This partial summary of the U.S. Bancorp Q1 earnings call is posted in American Banker and focuses primarily on the outlook for a main driver of non-interest income, which is the payments business. Although consumer payments are on the rebound, the corporate payments side of the business is lagging, which is likely not much of a surprise to most readers given the ongoing issues with travel & leisure industries, as well as small businesses in general.
We have covered this in various forms and continue to closely track developments.
‘U.S. Bancorp’s payment services businesses struggled during the pandemic, but executives are counting on continued increases in consumer spending and corporate clients’ embrace of real-time payments to fuel a rebound in 2021….The company’s corporate payments and merchant processing fee income declined in the first quarter from a year earlier, while credit and debit card revenues grew, fueled by government stimulus and increased consumer spending….Though many corporate clients have seen their own revenues recover, thus translating into more transactions with their banks, U.S. Bancorp has seen corporate payments revenues decline because clients in certain industries, particularly travel and hospitality, are still struggling.’
In newly issued member research on receivables management, as well as other reports released during Q1, we have been discussing the importance of payments modernization and general cash cycle digitization efforts for proper management of financial operations. During 2020 many businesses awoke from their inertia-driven slumber around analog processes and are actively pursuing some level of digital transformation.
This requires some time for execution but will ultimately deliver greater process efficiency and flexible working capital strategic execution. As we have consistently advised members, there is also a steep opportunity cost in failing to remove the paper, given the availability of latest gen tech such as AI and real-time payments, which can only be optimized with end-to-end digital approaches. This will eventually be a competitive issue for companies behind the curve. U.S. Bancorp recognizes this and expect such efforts to improve results as we move further into 2021.
‘But executives also said they’ve been working on new use cases for real-time corporate payments and they expect demand for these services to pick up. On the company’s earnings conference call Thursday, Chairman, President and CEO Andy Cecere identified payroll services and accounts payable and receivable as areas where the bank expects to collect more fees from clients using real-time payments services….“It takes corporate America longer to adopt digital capabilities, but at some point in time that’s going to take off,” Chief Financial Officer Terry Dolan said. “COVID has helped to accelerate some of that.” ‘
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
