Archives for February 2009

Working Capital is not a dirty word, is it?

There is no dispute that one of the hardest organizational barriers to break is the one between Finance and Operations. Accountants and treasurers do not go very well with manufacturing, logistics, and procurement. They have different tasks and different (if not necessarily divergent) objectives, which exacerbate the gap. It is often said, to explain such behavior, that neither side had a real reason to “mingle” and cooperate beyond the basic courtesy of being employees of a same company. But “today” is making things quite different, and models of the recent past will hardly apply to the future scenarios, as soon as the recession dust settles down. “Cash is king” is the refrain in today’s economy, and working capital is the most direct, and effective, metric that measures the health of a corporation. While Treasurers are very familiar and comfortable with the intricacies of what it takes to improve the value of the figure, operations people are not. Just yesterday I was at a meeting of logistics and supply chain managers. I was impressed to listen the presenters mention “working capital” quite a few times. My initial enthusiasm to listen logistics managers finally speaking the finance vocabulary came to a halt, however, when I heard comments along the lines of ”The benefit achieved from this project is that we increased (italic intentional) our company’s working capital.” After an unavoidable shiver, I calmed and realized that they wanted to express something quite different. As a matter of fact, the increase was in the final result of the corporate financial statement, thanks to a reduced need for working capital. Moving away from the semantic analysis of the various other statements heard on the subject of working capital, one item appears clear: operations people are still far away from confidently handling matters that traditionally belonged on the other side of the wall. It should be a priority for corporate decision-makers to ensure these barriers eventually tumble down. When definitions are mis-communicated, they surface an inherent lack of understanding of the subject. In a world continuously revolutionized by changing dynamics and paradigms, it is not an option to fumble for results. The first barrier to break down is the one of corporate language, and operations people should not shy away from terms that sound “financial” and, therefore, out of scope. Understanding of working capital, and of the levers needed to impact its value, should be the first practical test-bed where finance and operations meet to produce positive results for the corporation they both work for.

BAI Transpay

Going … Going … Going but not yet gone.

Greetings from BAI Transpay where bankers and vendors gathered to discuss payment issues. Check volumes are dropping and banks are racing to drop costs as quickly as customers are dropping volume. Checks are being imaged, converted to ACH and replaced by debit so that paper check handling is dropping dramatically.

Banks are making mighty efforts to drop costs in line with these decreases. JPMorgan Chase (plus WaMu) has dropped from 3200 people to 1400 in check processing and gone from 21 processing centers to 13.

BB&T has moved to 99% image exchange for sending and receiving images and has branch capture in 400 out of 1500 branches. Frost Bank has dropped head count in check processing by 30%. All banks are racing to reduce costs.

The most painful part of the process will be deciding when volumes get really low. A bank will need to decide whether to:

– Stop working with paper all together

– Keep what little remains in house

– Outsource the remainder

We aren’t there yet, but even the largest banks will soon get there.

3.17.09: Celent Banking Webinar: The Retailish Future of Patient Collections

Celent senior analyst Red Gillen This event is free for Celent clients and invited guests. Please click here for more information.

Get ready for Model Bank 2009!

It’s that time of the year again! Our judging committee has reviewed the submissions we received during the course of 2008, and we will be contacting the winning banks next week. For those of you who don’t know what the Model Bank report is, you can learn more about it by reading about last year’s report. In addition to having their best practice case study publicized in the report, each featured bank will receive an award at our annual Celent Innovation and Insight Day in New York (exact date and venue to be announced shortly). Our 2008 event was a smashing success with insightful presentations and panel discussions. We invite you to submit a nomination for the 2010 Model Bank report. We will be accepting submissions throughout the course of 2009. Our online nomination form is at

3.4.09: Celent Banking Webinar: It Takes More Than a Village: The Decline of the Community Bank

Celent Senior Vice President Bart Narter This event is free for Celent clients and invited guests. Please click here for more information.

The 2009 Big Story In Healthcare Banking?

As many of our clients are aware, much focus in the healthcare banking industry has been on the advent of tax-advantaged medical spending accounts, especially HSAs (health savings accounts). The current economic crisis has only intensified this focus, as HSAs are seen as a relatively low-cost approach to building and retaining deposit bases. In fact, later this year, Celent will conduct research about the role of HSAs to grow deposits, so please stay tuned. However, my discussions with industry players are revealing that there might be just as an important (if not more important) “big story” in healthcare banking this year. Specifically, I’m referring to revenue cycle management of patient out-of-pocket expenses and what solutions the industry will offer to help healthcare providers collect from consumers of all economic brackets. A quick, back-of-the-envelope calculation highlights the fact that collections deserve at least as much attention as HSAs from the healthcare banking industry. In early-2008, it’s safe to assume that there was about $4 billion in HSA deposits (just run with me on this one, if you’d like to challenge this assumption, feel free to contact me). On the other hand, the Center for Medicare and Medicaid Services (CMS) estimated that 2008 out-of-pocket expenses totaled $282 billion. Keeping in mind that in general, healthcare providers only collect about 50% of what is owed them by patients, there is a $141 billion market in improving patient collections. Put another way, this is a 35X opportunity over the HSA opportunity. Through my research, I get the sense that many players are waking up to this story — we at Celent are certainly interested in it and will correspondingly publish research. In fact, I just completed a report on this subject, so please be sure to take a look: The “Retailish” Future of Patient Collections

Blogs – Banks get it too!

Blogs are a great way to interact with the community at large. Banks are slowly but surely making use of blogs to communicate with their customers and the public. The early adopters like Wells Fargo actually have several blogs, including a new one called the Wells Fargo -Wachovia Blog. The Wells Fargo-Wachovia blog has a simple goal – to let customers ask questions and inform them about what’s going on. M&A for the masses! Bank blogs can take on many flavors. Everyone from large banks to little credit unions are taking part. Here are some additional examples: Verity CU BlogCelent recommends that banks explore the use of blogs and consider the various ways they can interact with the public. Those who have yet to do so should get a blog off the ground. Banks need to work on building and cementing relationships, particularly in these difficult times. A blog is a great way to interact with customers in a participatory manner and is yet another way to let them know how much you appreciate their business! I invite you to check out our series of reports on Web 2.0: Web 2.0 and Retail Banking: Less Hype Equals Opportunity Web 2.0: A Quantum Leap for Wholesale Banking

Welcome to Celent Banking Blog

Sometimes one can be in the mood for a five-course meal and other times just a small snack. In the past Celent has served the only the large meals as food for thought in our in-depth reports. We haven’t given the banking industry the opportunity to graze rather than devour.

This is now changing with the new Celent Banking Blog. This delivers the same rigorous Celent thinking in more bite-sized portions. The ideas are sometimes fresher, such as gleanings from an industry conference or a newly breaking announcement in the industry. They may be the seeds of ideas that will grow into full-fledged reports. They may be the musings of a Celent analyst looking for feedback from the blogosphere.

In any case, you will find the Celent Banking Blog to be true to the Celent brand: objective, accurate, and insightful. You can bank on it.

Bart Narter, SVP Banking Group.