(Bloomberg) --After about a decade of steady growth at its U.S. investment bank, Royal Bank of Canada is launching a cash-management business in its "second home market" in a bid to win more of its clients' spending.
Canada's biggest bank hasn't previously offered treasury and liquidity-management services to the large companies it works with on deals, financing and other capital markets services in the U.S. Chief Executive Officer Dave McKay has teased the bank's plans to change that several times on recent investor calls, and the bank on Tuesday officially announced the new services, dubbed RBC Clear and aimed at Fortune 1000 companies.
The Toronto-based bank has spent the last two years gathering client input and building a platform for customers to manage the flow of payments and receivables, pay taxes in the most efficient jurisdictions, balance currency risks and more, said Kartik Kaushik, who joined the firm from Citigroup in 2022 and is now head of RBC Clear.
"The strategy is centered around creating relationships and deepening relationships with the clients," he said in an interview, adding that Royal Bank had heard from customers that there was a gap in its offerings. "Given our intent to further invest and scale up our U.S. business, this is a logical expansion of the business model."
Kaushik estimates that about a third of institutional spending on capital-markets services goes toward cash management — potential revenue that Royal Bank was leaving on the table. The company also will gain a new source of organic liquidity and pick up better information on its clients' capital-markets needs.
U.S. cash management revenue took a hit during the pandemic but has since rebounded, according to surveys published by Ernst & Young, which estimated that the top 100 banks earned about $20 billion in such fees in 2022.
Helping businesses manage their cash flow is also part of a plan to boost the fortunes of Royal Bank's City National Bank U.S. subsidiary, which has recently been beset by challenges, including a surge in funding costs, deposit outflows and a regulatory probe into its risk controls. Royal Bank says City National grew too quickly and has installed a new management team there and is investing in compliance controls.
"Going from a community bank to a regional bank is not an easy journey," McKay said during an earnings call in December when asked about what Royal Bank could have done better with City National. "We will have a platform that's more profitable and able to grow multicurrency relationships, including U.S. cash management, into the mid-corporate sector in the coming year."
Royal Bank hopes to win market share from a number of already-dominant U.S. players in the cash-management space by offering a better user experience, more akin to what retail consumers have come to expect from digital banking through smartphone apps, Kaushik said. Since it built the platform from scratch, he added, it's not tied to older, analog processes, and will offer better ability to track payments and faster service on tasks that can take weeks on legacy systems, such as opening an account.
