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TREASURY MANAGEMENT: A POWERFUL TOOL TO INCREASE DEPOSITS AND FEE INCOME

Marcia E. Malzahn President & Founder

Malzahn Strategic Maple Grove, Minnesota

[email protected] 612-242-4021

August 8 & 9, 2019

Treasury Management: A Powerful Tool to Increase Deposits and Fee Income

August 8-9, 2019

Marci Malzahn

President & Founder

Welcome and Introductions

• Your name

• Institution name

• Institution asset size

• Your role

• What do you want to learn today?

❑Write on your Attendee Roster: other’s rolesand their institution’s asset size

❑Connect on LinkedIn

Copyright 2019 Malzahn Strategic 2

Overview

• What’s in it for YOU?

• Part I – Foundational Knowledge

• Part II – Marketing & Sales Process

• Part III – Product Implementation

• Part IV – The Future is Now

• Group Work after each Part

2019 Malzahn Strategic 3

Treasury ManagementPart I – Knowledge

• Maximizing the Account Analysis statement as a tool to cross-sell products and increase deposits

• Quick review of all the products

• Identify products available that your customers are asking for and you may be missing

• Determine which products to offer basedon your business clients’ industry


Treasury ManagementPart II – Marketing & Sales

• Sales Process• The right Sales Process for your Institution

• Needs Assessment Template

• Marketing Treasury Management• Ideas for your Institution

• Incentive Program for sales team


Treasury ManagementPart III – Implementation

• Implementation Process• New Products and Risk Assessments

• Setting up the various products

• Establishing the right implementation process

• Importance of Cash Management collaborating with Technology, Operations, Marketing, and Sales Teams

• Agreements, procedures, and processes – What do you have in place? What are you missing?


Treasury ManagementPart IV – The Future is Now

• Identifying new products already available

• New multi-factor authentication methods

• Assessing new risks

• Establishing new processes

• New marketing opportunities


Treasury Management: Your Benefits

Treasury Management knowledge helps you:

1. Become a “financial services consultant” to your business clients

2. Clients rely on you as the “Subject Matter Expert” in financial services (solutions, strategies, and best practices)

3. Become an “advisor” versus a “transactor”

4. Become a well-rounded “banker” versus a “lender”

5. As a bank leader, understand and value both sides of the Balance Sheet

So you can help your business clients!


Treasury Management: Your Benefits

You and your Institution reap the rewards:

1. Cross-selling opportunities and better understand clients:Deepen relationships

2. New non-interest fee income

3. Additional core deposits as a funding source

4. New referrals from your existing business clients

5. You will get the ENTIRE relationship

6. Major competitive advantage for you as a banker and for your bank


Business Transformation Strategies

Bank account structure optimization

Working Capital Management assessment, analysis and industry benchmark

Cash Management Optimization Strategies

Working Capital Ratios

Liquidity Management Solutions and best practices

Cash conversion cycle processes

Business process efficiencies Systems and process optimization: from manual to automated

Accelerated Receivables More secure ways to handle cash


Business Transformation Strategies

Impact on reconciliation (i.e. GL posting)

Credit Card collections and solutions with Payment Gateway

Invoices/Payables/Receivables solutions

Commercial/Business Credit Card solutions

Payment Automation and electronification (checks to digital)

Payment Optimization, Outsourcing, and reconciliation

Check and Electronic fraud protection services and best practices

Maximize the Earnings Credit Rate (pay for services with deposits)


Treasury Management Solutions


Payable = 40% Receivable = 40% Liquidity =30%

A/P Automation (3) Armored Car Services/Cash Collection (1)

A/P and A/R Automation

Business Check/Debit Cards Escrow and Sub-Accounts (3) Ach Origination Services

Business Credit Cards Merchant Credit Cards (3) ATM/ITM Services (2)

Digital Disbursements Remote Safe/Cash Recycling (3)

Business Online Banking

Health Savings Accounts Retail Lockbox (3) Positive Pay (1)

Multi-Currency Accounts (4) Remote Deposit Capture (3) Sweep Services

Wire Transfers Wholesale Lockbox (3) Zero Balance

(1) Also fraud prevention (2) Also Capital savings (3) Also Liquidity (4) Also Receivable

Treasury ManagementPart I – Foundational Knowledge

• Maximizing the Account Analysis statement as a tool to cross-sell products and increase deposits

• Quick review of all the products

• Identify products available that your customers are asking for and you may be missing

• Determine which products to offer basedon your business clients’ industry


Cash Management/Treasury Management

Financial definition:

• Refers to a broad area of finance involving the collection, handling, and usage of cash. It involves assessing market liquidity, cash flow, and investments.

Marketing definition:

• In banking, cash management or treasury management is a marketing term for certain services related to cash flow offered primarily to larger business clients.


Cash Management/Treasury Management

My definition:

Cash management comprises of all the banking services financial institutions offer to business clients to help them handle their cash on a daily basis.


Treasury Management Products


Accounts Payable (AP)/Accounts Receivable (AR) Automation

Business Check Card

ACH Origination Services Business Credit Cards

Armored Car Services/Cash Collection


ATM/ITM Digital Disbursements

Treasury Management Products


Escrow and Sub-Accounts Remote Safe/Cash Recycling

Health Savings Accounts Sweep Services

Merchant Credit Cards Retail Lockbox

Multi-Currency Accounts Wholesale Lockbox

Positive Pay Wire Transfers

Remote Deposit Capture Zero Balance Accounts

Account Analysis: Maximize it as a Tool

• Why do you need to understand it?• Explain it to business customers and know how to read one

• See bottom line fee income from your business customers

• Discover opportunities for additional fee income and deposits

• A tool to explain the value of TM services

• What is the Earnings Credit Rate (ECR)?• A daily calculation of interest institutions pay on business deposits

• Usually correlated with the U.S. Treasury Bill (T-bill)


2019 Malzahn Strategic19

20Some institutions no longer charge Reserve Requirement

2019 Malzahn Strategic

ECR Poll

What’s your institution’s ECR today?

Do you have plans to raise it in 2019?


Accounts Payable (AP)/Accounts Receivable (AR)

• Cloud-based application that helps with invoice processing, matching, approval and workflow management

• Institutions can have the main operating account for the business and get the increased deposits

• This product is an evolution from Lockbox

• Payable automation service (bulk mixed payments and invoice presentment)


ACH Origination Services

• Electronically send and collect payments through the Automated Clearing House (ACH) network

• Streamline clients’ payment processes and eliminate costs associated with manual check processing

• Provides control over cash flow by allowing companies to specify the effective date of collections and disbursements

• International ACH Transactions (IAT) are now common (NACHA)

• Example products: ACH Manager (Fiserv), Direct Deposit, Automatic Payments, ACH Positive Pay, ACH Block/Filter

• Same Day ACH, Debit ACH, Same Day Withdrawals?


ACH Poll

Has your institution implemented SAME DAY ACH?

Do you accept same day DEBIT ACH?

Do you make funds available for WITHDRAWALthe same day?


Armored Car Services/Cash Collection

• Large retailers who collect a great deal of cash

• Avoids employees going to the Institution with large amounts of cash (safety and fraud prevention)

• Institutions can charge additional fees by contracting directly with armored car services • Examples of retailers: Golf Clubs, Bars, Restaurants

• Examples of armored car companies: Brink’s, Garda, Loomis


ATM/ITM• Automated/Interactive Teller Machines

• Outsource management or inhouse? (Dolphin Debit)


Cash forecasting (no outages or surpluses)

Armored carrier scheduling

Ongoing cash balance monitoring Painless and direct monitoring and scheduled maintenance

No capital expenditure Up to date technology

Hardware/Software maintenance Regulatory compliance updates and annual safety audits

Leasing options and insurance Technical assistance

Make deposits Retrieve balances

Withdraw cash Make transfers (even International Transfers)

http://www.dolphindebit.com/

Business Check/Debit Card

• Allows businesses to make purchases anywhere VISA (or MasterCard) is accepted with funds from the client’s checking accounts

• Offers convenience for purchases with no need for checks

• Flexibility for each employee to have its own daily spending limit and limited access to cash at most ATMs


Business Credit Cards for Employees

• Financial Institutions offer a variety of creditcard options

• Cards are issued to designated employees witha specific monthly spending limit

• Account repayment responsibility lies with both the employee and the company

• Apple Credit Card – raising the bar

• Use it as marketing tool by branding the credit cards

• Fingerprint sensors on cards and dynamic CVV/CVCvalue already out


Sensor


• Web-based online banking system available 7/24

• OLB is the foundation and delivery mechanism through which the cash management services are available

• Includes current and previous day information, account statements (e-statements) for the prior 18+ months, transaction details—including check images

• Ability to initiate stop payments, internal transfers, and wire transfers

• Allows multiple users with multiple security levels


Digital Disbursements

• Will replace check payments – eventually

• Business-to-business and Business-to-consumer digital disb.

• Payments are routed from one company to many customers securely directly to payee’s checking Acct. or prepaid card using mobile number or email address as identifier

• Benefits: Cost reduction for issuer, customer receives payment faster, privacy (no need to disclose account number), secure, better control of fund disbursements, mobile and eco-friendly

• Examples: refunds, warranty payments, reimbursements/pay vendors (iPay, Android Pay, Samsung Pay, Zelle, Venmo, etc.)


Escrow and Sub-Accounts

• Offers a user-friendly way to segment funds (either in a custodian capacity or without) to small businesses

• Financial Institutions provide digital reporting and control

• Some accounts are interest-bearing

• Examples: law firms, homeowners associations, IOLTA accounts, funeral homes/burial services, real estate development, schools, construction and some types of consultants

• Example Provider: First Banking Services http://www.firstbankingservices.com/EscrowAccounting.aspx


http://www.firstbankingservices.com/EscrowAccounting.aspx

Health Savings Accounts

• H.S.A.’s are offered to employees of companies that offer a high deductible health insurance package

• Employees can access their H.S.A.’s via an Institution’s online portal offering opportunities for financial institutions to cross-sell products

• Excellent non-interest sensitive accounts that can generate additional deposits

• Can integrate direct deposit of contributions to H.S.A. checking accounts


Merchant Credit Card Processing

• Most Financial Institutions partner with a merchant credit card processing vendor and offer the merchant services to its business clients

• Competitive rates

• Detailed reporting available

• Next-day deposit availability

• Liability lies with the credit card processing (most often)

• Cards with the chip are the norm now: Regulation II (AIDs)


Multi-Currency Accounts

• Enables business customers selling or manufacturing overseas to hold foreign currency in a US account

• Eliminates frequent currency transaction costs while maintaining FDIC/Credit Union Deposit Insurance and the safety of a US financial institution

• Institutions provide currency conversion, wires, foreign check processing and other services to these companies


Positive Pay• Businesses upload list of checks issued and the Institution

matches them to cleared items. Can be automated or manual process. Evolution from Account Reconciliation.

• System produces a daily exception report and company decides and notifies Institution staff if an exception item should be paid or returned

• Enhance cash control and minimize risk from unauthorized or altered checks (fraud detection)

• Reverse Positive Pay – Financial Institution sends a list of exceptions and company matches cleared items to issued and notifies the Institution which ones to pay

• Issueless Positive Pay – Company prints a barcode containing all specific check information


Remote Deposit Capture

• Ability to conveniently deposit checks without leaving the office

• Businesses create and send check images to the Institution for deposit

• Transactions may be submitted 7/24

• Businesses could benefit from increased productivity

• Some Institutions offer a later deposit deadline

• Accelerates Receivables


Remote Safe/Cash Recycling

• For businesses that receive and give cash from/to the public on a regular basis (i.e. grocery stores, retail stores, amusement parks)

• Businesses and Institutions install secure safes and cash recyclers onsite

• Cash is recycled and given back to the business based on their cash needs or picked up by an armored car

• Saves transportation costs to pick up or drop off cash

• Eliminates the need for deposit tickets, helps with counterfeit detection, automates the end-of-day process for merchants and provides point of sale data

• Same day deposit. Considered “vault cash” for Institutions2019 Malzahn Strategic 39

Sweep Services

• Maximize returns, minimize interest expense, and simplify businesses’ daily funds management (enhanced Liquidity)

• Products include Investment Sweep, a Loan Sweep, a ZBA Sweep, or a combination of the three (also H.S.A.)

• Funds swept using an Investment Sweep usually leave the institution (not FDIC insured)

• Funds can be swept from a checking account into a Line of Credit after a minimum balance has been reached

• Funds swept through a Zero Balance account are usually kept in the Institution and are swept to a higher int. bearing acct.


Lockbox – Wholesale

• High dollars – low volume

• Businesses’ remittances are directed to a PO Box and deposits are processed by the Institution or the Institution’s service provider (Accelerated Receivables)

• The Institution handles the entire deposit process, from collecting the mail to providing remittance detail information, thus eliminating the need for in-house remittance processing

• Institutions can require Lockbox for loans collateralized by Receivables (i.e. companies that manufacture large machinery)


Lockbox – Retail

• High volume – low payments

• Imaged Lockbox Services is another service

• Smaller Financial Institutions can partner with a correspondent Institution

• Special Instructions: Some companies that need detailed requirements for processing (automated and digitized Receivables)

• Examples: health insurance companies, association dues, property management companies, municipalities, utility companies


Wire Transfers

• The Wire Transfer network provides an efficient and secure way to provide accurate delivery of client funds

• Institutions offer domestic and foreign wire transfers

• Smaller Financial Institutions partner with correspondent Institutions to offer foreign wire capabilities

• Should be streamlined with Institution’s Internet Bankingsolutions


Zero Balance Accounts (ZBA)

• Old product but few Institutions still have it setup

• A ZBA is subsidiary account or “child” account that gets consolidated up to a “parent” account

• Account is zeroed out each day after transactions posted (enhanced Liquidity)

• Reduce overdrafts, minimum balances and negative balances

• Examples: hospitals, schools (deposit-rich businesses)


Treasury Management Solutions


Payable = 40% Receivable = 40% Liquidity =30%

A/P Automation (3) Armored Car Services/Cash Collection (1)

A/P and A/R Automation

Business Check/Debit Cards Escrow and Sub-Accounts (3) Ach Origination Services

Business Credit Cards Merchant Credit Cards (3) ATM/ITM Services (2)

Digital Disbursements Remote Safe/Cash Recycling (3)


Health Savings Accounts Retail Lockbox (3) Positive Pay (1)

Multi-Currency Accounts (4) Remote Deposit Capture (3) Sweep Services

Wire Transfers Wholesale Lockbox (3) Zero Balance

(1) Also fraud prevention (2) Also Capital savings (3) Also Liquidity (4) Also Receivable

Part I – Knowledge – Group Work

• What products does your Institution offer? • (highlight the ones on slides 16 & 17)

• Which products are you missing?

• Who are the in-house experts? (Who wants to? Who should be?)

• Who needs training?


Treasury ManagementPart II – Marketing & Sales

• Sales Process• The right Sales Process for your Institution

• Needs Assessment Template

• Marketing Treasury Management• Ideas for your Institution

• Incentive Program for sales team


Treasury Management Sales Process

• Teamwork (ideal): Business banker and Cash Management specialist, together, have initial conversations with prospective client, OR

• Prospect sends Institution Request for Proposal (RFP)

• Business banker works with Cash Management Specialist• Request Account Analysis Statement

• Copies of two or three months of bank statements

• Copies of merchant activity statements


Treasury Management Sales Process

• Specialist assesses the needs and sees what their current Financial Institution is doing for them

• Institution offers a customized proposal

• Establish the best practice of delivering RFP to client/ member within one week


Do Not Bundle – Customize!

• Listen to your prospect’s needs first

• Place customer at the “right level of services” from the start

• Go through the Needs Assessment Process in detail

• Don’t be afraid to charge the appropriate fees

• Pricing is rarely the only factor that customers consider when switching Institutions


Sales Process – The Digital Experience

TechnologyHuman Touch

Digital Experience


Engagement through the Digital Experience

Safety Convenience Engagement


Treasury Management Needs Assessment Template

• Understand and get to know your prospect


What type of company are they? (C Corp, S Corp, Sole Proprietorship, LLC, etc.)

What types of products do they offer to their clients?

What type of industry are they in? Company tenure?

Are they cyclical business? Company projections?

Who are their suppliers? Have Succession Plan?

Who are their customers? Do they have relationship concentrations?

Treasury Management Needs Assessment Template – Cont.


Deposit Accounts: Company credit/debit cards:

Average account balances Does the business accept credit/debit cards?

Average monthly transactions Who is the Processor and what are the costs?

Cash patterns and trends What are their existing credit facilities?

Treasury Management Needs Assessment Template – Cont.

• Team Needs Assessment


Why are they looking to move banking relationship?

How does prospect pay vendors?

What other Institution is prospect looking at? (your competition)

Any cash needs?

How do they deposit checks? (Remote Deposit?)

What are their challenges?

Marketing Ideas

• Perform an analysis of your current business customers to see which ones would qualify to have an Account Analysis

• Educate them on how to read the Account Analysis• So they can maximize their cash position

• Use Earnings Credit Dollars to their advantage

• Identify your largest depository business clients and treat them just as special as your largest loan clients

• Identify your largest loan business clients and identifyadditional TM services needed based on their industry


Package Services by Industry or Type


Type of Industry or Customer Type Cash Management Services

Any Business ACH Direct Deposit of Payroll, ACH Debits/Payments, Positive Pay, Merchant Credit Cards, Business Credit/Debit Cards, Online Banking, H.S.A., Wire Transfers

Businesses with several CM services and/or high activity: C Corporations, S Corporations, Partnerships, LLC’s

Account Analysis Statement

Golf Clubs, Bars, Restaurants, Churches Armored Car Services

Retailers who provide refunds, warranty payments

Digital Disbursements

Law Firms, Homeowners and Professional Associations, Funeral Homes, Real Estate Development, Schools, Construction

Escrow Accounts, Zero Balance Accounts

Manufacturing Companies that sell overseas Multi-Currency Accounts, International Wire Transfers

Package Services by Industry or Type


Type of Industry or Customer Type Cash Management Services

Manufacturing Companies for large machinery, loan clients/members with Accounts Receivables used as collateral, Commercial & Industrial business

Wholesale Lockbox

Businesses with high volume of checks looking for efficient way to deposit funds: Title and Insurance

Remote Deposit Capture

Grocery Stores, Retail Stores, Amusement Parks, Movie Theaters, Churches

Remote Safe/Cash Recycling

Businesses looking to invest excess funds outside the Institution (non-insured deposits)

Sweep

Health Insurance companies, Associations, Property Management Companies, Municipalities, Utility Companies, Hospitals

Retail Lockbox

Small Businesses with low activity regardless of account balances: Single Member LLCs, Self-Employed, Multi-Level Marketing

May not need Account Analysis Statement but may need Online Banking, Mobile Banking, Wire Transfers

Treasury Management and the Sales Team

• The importance of the sales team to have knowledge of TM

• Once you understand TM products, you can meet the needs of your business clients and increase fee income

• Review of your business customers’ activity on the Account Analysis

• Discover the biggest opportunities for additional fee income:


Deposit Account pricing Remote Deposit Capture

ACH activity Per item fees (ATM fees)

Wire Transfer fees Mobile deposits

Incentive Program for Sales Team

• Net loan growth YOY

• Interest Fee Income

• Asset Quality

• Net deposit growth YOY

• Non-Interest Fee Income: includes Treasury Management Products

• Show Cash Management Fees Waived by Officer

• “Solutions” oriented versus “Sales”


Part II – Marketing & Sales – Group Work

• What is your Sales Process?

• What do you do to sell more TM products?

• How do you identify additional fee income opportunities?

• Do you have a TM marketing process?

• How do you know the break even cost of deposit products?

• Are you competitive? Compare deposit account pricing and other products to market.

• Do you review your core processor’s pricing at least annually? What’s your process? Are you making money on products?


Treasury ManagementPart III – Implementation

• Implementation Process• New Products and Risk Assessments

• Setting up the various products

• Establishing the right implementation process

• Importance of Treasury Management collaborating with Technology, Operations, Marketing, and Sales Teams

• Agreements, procedures, and processes – What do you have in place? What are you missing?


New Product Risk Assessment

Reputational

Technology

Financial

Operational

Credit

Legal

Strategic

63Copyright 2019 Malzahn Strategic

Company Risk Assessment (ERM)

• Example criteria for businesses to use your products:• Perform credit analysis before using certain TM products

• No overdrafts

• Credit worthiness of customer

• Products that need Risk Assessments: • ACH (NACHA requirements)

• Mobile Banking (FFIEC guideline)

• Remote Deposit (FFIEC guideline)

• Who in your Institution monitors and conducts risk assessments?


Treasury Management and Sales TeamImplementation Process:

• Banker or Cash Management Specialist:


What information do you need from customer?

OFAC check?Beneficial Owner Check?

Who will be using the services at the company?

What are the multifactor authentication choices?

Who sets up checking accounts?

Are Agreements signed?

Treasury Management and Sales TeamImplementation Process:

• Operations: • Enter all data in system

• Assign user names, passwords

• Customer training

• Initial implementation and annual visit to RDC customers


Treasury Management and Technology

• Every Treasury Management Product is based on technology

• IT personnel needs to know how TM products are supported behind the scenes and what technologies each product uses

• IT needs to be involved in the setup of TM products—whether that’s through the core system or external vendors (vendor management)

• Examples of TM Products that use technology:


Remote Deposit Capture Mobile Deposit

ACH ATM’s

Wire Transfers Digital Disbursements

Treasury Management and Operations

• The IT personnel works very closely with the Operations team to implement Treasury Management products

• Operations works closely with the core system provider:• In-house or

• Service Bureau

• Operations personnel puts together the policy, procedures, and process to install Treasury Management products

• Deposit Operations Service personnel works with businesses to resolve issues


Treasury Management: Operations Best Practices


Perform an in-depth analysis of your core processing fees

Involve the IT personnel in all operations meetings relating to products

Ensure you are paying for the right services

Establish a “Termination” Checklist Process

Ensure volumes are accurate at all levels and that you are paying appropriately

Monitor potential errors

Create a risk analysis process to ensure new products are carefully and strategically implemented

Work together as a team

Part III – Implementation – Group Work

• Which TM products do you need to implement? What are your business customers asking for?

• What’s your current process to implement TM products?

• Do you have agreements, procedures, and processes in place for each product? (Resources: www.cbancnetwork.com)

• How does your team work together (TM, IT, Sales, Ops)?


http://www.cbancnetwork.com/

Treasury ManagementPart IV – The Future is Now

• Identifying new products already here

• New multi-factor authentication methods

• Assessing new risks

• Establishing new processes

• New marketing opportunities


New Products Continue to Emerge

• Digital Payments/Mobile Wallet Services (Third Parties):

• Cardless/Contactless ATM’s


Apple Pay Android Pay

Samsung Pay now Google Pay PayPal

Zelle Apple P2P

Venmo Acorn Debit Card

The Clearing House Real-Time Payments System (RTP)

Blockchain technology (using Bitcoin)

Digital Payments & Mobile Wallet Services



• How do they work?• Apple Pay, Google Pay, and Android Pay: credit cards

• PayPal: bank account or credit card

• Zelle, Venmo, Apple P2P, Acorn: checking/savings account using debit card

• Real-Time Payment: ACH system

• Why are they more secure?• No need for signature or swiping credit card

• No information to capture



• How can Financial Institutions make fee incomeusing these payment systems?• Partner with core system provider

• Partner with Fintechs directly

• Interchange fees: Promoting merchant services to your existing business customers

• What is the cost to implement?• It depends on the solutions you choose and who you partner with


The Clearing House – RTP (Real-Time Payment)

• Real-Time Payments System (out 11/14/17)

• Meets objectives of the Federal Reserve Faster Payments Task Force

• Open to all US depository institutions

• Goal of reaching ubiquity by 2020

• Uses: pay bills, issue invoices, payroll, settling insurance claims (similar to Wires and ACH –part of core infrastructure)

• Benefits: faster, safer, truly online, two-way, 24/7 payment and messaging system


RTP Poll

Has your institution implemented Real-Time Payment?

If not, do you plan to implement it in 2019?

If not, do you plan to implement it at all?


New Products: Blockchain & Bitcoin

• What is Bitcoin?

• What is Blockchain?

• How will their use affect Treasury Management fee income for Financial Institutions?

• What’s the expected future of Blockchain?

• Benefits and Risks

• Should community Financial Institutions get involved?


Blockchain & Bitcoin

• What is Bitcoin?• Electronic cryptocurrency that uses Blockchain technology to

transfer funds from one party to another (2009)• Designed to “securely transact and exchange value without the

need of a costly intermediary”

• What is Blockchain?• A disruptive technology that will/may change banking (2009)• Uses distributed databases • Uses math and cryptography to record “encrypted” transactions

(using mathematical algorithms)• Programmers/Coders create the databases and the algorithms to

encrypt each transaction (or block) using regular computers


Blockchain Technology

• What is Blockchain?• A “chain” of “blocks” called “hash”

• A “database” made out of “transactions” organized in chronological blocks that is “shared” between multiple “nodes” (user) in a network and are “linked” to each other (chain)


Block 1 Block 2 Block 3…

Blockchain & Bitcoin Definitions

Banking Terminology = Blockchain Terminology

Block = Hash

Currency (Dollar) = Bitcoin

Purchase = Buy into it

Saving = Mining

Account = Electronic Wallet

$8,797.50 US Dollars = 1 Bitcoin (as of 5/27/19)

User = Node

Maintainers = Miners (maintain Bitcoin Blockchain)

Programmers/Coders = Wallet Providers (write software)


As of May 27, 2019

Bitcoin Price Valuation Last 12 Months


Bitcoin Price Valuation Last 10 Years


Characteristics of Blockchains


Peer-to-Peer payment model (person to business, business to business, business to person)

Uses public key cryptography method to verify digital identity (using private and public keys)

Used to purchase and to pay for services and products

Uses “Proof-of-work” – a piece of code appended to data that validates that data’s authenticity

Based on “lack of trust” Proof-of-work also controls when it can be written into the system

Characteristics of Blockchains


Not regulated by anyone Not traceable and could be anonymous

It’s global Irreversible yet still hackable (programmed by humans)

Uses the Internet Pseudonymous (bearing of, or written under false or fictitious name)

Transparent (everyone can see the transaction)

Unique 30+ character alphanumeric address

Some uses of Blockchain

• Record Keeping: automated, low cost mechanisms, requires user specific keys to access ledgers

• Transfer of Value: secure, near real-time, low-cost transfer of value, decentralized, no intermediary needed

• Smart Contracts: programmable to transfer value when certain triggers/conditions are met, contracts can be developed, exchanged, and automatically executed

• Other: payroll disbursements, interbank settlements, healthcare, supply chain, procurement, transportation


Blockchain Use Consequences

How will using Blockchain affect Treasury Management fee income (risks) for community Financial Institutions?

1. Consumers and businesses may choose to use Blockchain to make payments and transfers and bypass Financial Institutions

2. Reduce fee income from credit card interchange fees, wire transfers, and ACH

3. Reduce fees from issuing contracts (if applicable). Will be replaced with Distributed Ledger Technology (DLT).


Blockchain Types

How do Institutions get in? There are three ways:

• Public Blockchain

• Permissioned Blockchain

• Private Blockchain

• Join a consortium for $50-$70K

• Create a Blockchain for approximately $250K

• About 40 consortia have been formed globally(Source: Deloitte.com)


Robocoin’s first bitcoin ATM in the US – Feb. 2014, Austin, TX

Future of Blockchain: Benefits & Risks

• 90% of major US, Canadian and European banksare considering Blockchain technology for payments

• Could also be used for asset management, insurance,and compliance

• Could save Institutions money (approx. $20 billion/year) by reducing processing costs and amount of paper used

• Working with Fintechs

• Credit Unions are starting to work with distributed ledgers


Blockchain & Bitcoin Sources

• Article “What Blockchain Will Mean for Banks?” • “Blockchain in Banking” presentation by Deloitte Development• Article “Big Data, Blockchain, and More” ICBM Magazine• Articles “Business in the Era of Blockchain” (Harvard Business

Review) • Wikipedia: Cryptocurrency• Article “How Safe Are Blockchains? It Depends” (Harvard Business

Review) • Article “The Promise of Blockchain Is a World Without Middlemen”

(Harvard Business Review)• Article “CULedger, Evernym Release Digital ID Blockchain for Credit

Unions” (coindesk)


https://www.bookingbug.com/blog/what-blockchain-will-mean-for-banks/

https://hbr.org/insight-center/business-in-the-era-of-blockchain

https://en.wikipedia.org/wiki/Cryptocurrency

https://hbr.org/2017/03/how-safe-are-blockchains-it-depends

https://hbr.org/2017/03/the-promise-of-blockchain-is-a-world-without-middlemen

https://www.coindesk.com/culedger-evernym-release-digital-id-blockchain-credit-unions

New Products: Cardless/Contactless ATM’s

How do they work?

• Near-Field Communication (NFC) using Radio Frequency Identification (RFID) technology

• “Contactless withdrawals” work the same way as contactless payments – placing ATM card or smartphone near the ATM

2019 Malzahn Strategic 91Photo by Daily Express Photo by Telenor Banka

Cardless/Contactless ATM’s –Benefits & Risks

Benefits:

• Potential elimination of certain security threats (card trapping and skimming) http://banking.com/analysis/banks-embrace-contactless-atm/

• User convenience (no longer need to carry card)

• International money transfers (from ATM to ATM)

Risks to Financial Institutions:

• Cost of ATM/ITM machines

• Further reduced traffic at branches

• New fraud issues (criminals can connect their phones to ATM)


http://banking.com/analysis/banks-embrace-contactless-atm/

New Multi-Factor Authentication Methods

Biometrics:

• Voice recognition

• Fingerprint sensors

• Retina readers

• Selfies as identification (face recognition)

• “The death of the password”


New or Increased Risks

• Cyber Security

• Identity Theft

• Internal Fraud

• Increased Costs

• New Technologies already here with new risks: • Virtual currency (Bitcoin)

• Blockchain

• Advanced Analytics

• Artificial Intelligence (Chatbots, Machine Learning)


New Marketing Opportunities


Branding – Time for a change? Are your Cash Management products branding aligned with the rest of your Institution’s brand?

Do you have a marketing budget to promote Cash Management products?

Do you coordinate efforts with business bankers to promote products through bank statement banners or Account Analysis?

Example: Institution’s art and logo to populate the mobile wallets

Example: Institution’s logo for mobile banking app

New Marketing Opportunities


Fully implement same-day ACH for Businesses

Strengthen your Wire and ACH processing systems

Become your customer’s advisor by providing detailed analysis of their transaction flows, payables, receivables, and financial assets and liabilities. You have the data.

Integrate your cash management systems to the core system and to your customers’ management systems

Expand use of Cash Recyclers Introduce Contactless ATM’s

Part IV – The Future – Group Work

• What types of new technology products does your Institution offer?

• How are you training your business clients on Cybersecurity risks?

• What types of multi-factor authentication options does your Institution offer for existing products?

• How are you assessing the new risks?

• What new marketing opportunities are you taking advantage of?


Next Steps

• Identify which Treasury Management Products you want to offer

• Follow up with a plan and recommendation on which products to implement, cost, and timeline

• Ensure Marketing, Sales, and Treasury Management teams work with Operations and IT teams to implement new products

• Train staff so everyone feels comfortable talking about any of the TM products offered

• All teams work together to meet your clients’ needs to generate more fee income and bring new deposits!

• Don’t be intimidated by new technology – learn it & embrace it!


Certified Treasury Professional

• Association for Financial Professionals www.afponline.org

• Treasury Learning System – Teaches the essential principles and functional practices of corporate cash and treasury management.

• Includes:• Forecasting and short-term investing and borrowing activities

• Working capital strategies and tools to manage assets/liabilities

• Monitor and control corporate exposure to financial and operational risks

• Capital structure management

• Coordinate financial functions with other departments

• Manage cross-border funds movement/international trade financing methods


http://www.afponline.org/

Cash Management: Your Benefits

When you do this: You and your institution get this:Become a “financial services consultant” Cross-selling opportunities: deepen relationships

“Subject Matter Expert” in financial services New non-Interest fee income

Become an “advisor” versus a “transactor” Additional core deposits as a funding source

Become a well-rounded “banker” versus a “lender”

New referrals from your existing business clients

Understand and value both sides of the Balance Sheet

You will get the ENTIRE relationship

Major competitive advantage for you as a banker and for your bank


“Cash in the face of change: How cash management will become the bank’s

greatest asset.”

“Serve more as advisers than transactors”

Graham Seel, BAI (article)

“If you ever wondered about the future of banking, we can tell you it lies directly in

the path of treasury management.”

Chris Nichols, Chief Strategy Officer, CenterState Bank Correspondent Division

Resources

• International ACH Transactions Q&A (NACHA)

• Escrow Services: First Banking Services

• Agreements and Document Library (CBANC)

• The Clearing House Real Time Payment

• Treasury Management Certification: Association for Financial Professionals

• Vendor Management and Contract Management: Ncontracts

• ATM/ITM Outsourcing: Dolphin Debit Access


https://www.nacha.org/content/international-ach-transactions-iat-solutions-center

http://www.firstbankingservices.com/EscrowAccounting.aspx

https://www.cbancnetwork.com/

https://www.theclearinghouse.org/payment-systems/rtp/

https://www.afponline.org/

https://ncontracts.com/solutions/ncontracts-manager/

http://www.dolphindebit.com/

Marci Malzahn – Short Bio

• Professional Highlights:• 23 years in banking: from teller to EVP/CFO/COO and CRO• Started a bank in 2005: Bank grew to $325MM in 10 years, $800MM now• 5 years in nonprofit as CFO overseeing Finance, IT and HR• 5 years with Malzahn Strategic

• Professional Awards:• 25 On The Rise – Hispanic Chamber of Commerce• Forty Under 40 – Minneapolis/St. Paul Business Journal• Top Women in Finance – Finance and Commerce Newspaper • Outstanding Women in Banking – North Western Financial Review magazine

• Education:• B.A. Business Management, Bethel University• Graduate School of Banking, Madison, Wisconsin• Certified Life Coach


Copyright 2019 Malzahn Strategic105

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