1. EXECUTIVE
INSIGHTS
Lockbox Product Management: Paul Diegelman
The Way to Win a Changing Game Senior Vice President and
Practice Manager
D
Jim Bann
First Vice President
THERE’S STILL A COMPELLING BUSINESS CASE FOR
WHOLESALE LOCKBOX REVENUE GROWTH
espite greater stability in the U.S. banking sector, banks are still struggling
to grow revenues and reduce costs. According to McKinsey, revenues for
the sector grew only 1% from 2010 to 2011, and the cost-to-income ratio
for 2011 grew to 68% from 60% in 2010 1. It’s no wonder that banks continue to
focus carefully on the costs and capital required to drive revenue and the Paul Diegelman Jim Bann
efficiency ratio that is often used as a key indicator of a bank’s performance.
If we apply the efficiency ratio to the wholesale lockbox business, and legacy wholesale lockbox businesses are losing out to higher
it doesn’t look particularly healthy. Costs to maintain legacy growth product lines such as the purchasing card and electronic
hardware and software are increasing year over year, as are the payments businesses. Required investments in enterprise risk
labor costs associated with the high degree of manual processing management, security, and compliance also continue to demand
inherent in wholesale processing. Revenue growth has been slowing the attention and resources of banks.
over the past 5 years (Exhibit 1), and competition is fierce for the
most valuable corporate customers and the relationships they bring. When lockbox product managers lose the internal competition for
Capital requirements are significant, and automation is less feasible resources, the product becomes weaker in the marketplace,
than in the retail lockbox business. For a lockbox product manager, particularly compared to the non-bank providers who specialize in
the game is changing, and the metrics can be very discouraging. billing and payments or the large global financial institutions with
more robust budgets. Aging sites, limited footprints, obsolete or
Wholesale Lockbox Revenue inflexible platforms, and high internal costs are often cited by
Growth is Slowing lockbox product managers as reasons why they can’t compete.
6% Lack of capability to address vertical markets, such as property
6%
5.5% management or healthcare, also puts them at a disadvantage.
5% Fixing these problems requires a significant investment that is often
PERCENTAGE GROWTH
not making the cut as banks prioritize a limited number of projects
4%
that best enhance their revenue growth and efficiency ratios. Given
3% this vicious circle, it’s no wonder that lockbox product managers
2% are questioning how successful their internally delivered wholesale
2%
lockbox product can be going forward.
1% 1%
0% Despite this bleak scenario, there is in fact a good business case for
the future of the wholesale lockbox business. Beyond serving as an
-1%
important revenue contributor — often one of the top three revenue
2007 2008 2009 2010
2011 producing services for most bank treasury management units —
Exhibit 1: 3 -.5%
wholesale lockbox supports a bank’s overall profitability and
Furthermore, lockbox product managers are now competing on relationship strategies. This crucial and highly customized service
multiple fronts. They face the traditional competition from other not only generates important fee-based revenue; it also establishes
lockbox providers, including banks and third party providers. What’s an important and sticky relationship with corporate customers who
new and particularly frustrating for product managers is the require other services either now or in the future. Nevertheless,
competition for resources under their own roofs. While North lockbox product managers need a clear strategy to lower their
American banks are stepping up IT spending (IDC Financial Insights costs, update their technologies and capabilities, and grow market
projects that bank IT budgets will grow at a compound annual share. Only then will they become more competitive internally,
growth rate of 3.7% until 2015)2, wholesale lockbox spending is within the bank, so that they can gain the attention and resources
declining. Banks must consider the complex priority matrix of to be more competitive in the marketplace. The lockbox business
multiple product lines as they allocate capital and funding, is changing, and there is a new way to win. Here’s how:
1
McKinsey & Company, “The Triple Transformation,” 2nd McKinsey Annual Review on the banking industry, October 2012
2
IDC Financial Insights, “Worldwide IT Spending 2010-2015: Worldwide Banking IT Spending Guide, 1H12 Update,” July 2012
3
Ernst & Young Annual Cash Management Services Survey 2009-2012
©2013 TransCentra, Inc.

2. REDUCE OPERATIONAL COSTS TO IMPROVE THE the largest financial institutions. Non-bank providers can offer
EFFICIENCY RATIO: regional and super-regional banks flexible scalability that
Most business payments in the U.S. are still made by check enables them to extend their lockbox footprints in a variable
and require some form of manual processing. As a result, the cost environment without a major capex commitment.
wholesale lockbox business is highly labor intensive and does
not benefit from the same economies of scale as its retail TAKE CREDIT FOR ALL THAT LOCKBOX ENABLES:
counterpart. Banks can lower the cost of labor and many The way to win goes beyond improving the efficiency ratio.
indirect expenses by outsourcing to non-bank providers with Lockbox product managers need to market their product
lower cost structures. IT maintenance costs are another major lines within their own organizations and communicate the
contributor to operational costs (Jacob Jegher of Celent revenue contribution of the business beyond lockbox fees.
comments that “banks are still unable to escape the Leveraging the trusted partner relationship established
maintenance conundrum”), particularly given the lack of through lockbox services, banks cross sell other services that
investment in payment systems over the past few years. generate significant fee-based revenue for other treasury
Outsourcing to a third party eliminates the legacy equipment functions, as well as other departments of the bank. Although
albatross and spreads maintenance and other costs across a the wholesale lockbox product represents just 9.5% of bank
large user base resulting in a lower unit cost base. cash management revenue4, wholesale lockbox customers
typically utilize other very profitable bank services, including
INCREASE COMPETITIVENESS IN THOSE SEGMENTS DDA, wire, information reporting, and ACH. The very same
OF THE LBX MARKET THAT ARE THRIVING: departments that are competing with wholesale lockbox for
Revenue growth is also a factor in improving a bank’s efficiency funding, resources, and visibility may be those that are
ratio, and despite the stagnation of LBX revenue growth in benefiting from the sticky customer relationships that
general, certain market segments are actually taking off. Banks lockbox services establish.
often aren’t authorities in the processing complexities of
specialized payment processes, nor does it make sense for SEEK HELP FROM EXPERTS:
them to develop in-house capabilities. However, it’s these The best payment processors understand the challenges facing
markets (the complex healthcare payments market is a prime today’s lockbox product managers. They have the know-how
example) that are fertile territory for providers with the to design a lockbox configuration that will address the unique
expertise to serve them. Third party payment processors needs of the bank and its corporate customers. In addition, they
already addressing the unique needs of certain verticals can can help lockbox product managers develop a cost/benefit
help banks become more competitive in growing markets that analysis and present the compelling business case for offering
require special technologies and capabilities. wholesale lockbox services. At TransCentra, we do this every
day. With over 50 million wholesale and retail payments coming
INCREASE YOUR LOCKBOX FOOTPRINT; through our flexible hub and spoke delivery centers every
GO WHERE YOUR CUSTOMERS ARE: month, and countless more processed on our industry-leading
Corporate customers have high expectations that their TMS platform, we have seen and successfully processed just
relationship bank will be there to support them and propel about every form of payment known or made.
them forward. To maintain that trusted partnership, especially
with so much changing in U.S. Postal Service mail flows and So, lockbox product manager, as you look at your colleague
patterns, the bank needs a local presence with an impressive in the next office, don’t think of him as your competitor. Think
processing facility that will show well on a site tour. Physical of him as the future beneficiary of your new outsourcing or
presence on such a large scale is beyond the reach of all but co-sourcing strategy. I
ABOUT TRANSCENTRA:
Norcross, Ga.-based TransCentra is America’s largest outsourced remittance processor, one of the largest outsourced
billers and a top provider of imaging and payment processing platforms and software. An industry leader in innovative
multichannel billing and payment solutions, TransCentra is trusted by many of the largest and most recognized names in
both the consumer and business-to-business markets across a variety of industries, including financial services, insurance,
healthcare, utilities and telecommunications. For more information, visit www.transcentra.com.
Paul Diegelman, Senior Vice President and Practice Manager, Jim Bann, First Vice President, TransCentra – Prior to joining
TransCentra – With over 20 years of BPO, finance and accounting TransCentra, Mr. Bann was Senior Vice President/Senior Banker at
expertise, Mr. Diegelman is responsible for the vision, execution, KeyBank in Cleveland, Ohio. As the Team Leader for the Treasury
growth and profitability of TransCentra’s Private Label financial Services Correspondent Banking Team, he was responsible for the
services division. Prior to joining TransCentra, Mr. Diegelman was sales of KeyBank’s cash management services to banks throughout
Vice President and Practice Manager at BancTec, Inc., responsible for KeyBank’s multi-state footprint.
the vision and execution of the company’s successful new business Previously, Mr. Bann was First Vice President and Enterprise Sales
launch in the Accounts Payable outsourcing and automation market. Manager with Mellon Bank, providing private label treasury
Mr. Diegelman is a nationally recognized speaker at outsourcing and management services to financial institutions, including some of
treasury management conferences, including over 10 years as a the largest U.S. banks. Mr. Bann is a former member of the AFP and
faculty member of UNC/Kenan-Flagler’s Fundamentals of Cash has held both the CCM and CTP credentials.
Management Series, and is an inactive certified public accountant
(CPA) in the State of Maryland.
4
Ernst & Young 29th Annual Cash Management Services Survey