates - it’s a dark cloud for cash management revenue.’