From Pain to Profit: Fixing Treasury Repricing at the Source
Most banks know they should revisit their treasury pricing annually—but few actually do. Why? Because the process is so complex, manual, and error-prone that it often gets pushed aside. In this episode of The Purposeful Banker, we talk with Todd Klapprodt from Q2 about the real cost of doing nothing, why annual repricing is more strategic than you think, and how automation can unlock both efficiency and growth.
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Cheryl Brown
Hello and welcome to The Purposeful Banker, the leading commercial banking podcast brought to you by Q2, where we discuss the big topics on the minds of today's best bankers. I'm Cheryl Brown. Welcome to the show.
Today I have Todd Klapprodt in the studio with me. Todd's a senior product manager here at Q2, and, among other things, Todd focuses on our relationship pricing platform, PrecisionLender, and the surrounding solutions around that. Todd, welcome to the show.
Todd Klapprodt
Thank you. I'm glad to be here.
Cheryl Brown
So today we're going to be talking a little bit about a big topic in the industry—or at least a big pain point in the industry: annual repricing. And this came to my attention at our recent CONNECT 25 client conference. I was sitting in a session with you, and there was a little bit of a mention of repricing, and there was a collective groan from the crowd. And I was like, "OK, this is a little bit of a touchy subject." So let's just start with the basics. What is annual treasury management repricing, and why is it such a heavy lift for most banks?
Todd Klapprodt
Yeah, it's a great question. And there was a resounding groan across the room when that topic was brought up. And I think as we describe the process, I think it'll be clear why there was that groan. But essentially, the annual treasury management service repricing event is an event where FIs will evaluate their current pricing strategy across their TM services. So in the TM services are all the services that support the movement of money, deposits, things like that, all the operating accounts. And each year, or ideally each year—and we've heard anecdotally and seen in some of the data that it didn't happen, it doesn't happen as necessarily as that frequently—but each year banks will … hopefully they're assessing their current pricing, their rack rate or their standard pricing for all the treasury management services that they offer for a couple of reasons.
One is they just want to understand what is the overall revenue that we're generating from these services, but also how are we priced against the market? And they'll use a couple of different services. There's a few clients or companies out there that offer benchmarking data, but they'll essentially analyze where are we priced currently down to the service code level and both from a standard pricing, so what is our published or standard pricing across the board? And they'll also analyze as part of that process, they'll analyze, well, let's also take a look at the exception pricing. So what clients and what services are exception pricing, and what does that look like? And it's probably no surprise to hear that depending on the size of the bank, some banks have hundreds of services. So the process of evaluating the pricing for hundreds of services across all your clients becomes incredibly arduous and just time-consuming.
And that typically, so that's the first step is let's essentially evaluate where our pricing sits, both from a standard, what's our published pricing, and what's our exception pricing. From there, there's generally some goal that's driven from senior leadership, executive leadership at the bank to say, "Well, we want to see another 10%, 5% lift across the board, and we expect this percent from treasury services." And we'll start to model changes then to those prices. So where do we stand against market and where do we have room to potentially move those prices, and what will that ultimately do? So there's a modeling aspect to it once they evaluate what our current pricing is. And then, not surprising, obviously once you start talking about raising prices, your sales team's going to get involved. They want to understand. And so you work your way down. You start pricing at the very, from what we hear, and obviously this process will vary, but essentially they'll evaluate pricing at the service level. And then they'll drill down and look, OK, what is the pricing for each one of our relationships?
And they'll want to understand if we do then model and if we determine the increase that we want to set for these prices, they'll now understand what does that mean at not only a product level, but what relationships are impacted, and what does that mean? And that's where you get your sales team involved, and they start to understand what that will mean to their overarching relationship, potentially put us at risk. So there's a series of discussions that happen around those prices.
Once you eventually lock that down, and these are conversations that are happening across obviously product and sales and leadership across the board. But once you get to a place where you've established both your recommended pricing for your standard pricing, and also your exception pricing, which there's a lot of manipulation and data that happens to understand that. And then the sales team in some cases will go and start to have some high-level conversations with the client just to understand and lock that down.
And then once they decide this is it, this is our new pricing for the upcoming year, then they have to look at updating the appropriate systems, and having the appropriate conversation. So there's a lot that happens downstream to make sure your account analysis, or your billing system is up-to-date and all your documentation and your published pricing is up-to-date. So it's an extremely manual process that involves many teams end to end. And we hear depending on what account analysis system they're using and where the data is stored that this process takes in some cases months. So very long. And I think a lot of banks are probably in the thick of it right now, or are winding down, and at the very least, they're probably at the point where they've locked down the pricing for the upcoming year 2026.
Cheryl Brown
Yeah, it sounds like—you call it annual repricing—it sounds like it could take a year just to get it done. And then you're in a cycle of constant repricing instead of annual repricing. So you say it's manual, I'm assuming spreadsheets. I'm assuming that nothing is automated. So why? Why has it remained so manual and inefficient for so long, especially at larger institutions?
Todd Klapprodt
Yeah, that's a great question. There's a couple reasons for that. One is just getting the data in aggregate out of the account analysis systems. I think just some of the tools there are archaic and not updated, and really aren't meant for deep, deep analysis. And so to get the data in a format that you can really start to understand it and compare it and model it, it has to be then extracted and put into Excel. As you say, work that can then be understood. And I think who doesn't love Excel for its flexibility? But that's where you get into all sorts of versions and things like that. So I think it's really that the account analysis systems by and large aren't meant and aren't really built for this kind of modeling and deep analysis that's required to make sure that you're going to set the appropriate pricing. So I think that's really, it's the tooling.
And so what that means then in a lot of cases is you're working with your operational folks to then extract that data in the various levels, because keep in mind we need to understand it at the portfolio level, down to the product level, and then at the relationship level. So the ability to look at it across those various dimensions is where spreadsheets become just ineffective. And it's everybody's go to. I think the other thing that I'll say, and obviously I don't want to put a shameless plug in here, but what we see is you'd be surprised the number of banks that just do their general pricing in spreadsheets too, which is why PrecisionLender even came to be in the first place. But yeah, I think by and large, Excel and spreadsheets are the go-to. And they are flexible and they are powerful. So I can understand the allure of why they're often used. And they are effective. You can get the job done, they're just inefficient.
Cheryl Brown
Yeah, inefficient and probably it requires more hands on the information. So anytime you've got many, many people touching information, you've got inherent risk there. So what are some of the other downstream risks of sticking with these legacy practices, both maybe financially and operationally?
Todd Klapprodt
Yeah, I think lack of an audit trail, so you could imagine, in order to, as we discussed, it's generally not a “Here's the pricing we want to propose” and you're done. There's a lot of discussion and iterations that are required, and a lot of collaboration that has to happen between product and sales for that to happen. And so you need to give people the ability to update that pricing and modeling, but then that creates an auditing and reporting nightmare. You're not sure, do I have the latest version? Who's approved this? If you've got more than one version floating around, then you've got that headache of maintaining that. So it's really just understanding where in the process you are, what's been approved, who's actually touched it, and making sure that we understand all of the steps that went into it. So that especially in that initial phase, getting the appropriate approvals and notifications in place to make sure that the pricing is where it needs to be is important. And an Excel spreadsheet just isn't going to give that to you.
I think the other thing that I would call it here is that there's other data elements that get pulled into this decision making. I alluded to earlier, benchmarking. That there are important inputs that you want to consider. And those are also stored in some other spreadsheets, so you've got spreadsheets sitting on top of spreadsheets and multiple screens. And so it's really hard to understand why we made the decisions across these various prices and who's approved it. So it's that piece that then imposes some significant risk. And then certainly understanding and making sure that all the appropriate teams and key stakeholders have been engaged and signed off on the debt pricing is key, and that's hard to capture inside of a spreadsheet.
Cheryl Brown
Yeah, what you described is basically moving a mountain. And doing it annually.
Todd Klapprodt
It's as much of a workflow problem as it is a modeling and pricing problem.
Cheryl Brown
Yeah. And so I can imagine, I can now empathize with that groan that we heard in the room. So you talk to a lot of financial institutions in your role. Are there some other common pain points other than just managing all the data in this very manual process? Are there some other frustrations that you're hearing about repricing?
Todd Klapprodt
Yeah, keep in mind, this is happening on top of their current day job. So as we talked about, this happens over the course of months. And whether your product folks … you're not out there evaluating and understanding the market and looking at new products to introduce. Or if you're on the sales side, you're not talking to your customers and understanding opportunities for growth. So it's just the time it takes to get this right and this is absolutely something that you want to make sure that you get right, I think is key. And so that is pulling away from all the other important things that you have to do.
And I think a lot of the time that we see getting spent on this is not actually in the value-add. The modeling and understanding where pricing should be, that's a value-add process. I think having the conversations with your customers to understand their reaction, these potential increases, that's a value-add. So I think a lot of calories are burned effectively in this process by just managing the process itself, and understanding what's the latest version, where are we in the workflow? Talking to other stakeholders. So it's really the time that's wasted in just the process itself, and not in the value-add processes.
Cheryl Brown
So it's such a big lift, but it's so necessary. But in a world where we are focused on efficiency, we're trying to do more with less. Banks’ big corporate clients are focused on efficiency. FIs themselves are focused on efficiency. And this is something that takes up a lot of manpower. Are some banks just choosing to not do it, or is it even an option? Must you reprice, and how often must you reprice?
Todd Klapprodt
It's a great point. And I think there's a couple of things that we're seeing. I think the very disciplined banks and those that have a decent process or have realized the benefits of this are still trying to do it at least in some regard. But I think you see varying levels. So some choose not to do it, especially in the COVID years. I think we've heard some banks say, "Well, as we engage them, it's been a couple of years, but this is the year we're going to do it." So they just push it off and push it off and push it off. Or the other, I think common case that we see is just tackling the standard pricing. Earlier I talked about as you evaluate the pricing, I think there's two pieces of it. What is our current standard pricing, and what exception pricing or what waivers have we given out there? And those need to be evaluated as part of this process.
So the easiest thing to do is just to tackle your standard pricing. You can look across your client base and see who's getting that. But by and large what we're hearing is some, I think the numbers that we see are from 40% to 60% of the services that are granted are discounted in some regard. So there's a lot of discounting that happens. So the easiest thing to do would be just to focus on your standard pricing. So touch the point that's not discounted and then roll those out and feel the lift. But as I mentioned, if you do that, you're missing out on that other large percentage.
And the other piece is that you're generally giving discounts and waivers to your largest relationships. So if you focus just on the standard pricing, then you're going to miss out on the opportunity at some of your largest relationships and probably most profitable relationships. So I think, yeah, what with the reaction has been to skip it, or to do it in pieces, or do certain products, and that's certainly just not effective either.
Cheryl Brown
So it sounds like now is the time to focus on this. A lot of financial institutions are more focused on relationship, pricing the entire relationship, and really making sure that clients are profitable. And so it sounds like now is the moment to act on some repricing automation. So what's changed in the market or in the leadership mindset to make this the right time?
Todd Klapprodt
I think a lot of things. I think one they have seen, they're finding efficiencies in other parts of the business outside of the commercial piece, and so they have a little bit more time to focus here. But I think operational efficiency in generating revenue from non-interest fee products is a key factor. So I think it's those two things. And I think the demand on the loan side still seems a little bit lumpy. And there are so many new products and services that are coming out on the treasury side that I think they're realizing what an opportunity exists on that side of house on the treasury services.
And to build upon something you said earlier, the other piece is more FIs are starting to look at their profitability more at a relationship size, and they're realizing that they're essentially giving it away on both sides of the house. So they're discounting on the loan side, on the credit side thinking it's being made up on the treasury side, but they're not. So now they can see the entire relationship, they realize that they're just leaving a significant profit on the table by not tackling the repricing now.
Cheryl Brown
So what do you see some of the greatest opportunities for automation? Is it just in the data wrangling or is there some decision-making and execution automation possible there too?
Todd Klapprodt
I think it's across the board. I think one of the things that we've put a lot of focus on at Q2 PrecisionLender is the process by which we're getting data out of the core systems, of the billing system, so that we can provide that entire relationship view. So as much time as we can cut out in that initial analysis and modeling phase. And so we talked about that process taking months, we've heard. I think it's safe to say that nearly half of that time is spent just getting data out of those account analysis systems and preparing it for those analyses. So if you eliminate from the process and you can start with a sense of how we're pricing our portfolio, both the standard and the exception pricing, you're in a much better place to do the modeling. So one, I think there has just been more of a focus on data cleanliness, and information architecture, and making sure that we can get data out cleanly. And so that's a piece of it.
The other piece of it, and I really haven't touched upon this, but the other major pain point that we hear is once that you've gone through the process, you've modeled and identified the increases you want to make both for your accurate standard, and for those negotiated prices with your larger clients, getting those updated pricing back into the account analysis system, so ultimately at the end of the day, those, your billing systems need to reflect those change prices, that is incredibly manual as well. And that takes a lot of time, especially for those negotiated prices. As I mentioned, a lot of your larger relationships have discounts and you're discounting multiple products. And so every one of those discounted services for each one of those relationships have to be properly reflected in your billing system.
So there's also, I think the focus on integrations and connecting these disparate systems I think is opening up some opportunities. So it's not only making it more efficient to pull, analyze, model and propose that pricing, we also, I think there's opportunity to consolidate the approval workflow and create a nice audit trail. And then once it's time to go to market, I think that the integration to push the data back effectively, and efficiently, and automatically into the billing systems once you've got those approvals is another massive opportunity as part of this process. Because it's manual on both sides, pulling the data out and then pushing it back in, you open yourself up for a lot of human error, and just a lot of testing to make sure that you've got it right. So I think there's the move to the cloud and this focus on connecting disparate systems has also created some, I think, fantastic opportunities to really streamline the process end-to-end.
Cheryl Brown
So it sounds fabulous, of course. So let's talk about outcomes. What kind of results can FIs realistically expect if they modernize the repricing processes?
Todd Klapprodt
That really is the million-dollar question. And I think it's also going to depend on the size of the organization, but we're seeing financial institutions, regional banks with commercial assets, $20 billion plus, we're seeing anywhere from a 15% to 20% lift in that fee income. And I think the bigger piece, and this is a common thing that's discussed when banks or FIs approach the repricing event is they talk about realization. They'll set a target. We see those targets anywhere from let's say, using those same ranges in terms of bank sizes, maybe anywhere from a 10% to 15% lift, and maybe that translates into a $12 to $15 million increase in your treasury services. But they realize that as part of the process and as manual as it is, they're only going to realize about 50% of that. So banks, maybe their target is $12 or $15 (million), they may be seeing $6 to $7 to $8 million of that. So I think the opportunity is to basically capture all of that, I think to get to that $15 million. And there's a few that get to realize the full 10% to 15%. And I think why that's possible is a couple of other things I think that we talked about.
The other opportunity I think in this whole process is to inform your TMOs and your sales folks when they go to have those conversations with their clients. Nobody wants to approach a client and tell them the prices are increasing. But one of the things that we want to do is to incorporate that benchmarking data. I talked earlier about benchmarking data that's used to set your pricing initially, and to understand where you're priced against the market. That exact same benchmarking data can be leveraged in the pricing conversations, to give your TMOs the confidence that these prices are within reason, they are within market, and the market will support. And this client is not likely to churn.
So I think that's the other piece of realizing this is empowering the sales folks when they're having those very difficult conversations. It's very easy to model out these prices and do it in spreadsheets, but obviously where the rubber hits the road and you're having those conversations, being confident behind these. And that's through the many, many conversations that we've had with our FIs, I think that's one of the other common threads is that fear of attrition. And I think it's a healthy fear. We want make sure that we're not overcharging, we understand our relationships, but I heard so many stories about unwilling or the sales team may be uncomfortable bringing this increase to clients, but when presented with the right benchmarking data and given the confidence, once they have that conversation with the clients, the clients are generally very accepting. Of course we understand where pricing's going, we're seeing across the board. I'm surprised it hasn't happened sooner.
So that was the other kind of common thread is I think that you have to understand your clients, and you have to go in with an understanding of their overall relationship and the temperature of it. So I'm not saying you can just raise it without understanding that. But by empowering and the right coaching and the right benchmarking data delivered when those conversations are being had with their clients, I think can lead to a higher realization rate on those increases. And at least give your sales folks the confidence to have those conversations. So I think that's getting the initial pricing right through that modeling and understanding the market, and what the market will support, and then reinforcing that during this pricing conversations. I think in addition to the efficiencies are where we basically see the real game coming in this overall process.
Cheryl Brown
Yeah, it's a strong business case. Anyone would be hard-pressed to argue with the benefits of this. But anytime you are introducing new technology or automation into old processes, you need buy-in. And the first people you need buy-in from is leadership. So what kind of mindset shifts are needed at a financial institution to move from the “we've always done it this way, it's not broken, don't fix it”—although we did hear the groan so we know it's broken—to something that's more scalable and data-driven? What kind of mindset shift has to happen there, especially at the leadership and then all the way down the funnel?
Todd Klapprodt
I think it's to embrace the technology and have a willingness to understand what the true capabilities are. So I think top down, they've got to embrace just the modeling powers and then ultimately this integration. But you're right, if leadership doesn't embrace the change in buying, for both, it's both things. I think it's the efficiency gains and it's also, I think it's the change to your pricing process. I think that, or at least have those conversations with your clients, I think that's the other piece of it. And evaluate where is the leakage happening? What types of clients are we over discounting or over offering waivers to? And just evaluating that process. So I think it's a willingness to embrace the new technology and the disparate systems being connected through a single process. But it's also the willingness to understand and not necessarily tear apart, but I think scrutinize your current pricing process and address some of those challenges too because that's the other piece of it is as much as we can drive a nice efficient workflow. I think sometimes the pricing process has got to change.
And your point before about getting the sales folks to look at the holistic relationship profitability, that's the other piece, and not just look at treasury revenue and fee revenue independent of the credit. You have to look at it holistically to ensure that we're not giving it away. And really drive that collaboration that needs to happen between credit and the non-credit folks. Anecdotally, and I think this isn't necessarily related to repricing, but I think just to make that point, there was a recent Datos survey. And we talked about this a little bit at CONNECT, but essentially they asked TM service professionals how would they rate the relationship that they have with their credit folks. And I want to say the numbers, I think nearly 50% said that the relationship was either nonexistent or not where it needed to be between credit and treasury.
And that's a very important piece because it's the credit folks that are generally the number one source of leads for treasury. A lot of times the clients will come to the bank looking for credit, new credit opportunities, and that's such a great source of leads for treasury. So if they don't have the collaboration between credit and treasury, then you're going to miss opportunities. And I think the repricing event encompasses that as well, when they're looking at and understanding and rolling out, especially for that exception pricing, you need to understand holistically. And that's the other piece that we've seen as we've had conversations with clients and clients have started to use our platform.
When you show a treasury officer or even the relationship manager the actual profitability from the individual products, and they realize that we're discounting across the board, and they see, it's eye-opening. So I think a willingness to, going back to the original question, but the willingness for I think leadership just to shine a light on the current processes in that relationship, profitability is important. And believe it or not, there has been some resistance because I think there's a fear of, in some cases, rational, but a fear of ultimately showing what our pricing process is or taking a, highly scrutinizing it. But you have to evaluate that as part of this process.
Cheryl Brown
Yeah, just the relationship profitability piece. In the State of Commercial Banking report that we produce every year based on PrecisionLender data, it showed that if you have both that treasury and that lending piece that you have, I think we said, something like 53% higher ROE. It was pretty powerful. And it's something that Gita and Anna-Fay have included in the State of Commercial Banking report for the past couple of years, because it is just such a powerful view into how important relationship pricing really is if you look at the whole relationship, and how much more beneficial it can be to the FI.
Todd Klapprodt
That's right. And treasury services revenue is key because A, obviously we know your larger clients are moving money around, so they have these services somewhere, and so it's sticky. So if you can win that treasury business and do so in a way that's meeting your client’s needs, but obviously profitably, that is a customer that's going to stick around for a long time. So that's the other piece of, that's the other side of that coin is yes, they're very profitable year over year, but they're also very sticky. And treasury service relationships are FIs’ most valuable relationships without a doubt. But they have to look at their profitability across the board to make really informed decisions.
Cheryl Brown
Yeah. Well, Todd, this has been great. This is your first time on The Purposeful Banker. I hope it won't be the last. Thank you for joining me.
Todd Klapprodt
Great. Thank you, Cheryl.
Cheryl Brown
And that's it for another episode of The Purposeful Banker. A reminder to share your feedback on our podcast content at q2.com/podsurvey. And there's a link in the show notes. You can subscribe to the show wherever you listen to podcasts, including YouTube, Apple, and Spotify. And you can see our archives and podcasts at hub.q2.com/podcasts with an S on the end. Until next time, this is Cheryl Brown and you've been listening to The Purposeful Banker.