The phrase “cash is king” or the importance of cash flow has taken on added significance during the ongoing COVID-19 pandemic. Global repercussions from economic and market disruption have intensified the importance of preserving liquidity for banking industry and cash management professionals. Furthermore, the fee revenue from the provision of services that facilitate the flow of transactions is essential to demonstrating resilience in the face of rapid, ongoing change.
In January 2021, the EY Cash Management practice initiated the 38th annual Cash Management Services (CMS) Survey, inviting participating financial institutions and other top 100 bank holding companies that actively market treasury services to wholesale customers in the US to respond. Considered the benchmark for the health of the banking industry’s corporate cash management businesses, the survey polled 44 financial institutions, up from 42 responses in the 2020 survey. This includes 90% of the top 20 targeted banks, based on asset size, and 72% of the top 50 participating.
Top findings from this year’s survey include the following:
- Pandemic impact and the various government responses led to the largest decline in cash management revenue observed over four decades of measuring cash management revenue, correlated to declines experienced in US GDP and interest rates.
- Despite this decline, the cash management business remains profitable with strong margins and is a significant business and source of revenue for banks in the US.
- The top players in the space that accounted for most of the industry’s revenue were more disproportionally impacted than the rest of the industry by the decline.
- The cash management products with greatest loss were paper-based or tied to physical channels, while electronic and digitally enabled transactions experienced far less negative impact.
- New product and technology adoptions are increasing, including further acceptance and utilization of virtual accounts, blockchain-enabled transactions, real-time payments and FinTech partnerships essential for remaining competitive considering a rapidly evolving landscape.
Dramatic revenue decline tempered by strong margins
The COVID-19 pandemic created noteworthy instability and high volatility in global capital markets. As the banking industry’s performance and health, to an increasing extent, depends on the economic health of its borrowers, unprecedented pandemic shutdowns throughout 2020 led to an overall 4.5% decline in cash management revenue. This was the largest decline displayed in the CMS Survey’s nearly four decades of monitoring reported cash management revenues. Translated to dollars, the industry’s revenue plummeted about US$850 million. Despite this decline in revenue, the cash management business remains profitable, measuring nearly US$18 billion and contributing strong margins to bank profitability.