Cash management growth driven by targeted investment and segment focus

Survey reveals steady growth in cash management; investments in product innovation, client segmentation and tech are delivering results.

In brief

• Fee-equivalent cash management revenue growth is steady year-over-year at 7.0%. Thirteen of 14 surveyed product lines experienced year-over-year growth.
• Middle market and small business banking are key client segments, with Health Sciences and Wellness, and Real Estate, Hospitality and Construction as top priorities.
• Adoption of new and emerging technologies is rising, emphasizing AI development and expanding offerings through strategic FinTech partnerships.

In 2024, EY conducted its 41^st edition of the 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. The survey polled 41 financial institutions to better understand key trends in the cash management space. The survey group included 14 banks with greater than US$155B in assets, 18 banks with US$25B to US$155B in assets, and nine banks with less than US$25B in assets.

Cash management revenue growth steady

In 2020, the largest-ever revenue decline in CMS history was recorded at -4.5%, followed by the largest year-over-year growth of 9.0% observed in 2021. On the heels of the remarkable rebound in 2021, the industry continued to indicate strong growth in 2022 and 2023, with an increase in total revenue of 7.0% in 2023.

Post-pandemic recovery has outpaced expectations with fee-equivalent revenue rising 7.0% in 2023, marking a third consecutive year of solid growth.

Fee-equivalent cash management revenue growth

Middle market and business banking segments top of mind for banks

Banks are concentrating efforts on the middle market and business banking drawn by scalable growth, cross-sell potential and pricing flexibility. This prompts a crucial question: Are financial institutions seeking to capitalize on volume opportunities and the potential for enhanced pricing power these segments offer? Specifically, middle market businesses with their diverse range of needs and limited expectations for customization, in contrast to large corporates, offer high cross-sell revenue potential and scalability, providing banks a clear opportunity to boost profitable growth.

Beyond traditional segments, the survey looked to understand what industries were of the highest priority. Based on survey results, five industries were ranked “high priority” among respondents, and most notably, the Health Sciences & Wellness and Real Estate, Hospitality, & Construction sectors tended to be ranked among the highest across all three Peer Groups with Health Sciences & Wellness being ranked as a “high priority” by over 60% of respondents.

Banks assigned each new client acquisition industry a designation of high, medium or low.

The chart below illustrates how each industry was categorized.

Bank perception of the role of FinTechs

Banks were asked to stack rank FinTechs’ perceived role as either competitors, vendors, partners or customers. The percentages below indicate how often each role received Rank 1–4 designations.

Smaller banks can remain competitive by doubling down on mid-market agility using FinTech partnerships and AI to deliver simple, scalable solutions. Cash management is particularly well-suited for AI applications, given the vast amounts of transactional data involved. More than half of industry respondents are either utilizing or developing AI use cases for reporting, decision-making, document ingestion and internal processes such as billing and fraud monitoring. With the support of FinTech partnerships, they can provide plug-and-play offerings that appeal to mid-market clients seeking simplicity and agility.

Business outlook: threats to cash management growth

Fee-equivalent cash management 2024 expected revenue growth by bank peer group

Participating banks outside of the Top 5 largest banks by asset size expect a rather steep decline in revenue in 2024. Several macroeconomic factors (e.g., interest rates and inflation) could be driving these numbers. Given the current economic landscape, several threats exist that explain these tempered expectations, primarily driven by economic volatility and pricing pressures. As uncertainty becomes the new norm, businesses are bracing for potential revenue contractions, necessitating a thorough reevaluation of their cash management strategies. This sector remains under the control of the top 15 banks, whose dominance stems from established relationships, comprehensive service offerings and cutting-edge technology.

The concentration of market power among these banks is reinforced by substantial barriers to entry for new competitors, including the lack of economies of scale, operational efficiencies and stringent regulatory compliance requirements. Within this context, the middle market emerges as a critical player, underscoring the need for stakeholders to understand its dynamics.

Recent revenue trends paint a nuanced picture: while cash management is vulnerable to macroeconomic shocks, it also demonstrates a notable ability to rebound swiftly once stability returns as seen in the past few years. Still, the path ahead is fraught with challenges. Margin compression and heightened fee sensitivity are pressing concerns, exacerbated by fluctuating economic conditions and rising credit costs. 

Winning the next wave of cash management

In summary, the cash management sector stands at a crossroads, grappling with significant challenges while also presenting unique opportunities for growth. As economic volatility persists, banks must strategically pivot towards the middle market, leveraging technology and specialization to enhance service delivery and profitability. The ability to innovate beyond traditional offerings will be crucial in capturing the evolving needs of clients and ensuring long-term success.

To win in the next wave of cash management, banks must act decisively investing in innovation, segment specialization and embedded technology that delivers measurable value to clients.

Stakeholders must engage in proactive discussions to explore innovative solutions that not only address current market pressures but also position themselves for a robust recovery. Embrace the future of cash management — invest in technology, prioritize agility and focus on delivering value-added services that resonate with clients.