From scalability to increased fee revenue to capturing more non-interest-bearing deposits, there are several reasons credit unions would want to expand their offerings to business members. However, until recently, big banks have generally cornered the business services area of the market. Many credit unions have lacked the resources, expertise, or scalable capabilities to offer full-scale services to businesses.
“C.U. on the Show” guest John Ballantyne, CEO of Tru Treasury, explains how treasury management solutions give credit unions a competitive advantage in serving business members, capturing new revenue streams, and deepening member relationships. Treasury management allows credit unions to provide robust services to businesses, including business checking and liquidity products, fraud prevention, payment solutions, and more. John’s firm helps credit unions build and implement customized treasury management programs, including policies and procedures, back office support, and dedicated member assistance.
John has over 16 years of senior leadership experience in the financial services industry, leading underwriting, treasury management, and payments organizations. He was the head of Treasury Solutions Proposal Management at SunTrust Bank, successfully leading an $18M initiative to establish sales and product governance standards across multiple operating lines of the business.
A Gap in the Financial Services Market
John observed a gap in the financial services space: businesses wanted to work with credit unions, but credit unions historically lacked the capabilities necessary to transition into full-scale business services. Tru Treasury helps credit unions, big and small, meet this demand while delivering services at the level of sophistication of larger financial institutions. This mutually beneficial partnership gives companies more options outside of banks and a tighter financial services relationship while offering several benefits to credit unions, including:
- Deposit volume: The volume of a single business deposit can be significantly higher than numerous consumer deposits.
- Fee revenue: Businesses generally pay for deposits and monthly maintenance so credit unions can capture fee revenue, as opposed to limited or no consumer account fee revenue.
- Higher earnings: Credit unions can optimize their net interest margin by paying a lower rate on commercial accounts than consumer accounts.
Stream the episode to learn how treasury management services can add value to your credit union and the businesses in your community, plus:
- How treasury management can give credit unions more loan structuring options to win more business members
- Why treasury management can deepen and retain a business member relationship beyond loan issuance
- Why credit unions should consider the overall profitability of their business member relationships
- How credit unions can gain more tools to help them adapt to the macroeconomic environment and improve their overall balance sheet
- Why John says it’s time for credit unions to dust off their rate strategy
Listen to it here.
John Ballantyne and Tru Treasury are not affiliated with or endorsed by ACT Advisors, LLC.
Audio Transcription (pulled from the podcast)
Doug English (00:00)
My guest on today’s podcast is John Ballantyne, CEO at Tru Treasury. John has over 16 years of senior leadership experience in the financial services industry and in this episode, we discuss how credit unions can benefit from treasury management services—how to navigate rate hikes and what credit unions can do to better serve the business members in their community.
Hey, John, welcome to the show. We’re delighted you’re with us today to talk a little bit about treasury management. So before we do that, tell me about how you got started working with credit unions. And what Tru Treasury does for the credit union movement.
John Ballantyne (00:42)
Yeah, for sure. Hey, Doug, thanks for having me on today. Really excited to be here and talk a little bit about treasury management, what it means to credit unions, and a little bit about who Tru Treasury is. So, myself, I am the CEO of Tru Treasury. I got involved in the credit union movement, actually, due to a headhunter reaching out to me. I’m a longtime commercial banker. I’ve been a fintech owner. I was reached out to because the credit union industry had a gap. They had a need for treasury management expertise in the credit union industry and funded a credit union service organization, a CUSO, to focus specifically on bringing treasury management expertise and capabilities into the credit union spectrum.
Doug English (01:27)
Your company is owned in a CUSO structure; is that right?
John Ballantyne (01:31)
Yep, Tru Treasury is a CUSO structure. We’re a unique CUSO ownership structure for forward-thinking credit unions that are big into business services and recognize a need for treasury management services in the credit union space. A technology company owns us because they saw the number of credit unions that were asking for treasury products like account analysis, and the technology company could provide it. They were asking, well, what do we do with it now? Obviously, their focus is technology, not commercialization or the business strategy around treasury management. And then a league of credit unions—its service organization is actually an owner as well because they’ve seen the need across a massive footprint they have of credit unions they speak to every day—said we need better business services that are treasury management services in the credit union space.
Doug English (02:24)
Wonderful, born out of the credit union movement to serve the credit union movement. So that’s a wonderful thing. I love to hear that. What was the idea behind how you knew where you would focus first, and where are you making the biggest impact for credit unions?
John Ballantyne (02:43)
I think there’s a little bit of history you need to talk about with the credit union movement to understand the demand for treasury services. So if you go way back, I’m talking 30 years ago, 1998, a membership rules change within the Clinton administration really opened up credit unions to serve their communities. And within their communities, they had the opportunity to serve businesses more. Since then that time frame is really interesting. If you look at a chart of growth of credit extended by credit unions to businesses, commercial credit, it’s like the proverbial hockey stick. It’s been growing, it’s been an engine of growth for credit unions. Since that time, credit unions have said, hey, there’s a lot of opportunity in this area as traditionally an area that’s been owned by banks and talent from the banks, relationship managers, have been entering into credit union world. So fast-forward to present day, there are lots of relationships in the commercial spectrum between credit unions and the businesses in their communities. But there’s been a challenge. And the challenge is businesses that have formed these relationships with the credit unions say, hey, we want to bring our whole operating relationship to your credit union. Basically, we want to move our services from our bank or whatever third-party fintech we’re working with, and we want to consolidate with the credit union. The challenge was the credit union was lacking first off institutional knowledge of, hey, how do we structure deposit products, payable, receivable, fraud prevention transaction products to best serve these members? And then how do we support it? It’s a really expensive business case for credit unions. Recognizing that, my forward-thinking owner said, hey, we need to get these services, this treasury management business that banks have had cornered for the last 150 years plus and have those capabilities in the credit union world that make sense for credit unions to be able to deliver. And that’s why this CUSO was invested in. And from a credit union perspective, the value proposition of working with the treasury management CUSO is we can help a credit union structure and deliver a treasury management program that’s comparable to any big bank for a fraction of the price; it’s efficient. That’s the mission of the CUSO. And typically we can do so for what it would cost to hire one treasury management professional; we can bring a team of folks that includes sales, service and support, product management, and program management, all for less than a cost to hire one person.
Doug English (05:20)
Well, that’s good. Saving money is great, but these economic times are really moving fast, right? And the challenge is changing. So talk to me about what you’re seeing in trends in the credit union movement as far as dealing with this interest rate change and deposit pricing going up.
John Ballantyne (05:43)
Yeah, absolutely. So the macroeconomic environment is shifting. You know, when we first started this treasury management CUSO—my start date was March 12, 2020—two days later, my wife called me and said, hey, honey, you know, they just shut down the kids’ schools. And then we got into this environment of starting a business during a pandemic. And the reason I bring that up when you’re talking about macroeconomics is it was a really pivotal time for credit unions. The original idea for treasury management CUSO was, hey, we need lower cost of funds, we need high value deposits. Treasury management services is one of the best ways to get really large deposits in just a few deals that have much more net interest margin than consumer deposits. That was the reason. We need deposits, pandemic happens, that drops the rate to zero, there’s a flight to safety. The economy is flush with liquidity. All of a sudden, almost overnight, credit unions went from being in deposit hunter mode to hey, I have too much excess liquidity. The dynamic totally shifted. For the past two and a half, three years, almost all credit unions have been really focused on non-interest income. And in fact, when it comes to deposits, at least just until very recently, we were asked, how can we get these deposits off the balance sheet; they’re really throwing off our loan-to-share ratio. Now fast-forward to current times: inflation is happening. There’s a tightening of liquidity. The Fed is increasing the rate again, and what we’re seeing is there’s a pivot where credit unions are now starting to pivot from, hey, we need more non-interest income, to we need deposits, we need low-cost sources of funds to fund the loans we’re putting out the door. So we’re starting to see the economics in the treasury management industry moved back from this this environment where it was all about non-interest income and got too much liquidity to now there’s not enough liquidity, we need to compete for deposits and get them. And again, this is one of the things I absolutely love about the industry we’re in is that there’s so many levers that can be pulled by a credit union if they have a good treasury management program to adapt to the macroeconomic environment that can service their members and really help the overall balance sheet of the credit union.
Doug English (08:09)
All right, so let’s dig into that. I heard you say that it’s mostly focused on large commercial deposits. So give me an example of how that might work, please.
John Ballantyne (08:20)
Not necessarily. Treasury management applies from micro business sole proprietors all the way up to corporate banks. The services and how those services are used are obviously very, very different. But the value a credit union gets from a good treasury management program is really three things. First, they have more levers. I was just kind of describing this. More levers to manage their business. Hey, we need a lower cost of funds. Let’s look at the rate strategy. Let’s look at the acquisition strategy. If the credit union has account analysis, you can look at the earnings credit strategy. Oh wait, we need non-interest income. Well guess what? Treasury management’s one of the best ways to get that non-interest income; you can literally pull those levers. So one more lever to manage the business. Second, relationships. So credit unions have relationships with businesses. Treasury management offers the opportunity to first off deepen those relationships. Secondly, make them more sticky. And third, have a greater wallet share of that business because without a treasury management program, a credit union might provide a business a loan, but they’re not getting that non-interest income, and they’re not getting that lower cost of funds from deposits. And finally, and probably most importantly, or just as importantly, is the opportunity for more deal structures. So if a credit union is competing against the bank to win an operating relationship of a business, let’s say the loan, the credit, and also the treasury management side, the returns if they can win CNI loans are much better than CRE. Credit unions have mainly been doing CRE lending because they don’t have the treasury business. But treasury gives them the opportunity to do different types of lending, and also allows them to structure the deal differently too. So if a prospect is really rate sensitive on their credit, you can price it into the treasury management side of the business. If they’re really fee sensitive, you can price it into the credit side of the business. And overall, that credit union will just have more swings at that. So treasury management tends to be talked about for large corporate customers, back to your question, because most folks think of hey, corporate treasurer, payables department, receivables department, but a good treasury program actually services the full breadth of commercial activity.
Doug English (10:49)
Yeah, now you’re talking about relationship pricing, where maybe you’re pricing the deposits in a different way and you’re pricing the loan or meeting your overall metrics, so is Tru Treasury helping figure that out on the loan side as well, or just on the treasury side?
John Ballantyne (11:04)
We do it on the relationship pricing. So our specialty is treasury management services. What we do is we really offer four capabilities for credit unions. The first is treasury programmatic capabilities, where we help structure a treasury program. And in doing that advisory is where we help structure deposits, a rate strategy, what we call a relationship pricing strategy. And we set up the processes and procedures to execute a good treasury program. But then we also help support and execute that program. With treasury management consultants—banks might refer to them as treasury management officers or treasury sales officers—we provide experience; most of them have over 15 years’ experience and they’re certified treasury professionals. But we also provide the back office support too to manage the various setups of those treasury management products. Each treasury deal is literally custom to the business, every single one of them. So there needs to be the institutional knowledge to manage them. And then of course we provide the product as well. Back to your loan question, how treasury management comes into play is if there’s an opportunity for a credit, with treasury management services you can oftentimes make a case, if you’re talking with your credit committee, to lower the risk by saying, hey, we’ll bring in their deposits, make deposits a requirement on this loan, we can have their treasury operating services, and we look at the overall relationship profitability rather than just the loan profitability or some service or fee profitability. We encourage our clients, and we actually have proprietary tools to do this, to price the whole relationship to look at the whole spectrum end to end. So a credit union can say, hey, we want to set specific hurdle rates; how we get to those hurdle rates in a relationship has flexibility. And that’s what we’re here to do, to help credit unions intelligently do that, and frankly, win business profitably.
Doug English (13:05)
Are the credit unions that you are starting to work with that I assume are outside of your current CUSO structure? Are they mostly credit unions that are just starting to operate in the treasury management area and commercial activities? Or are they credit unions that are moving over from the big banks to a credit union service organization?
John Ballantyne (13:28)
Yeah, that’s a really good question. And actually, one that when I started this organization, I was a little biased toward. So my assumption was billion dollar plus credit unions will be the only ones interested in this; they already have large commercial lending portfolios and really want to move upstream in the complexity of deals. But what we found is yes, that is true, absolutely true. But also, there’s much smaller credit unions under that mark. In fact, one of our clients is $150 million credit union that just realized, hey, we need business services to serve, they had over index and contractors in their communities, we can service the mom and pop shops, Main Street America, if we have business services. In those cases, we can actually help structure and deliver in a business case that makes a lot of sense for a credit union, a full business services program. But at the other end of the spectrum with large credit unions, we can bring that sophistication that banks have to structure treasury deals, and help win that business that a large credit union has access to in their community. So really, we run the spectrum of credit unions. And this is actually one of my favorite, and most encouraging signs since we’ve started this CUSO, is we’ve done very little marketing, very little; we have a website set up. And I will tell you, most of our leads are coming across the country through our website saying, hey, we need help in the treasury management area. Let’s set up some time to talk. It really underscored this need, this untapped demand to have comprehensive treasury management services by credit unions, to frankly deliver the businesses in their community just as a good financial provider. And the real winner of this, the real winner of the credit union CUSO relationship for treasury management, are the businesses in the communities. It gives them another option. For too long, banks have been the only options. Now credit unions can open their doors to business and say, hey, we’re open to business. And not only can we serve you and provide you the same products your banks provide you, but we can probably do it better.
Doug English (15:37)
Are the commercial customers that are most ideal for these services those that have a lot of transaction volume or very large, securitized loans? What do they look like?
John Ballantyne (15:51)
Right now, the credit union primarily serves micro small businesses and our services, we can arm credit unions with services to provide Main Street America, that is by far the majority of the volume. Part of the reason for that? Well, there’s a few reasons for it, I think. In the commercial segment, businesses just aren’t aware that their credit unions can service their needs. So there’s really some messaging that needs to happen to more complex businesses. But where there’s really enhanced earning opportunities for credit unions and relationship opportunities is when you start to move upstream, working with business banking, emerging commercial clients. We typically wouldn’t go into the corporate, the client segment, which is, you know, $300 million plus in revenue. But anything below that we can offer credit union services that they can service those customers in a way that they would expect to be serviced by a bank, usually at a better price, and usually with a tighter relationship.
Doug English (16:53)
Circling back to commercial deposits. I think one of your statements was that the commercial deposits may be more valuable to the credit union than retail deposits. Walk me through that, please.
John Ballantyne (17:08)
Yeah, so there’s a few ways that commercial deposits actually create more value for credit unions than consumer deposits. And the first most tangible way is you don’t need to pay as much rate on commercial deposits as you do consumer deposits. So that’s number one. In most cases, you don’t need to pay any rate, especially on small business commercial deposits. As you start to move up the complexity, there’s what’s called analyzed checking that has an earnings credit rate or ECR associated with it, which is an imputed interest rate that offsets treasury fees. In this case, what it does is it offsets those treasury fees so you capture deposits but you’re not paying hard interest that you might normally be required to pay on those high deposits. So again, the net interest margin on those deposits is much higher. So that’s one way is just the net interest margin. Secondly, if you’re doing a deal, instead of getting the volume of many, many, many consumer deposits, if you win, let’s say a municipality or a commercial business, you’re going to get, you know, a $2, $3, $4, $5, $10 million deposit in one deal. How many consumer deposits would it take to get that number of deposits? So again, there’s an opportunity to capture large deposits. And then finally, businesses pay for their deposits. You know, in the consumer world, typically, deposits are free or there’s very low cost with them. Businesses are used to paying for services and deposits, item counts, monthly maintenance fees, all of that is hard fee revenue-producing activity. And that’s another way business deposits add more value is that they have the fee income, which, for analyzed accounts can be offset with an earnings credit. But for most credit unions after a certain number of transactions, just in a package account, they’re earning 50 cents a transaction.
Doug English (19:01)
The business services officers and credit unions may not have the sophistication that the business service officers have in some of the large commercial banks. So how do you enhance that ability of that officer?
John Ballantyne (19:17)
Yeah, that’s the main reason we exist. So let’s take a step back and look at how commercial banks operate. There’s typically a relationship manager, they’re the banker who has a relationship with the business. When that business has a credit need, that relationship manager pulls in the credit officer and says, hey, we need to work on a line of credit, whatever. When that business has a banking need, any other banking need that’s not credit, they pull in a treasury management officer, they have an assigned treasury management officer, and they typically between the credit officer, treasury management officer, and relationship manager, they service that business as a team. Now in the credit union space, the bankers who have been hired have been hired to be credit officers. In fact, credit unions call them commercial loan officers. I mean, that’s their title. But they are more than that. They tend to be the relationship manager or the everything officers, I like to call it. Why Tru Treasury exists is we can supply them with certified treasury professionals to be their treasury management officer outsource. We help them win deals. That is how we help credit unions. In fact, I think that’s our greatest value prop. We bring products, we bring processes, disclosures, the whole deal, our greatest value prop we can bring is our treasury management officers, we call them treasury consultants, who can work directly with that commercial loan officer or relationship manager to win deals. And by the way, they work with a member and how those deals are won is the standard treasury management selling process. Hey, member, partnering with the relationship manager, give me three months of your deposit statements. Let us do an analysis. And this is the best part about treasury sales. It’s not pushing product, but it’s how can we help you save money? How can we help you increase efficiency of your cash management systems? And how can we solve pain points you’re currently experiencing? And automate systems. That’s the sales process. So it’s literally helping somebody save money and enhance the automation of their business. And just by doing that, we can help win the loan deal. And we can help that credit union realize the full value of that operating relationship. Everybody wins.
Doug English (21:24)
So, the Tru Treasury person becomes the treasury management associate who was inside the bank. So you actually put someone on the call with the member and the business services officer to work together as a team to solve that commercial businesses need?
John Ballantyne (21:43)
Yeah, that’s right in a lot of cases. Now, I have to say we do have clients that actually have business service folks whose job it is to do that, but we’ll support them as back office. We’ll support them and train them through Tru Treasury; we have tools that can help with modeling the right treasury management deal. It issues pro formas. It has relationship pricing modules in there. So if we’re not engaging the member directly, we provide the tools and the strategy where a credit union can win in the treasury management business.
Doug English (22:17)
With the pace of interest rate change, I’m imagining credit unions may be hesitant to raise their deposit rates particularly quickly because that increased cost of funds makes it harder to operate. But the treasury markets are instant, right, they’re instantly moving, so is there a situation today with the 10-year Treasury back above 3% where the commercial deposits are going to be earning a higher rate than your retail deposits? Maybe a lot higher?
John Ballantyne (22:53)
Not likely. And I’ll tell you why. So commercial deposits right now, there’s a lot of ways to set them up. There’s what are called zero balance accounts, there’s sweep accounts, there’s analyzed checking. So it all depends on what a business’s needs are, what their transaction volumes look like. The reason why I say the commercial deposit rate won’t go up beyond commercial paper is because there’s a sweep product. So there’s an overnight sweep Tru Treasury can offer against repos, where if a business has excess liquidity, and we say not on their operating liquidity, but their excess liquidity, it can sweep overnight into a repo product and earn that enhanced rate. And the beauty of that is the credit union still owns that full relationship, they still have the value of those deposits, because it’s just an overnight sweep. And they’re earning fees from our sweep provider. So it’s really a nice win value proposition for the business and for the credit union. Now it all depends on rate strategy. So we’re in this time right now where we’re at the highest rate in almost 15 years, since 2008. Credit unions need to dust off their rate strategy. And probably most of them don’t even have a commercial rate strategy. Again, this is where we help or say, hey, let’s take a look at deposit rates, let’s make sure you’re pricing it for optimal net interest margin but still retrieving your deposit and needs. So there is a whole strategy around how that’s done. There’s a lot of liquidity products—I just named off a few of them between ZBA sweep, analysis, checking, regular business checking, internal sweep—there’s a whole variety of products a business can be set up with where we can help them optimize their cash, their return on cash, but also help that credit union at the same rate optimize their net interest margin or what they’re earning on those deposits, the cost of bonds, which is usually how credit unions look at it, whereas banks look at it as funds transfer pricing.
Doug English (24:50)
So if you could kind of boil this down to what credit union situation would be most impacted by engaging with Tru Treasury and starting to act on some of these opportunities.
John Ballantyne (25:03)
Yeah, I would say it’s credit unions that already have commercial lenders and a commercial loan portfolio with limited to few treasury management products. There’s a whole half of the wallet, what I call untapped opportunity, sitting in their current portfolio and the relationships they have. There’s a credit union we talked to recently that actually conducted a focus group with some of their current business members or members on the consumer side that they knew own businesses. And this focus group, what was flushed out is that in most cases, these businesses came to the credit union because they wanted to transfer their business deposits there. But the credit union didn’t have the capabilities to serve them, or the frontline didn’t know they did, and sent them somewhere else. So those deposits, which should be sitting at the credit union, and the fee income, are sitting in a bank or with some third-party fintech right now. The member’s overpaying and the credit union doesn’t realize the value of that relationship. And that’s where we make our biggest difference. That’s how we can most help credit unions.
Doug English (26:03)
Perfect. Nice and clear and concise. Well, thank you very much for your service to the credit union movement, for your information to our listeners. Any final thoughts for the leaders of the credit union movement on ways to connect with Tru Treasury and to better serve the membership?
John Ballantyne (26:22)
Yeah, hey, well, Doug, first off, I appreciate your time today and for your listeners, if you want to learn more, please feel free to reach out to me or my team. You can do it through trutreasury.com. And that’s true without an E so it’s TRUtreasury.com You can email me at email@example.com. And let’s set up some time to talk. You know, this is something that my team and I are passionate about. We will talk about the needs of your credit union and see if there’s anything we can do to help.
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