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Playing For Keeps

Web-based cash management helps banks attract and retain profitable customers.

The cash management business just hasn't been the same for banks since the Internet came along. Instead of having to call account representatives at the branch to manage their treasury operations, many companies have found it convenient, effective and practical to just jump onto the Web.

In response, many banks large and small have taken steps to keep business clients loyal by offering online access to corporate treasury functions. Simply stated, Web-based cash management has become vital for maintaining businesses relationships in the Internet age.

"We've had tremendous client requests for online cash management," said Marshall Soura, executive vice president and managing director of global cash management at Sovereign Bank, a subsidiary of Sovereign Bancorp, Philadelphia. "If we don't have it, we will really lose market share to those banks that do."

Furthermore, maintaining market share in cash management bolsters Sovereign's overall strategy of increasing income from fee-based services. A fee-driven approach holds particular appeal in the current economic climate. "Because interest rates are really low, companies' balances are worth less," said Soura. "Cash management is a major driver of fee income to a bank. It's an essential part of the bank's strategy."

Sovereign is not alone in sculpting cash management to meet strategic goals. Many banks have been buying, building or renting Web-based cash management products customized to fit their geographic footprint, customer composition and outsourcing strategy.

"While one bank might want a cash management system that's very heavily oriented towards check processing and balance reporting, another might want one that emphasizes transfers," said Lee Kidder, an analyst at TowerGroup."

Another one might want one concentrated towards trade and pure treasury functions."

It's an important choice that allows financial services firms to execute upon their own strategies. For example, Merrill Lynch uses its working capital management account to approach professional services firms, in part so that it can cross-sell financial advisory services to likely prospects. "They're really unique in that sense," said Joe DeFolschampe, an analyst at Waltham, Mass.-based Gomez. "They're going after that upper end of the market-lawyers, doctors, consultants and CPAs-that they feel would really fall into their financial advisory services on the personal side as well."

Other banks fine-tune cash management systems to capitalize on regional advantages. Bank of Hawaii (BoH), a $9.8 billion regional bank, serves a broad customer base of retail, small business and middle-market customers in Hawaii, Guam and American Samoa, plus a smattering of Fortune 1000 customers on the mainland. Many of its customers are involved in the travel industry.

BoH recently entered into a comprehensive outsourcing arrangement with Metavante that includes Internet banking for corporate and retail customers, core systems, electronic bill presentment and payment services and consulting.

The choice places the bank's near-term technological future in the hands of Metavante, a subsidiary of Marshall & Isley, Milwaukee. Metavante's recent acquisitions of Paytrust, a consumer bill payment service, and Spectrum, an electronic payment and presentment switch, represents a bid to build a compelling and complete set of services for electronic bill payment and presentment. (See What's News)

"When they make these acquisitions, they're very good at integrating them into their processes that they already have set up," said Sharon Crofts, senior vice president and manager of cash management services at Bank of Hawaii. "It makes it easier to take to market."

Bank of Hawaii will soon upgrade its cash management system from its current Brokat implementation. Metavante acquired Brokat Technologies in 2001.

Having a single outsourcing vendor promises to simplify IT management at the bank. "We've always offered our cash management solution via an outsourced vendor, so we're just looking at the increased efficiencies in that we're not having to coordinate two vendors," said Crofts. "It's one vendor, and they're handling it internally rather than our having to be involved."

Meanwhile, Sovereign Bank has gone to great lengths to keep its systems vendor-agnostic. Once a sleepy S&L, Sovereign Bank now stands at $38 billion.

Sovereign will roll out a new Web-based cash management system this November using software from Politzer & Haney, based in Newton, Mass. The service will be hosted by NCR, Dayton, Ohio. The first phase will encompass same-day information reporting, ACH and stop payments. The bank plans to offer wire transfers by May 2003 and document imaging by December 2003.

The Politzer & Haney system will connect to Sovereign's demand deposit systems, which are currently outsourced to Fiserv, based in Brookfield, Wis. But instead of having the two systems connect directly, the information will make a brief stopover at the bank. "The bank began a major project initiative last year to build a set of middleware," Soura said. "Originally, anything like this would have been linked directly into our vendors, which obviously limits the bank in a number of ways."

The bank's ownership of a middleware hub grants it an added degree of negotiating leverage with its software suppliers. "The driving reason for us to do it is that we can change vendors if we ever wanted to do it, easily," said Soura. "Now, our processing requirements are much more sophisticated, and the number of business partners that we use has also grown. We also have to connect into more business partners than we've ever had to before."

Indeed, Sovereign plans to offer companies a variety of bank-branded services through the Web, including payroll transactions from Ceridian, merchant processing from First Data, and insurance from USI Insurance Services.

"We're developing a whole package of products and services by the very best providers in the country, and we're linking it together with one common look and feel of Sovereign," said Soura. "The Internet allows us to package it as Sovereign and brand it as Sovereign."

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