Practically every corporate treasury in North America–whether the company is flush or not–is searching for one thing: cost-effective controls over its cash. For a project to get approved these days, it has to provide a reasonable return on investment–always less than 24 months and more often than not under 12 months–and, perhaps more importantly, it has to give the treasurer the kind of real-time control over the corporation's cash that anxious CFOs need to be assured exists. "The focus now is on integration around working capital management and freeing treasury from daily drudgery, so that intellectual capital can be better invested," says Geoffrey Garden, managing director and head of global cash management in the U.S. for Deutsche Bank.

Treasury staffs in 2003 are not interested in "whiz-bang, high-tech breakthroughs," says Dan McCarty, senior vice president for treasury management services at Detroit-based Comerica Bank. "They want to hear practical suggestions that will ease their pain."

The banks, also needing a quick payback for investment, aren't in a position to provide much help if it doesn't mean good things for their own bottom lines. Consequently, the emphasis in cash management isn't on the big and new, but rather on the clever tweak of a current system. "Cash management has hit a plateau," asserts Karen Harwick, business analyst for treasury operations at Air Products and Chemicals Inc. in Allentown, Pa. "Today's 'new' products are extensions or enhancements of old products, often involving imaging or Internet delivery."

Luckily, consolidating accounts has worked to the benefit of both companies and banks–at least those that win the big business–by providing an economy of scale that allows the bank to offer certain services profitably. BP America and its Virtual Treasury project provide a clear example.

In 2001, BP's U.S. operations began a radical consolidation of banking relationships from more than 60 to five or fewer eventually. BP's huge size–$170 billion in annual global revenue and operations in 70 countries–means that those few remaining banks will try very hard to see that their innovations meet BP's expectations. For example, since Bank of America, a leader in lockbox image technology, soon will have all of BP's U.S. lockbox business, it is easier to offer cost effectively the benefits of digital image delivery. "We have slick access to images of checks, remittance documents and envelopes and have weaned our businesses away from paper," explains Bob Novaria, Chicago-based BP America's treasurer and director of global treasury services.

Virtual Vaults and Paycards

BofA also won the retail deposit business by proposing a "virtual vault" that relies on an armored car company to pick up and process daily cash and check receipts from each of the 1,400 gas stations BP owns across the country. "We'd never done anything like that before," says Jill Burelson, regional sales director. "We really had to work outside the box." It's still not a service the bank actively markets or will provide for most customers, she adds.

Similarly, because BofA has all the payroll business, Novaria can look at the bank's paycard product as a way to eliminate paychecks. With so many gas stations and other operations, BP has a large employee base and could replace a lot of paper checks with one contract, he notes. He's also looking for a way to capitalize on Internet reporting and put same-day banking data rather than previous-day reports on BP's corporate intranet.

Citibank, which will soon have all of BP's U.S. controlled disbursements, is also well positioned to bring BP onto the payee verification capability Citi is adding to its positive pay service. And BP's innovation momentum even carried it into the electronic invoice presentment and payment (EIPP) space, with BP Air (a supplier of aviation fuel to airlines) adopting Citibank's eBilling product with enough success that other BP units are now preparing to introduce it, Novaria reports. "The response of our customers has been very positive," he says, even though he admits not every company receiving invoices electronically is using the service to pay and some large payers are hesitant to go outside their own A/P systems.

Despite some reluctance about digital imaging, there is growing evidence that paper records of financial transactions–i.e. invoices, checks and remittance documents–are slowly going the way of cassette tapes. After leveling off in 2000 and dipping slightly in 2001, the decline in paper check volume became a strong trend in 2002, with a drop of 5% to 7%, says Craig Jeffery, senior vice president in the Wachovia Treasury Consulting practice.

According to Comerica's McCarty, the payment system is in early stages of a true "upheaval." Legislation pending in Congress known as "Check 21″ (as in 21st century) would authorize banks to truncate checks at the point of deposit by making digital images of them and then clearing images electronically rather than processing paper checks. Truncation will speed up the process, McCarty explains. Those who demand the return of a paper check will get an image printout. Even without legislation, major banks are executing bilateral agreements to exchange images instead of actual checks with each other, he adds.

The National Automated Clearinghouse Association (Nacha) still has a proposal on the table that would permit corporate checks under $25,000 to be automatically converted to electronic payments when they hit a wholesale lockbox, says Randy Schnable, senior vice president for e-commence products at KeyBank. Digital images are also sweeping away paper in bank disbursement and collection centers and spreading to deposit services and return items, he adds. "There is a growing feeling that change will be tremendous, inevitable and will come sooner rather than later," notes Schnable.

Almost remarkably though, for companies, banks and vendors, the Internet is the current frontier of innovation. Corporate customers seem willing, but the banks and the vendors cannot always come up with the right answers. For many banks, the problems are related to their decisions to use banking software from outside developers instead of building their own. "They're telling their customers what their suppliers are telling them the Internet banking products can do. But there have been performance problems," notes James S. Sagner, managing principal of Sagner/Marks in White Plains, N.Y.

Interfaces between Internet cash management platforms and treasury workstations remain a sore point for corporations that would like to use both. SunGard Treasury Systems of Calabasas, Calif., the workstation vendor with the largest market share, has the most advanced solution: It pulls down files over the Internet on behalf of its customers and makes them available in a format they can load automatically through its eTX (eTreasury Exchange) network. But it can't get files from all banks, and less than half of its customers have workstations that are eTX-compatible, explains Martin Boyd, executive vice president.

Treasuries would use the Internet more often if workstation providers and banks worked together better. For instance, Eastman Chemical Co., based in Kingsport, Tenn., has made only limited use of Internet banking within treasury because of workstation interface problems. But the company's treasury staff is delighted that people in credit, accounting, A/R and other areas can use a browser instead of a treasury person to get the banking information they need, reports Michael Watts, manager of global liquidity. Browser-based trade credit services have become so useful that banks that don't offer them have little chance of winning that business, he notes.

Rising Prices

There are even more challenges ahead for the corporate treasury. Banks may be spending less on cash management innovation, but they're preparing to charge more. Cash management pricing is in for a shake-up, says Anthony J. Carfang, partner of Treasury Strategies Inc. in Chicago. "More than most corporations have realized, pricing power has moved to the banks. With the international Basel 2 standards coming in 2006 [more tightly tying bank capital to risk], we'll see risk-adjusted pricing. The company with loose controls over its wire initiation will pay more than the company that's all buttoned up," he predicts. Financial security provisions of the Patriot Act will be expensive for banks to implement and will add to the annual price increases corporations will see, Carfang adds.

As falling rates have bled the value out of balances some treasuries use to cover their banking services, the "whole value proposition is coming under review," notes Nick Alex, senior vice president for global product management at Bank of America. "When balances no longer will pay for the service, some companies turn it off unless it has a bottom-line impact for them," he observes.

The slowdown in innovation may be about to end. "After a two-year break," Carfang predicts that "corporations will rekindle their pre-recession interest in technology upgrades, but at a fully-integrated, more sophisticated level. There will be greater interest in automating not just the transactions and reporting but the business process around them. We're already seeing the market start to turn."