Traditionally, financial institutions in the United States have handled most of their cash management services (CMS) in house. However, handling these processes internally results in tremendous expenditures for labor, transport, and facilities overhead, not to mention lost time and efficiency. It’s not surprising then that in the past five years, there’s been a tremendous shift toward outsourced CMS, with community financial institutions opting to work with either a partner that specializes in cash handling or a correspondent bank. More and more, though, financial institutions are noticing that the correspondent model is not without its issues.
“Correspondent models often necessitate the creation of multiple accounts and contact points, extend cycle time, and often carry higher fees,” says Robert Lynch, Senior Vice President of National Financial Business Development at Loomis. “Outsourcing cash management to a trusted partner means they can collect, process, and reconcile deposits, and then transmit the information to the primary financial institution, which helps them save time and money.”
So what do financial institutions stand to gain from the right outsourced CMS partnership?
An expanded presence
Without the ability to service clients directly throughout the country, many community financial institutions might find themselves unable to compete for large, geographically dispersed retail and commercial accounts.
A trusted cash management partner becomes the financial institution's brick-and-mortar presence in markets where they have no physical presence. The partner handles transportation, processing, and electronic reconciliation for the financial institution's commercial customers, which simplifies the cash-flow process and reduces the client bank's overhead costs.
As if avoiding exorbitant correspondent bank fees wasn’t enough, the cost savings from outsourcing CMS can be significant. It makes costs more predictable, turning fixed expenditures into pay-as-you-go variable costs. For example, by offloading cash-handling processes, community financial institutions can avoid investments in fixed assets, such as processing facilities and personnel, as well as other related expenditures for things like training, security, and IT.
Handling cash processing in house, or even outsourcing those services to correspondent banks, can be a time drain for community financial institutions. If a financial institution deals directly with the Federal Reserve, bulk shipments must then be distributed among bank branches, either at a processing facility or another bank branch. Those funds must then be dispersed through the bank network, sometimes via a third-party cash-in-transit service. These additional endpoints create delays in service times. The same is true of correspondent models, which require the correspondent bank to go through the Fed, process the funds, and then distribute them.
The right CMS partner can provide each these services—pick-up, processing, distribution, and electronic reconciliation—in one seamless flow, with complete visibility of liabilities throughout the cycle.
Outsourcing CMS also allows community financial institutions to focus on more important aspects of their business. Instead of having tellers and treasury management professionals processing commercial deposits, that labor can be reallocated to focus on customers, as well as securing new loans and retail and commercial deposits. Additionally, removing internal touchpoints in cash-handling processes helps to mitigate risk from internal or external loss, and having less cash on hand also helps avoid potential residual returns.
Quality and service
When choosing a CMS provider, community financial institutions should look for a partnership that removes barriers, cuts costs, and ensures a high level of service and support. To get the formula right, CMS providers must make significant investments in infrastructure, technology, and personnel. The result: a technology-driven yet personal approach to CMS.
An example of this kind of approach is Loomis’ Managed Cash Services. Leveraging Loomis’ extensive vaulting network of more than 170 branches, Managed Cash Services features configurable solutions that allow financial institutions of all sizes to reach beyond their geographic networks without growing the physical footprint. These services include:
Comprehensive cash management and vaulting services, specially designed to meet the complex needs of financial institutions, up to and including full cash process outsourcing.
Leading cash-in-transit services, with a fleet of over 4,000 vehicles enhanced with the latest technology and operated by the best-trained staff.
The nation’s leading ATM service, with a network of more than 85,000 ATMs throughout the United States and a comprehensive solution of replenishment, settlement, pickup, processing, maintenance, and forecasting.
Treasury Management expertise, which helps financial institutions grow their commercial portfolios, scale clients’ businesses, and reduce walk-in branch traffic and risk.
The Loomis advantage, giving clients access to the most dedicated support and service teams in the business, as well as complete reporting and account visibility.
“Smaller banks or community financial institutions with a commercial focus are always looking for ways to compete with larger banks, and, typically, they do that through local relationships,” says Lynch. “But Loomis Managed Cash Services puts another arrow in their quiver, helping make them more competitive at the regional or even national level.”