From the November 2009 issue of Treasury & Risk magazine

Gold AHA Winner in Cash Management

The U.S. Postal System tested the limits of nationwide depository services providers and found banks and armored couriers couldn't do as much as first thought. Nevertheless, USPS centralized, standardized and automated much of its depository activity and cut 11%, or around $3 million a year, from its fees.

Centralization and automation (implementing Weiland Financial Group's BRMEdge) reduced from 80 to 2 the number of employees responsible for reviewing account analysis statements and paying bank fees. In addition, research and reporting that used to take 90 people 90 days can now be performed by three people in three days. Much work was brought from field locations to the central treasury, without increasing the headcount in treasury. Consolidation into a single network was an ambitious goal but looked promising at first. "But no bank bid for all 80 of our districts," reports treasurer Robert Pedersen. "The largest bid covered 74. The market, we discovered, was unable to support a truly nationwide solution for depository services for a large, cash-intensive retailer." The problem was partly geography. No bank or courier service covers the whole country as USPS does. A bigger problem was volume. The Postal Service deposits huge amounts of cash and checks daily, totaling $160 million. The $65 million in checks was not a problem; the $95 million in currency was. In the end, banks and couriers declined to build the capacity needed to process all USPS deposits under one contract. The project still had legs. It called for USPS to move from decentralized contracting for depository services, with nine area negotiators coming up with nine pricing and service agreements, to a single standardized contract. Under the old process, the same bank might charge different prices for the same kind of deposit, depending on where it was made. To achieve simplicity and clarity in evaluating bids, USPS required all bidders to bundle prices into nine categories, regardless of how the banks identified and charged for specific services. This pricing template allowed USPS to see at a glance which banks were high or low. At the end of the process, the business was spread among 15 banks, with the top five handling 73% of the deposits and the top two handling 47%.

In the past, USPS had not sought bids directly from couriers because it assumed that banks with their aggregate volume were already negotiating the best prices possible. For this project, it went directly to couriers and found it could drive a better bargain. Armored couriers were cut from 11 to seven and banks from 21 to 15, in the latest step in a squeeze that has brought USPS' depository banks down from around 5,000 in the late 1990s.

The $3 million savings in fees was a pleasant surprise. "Since we had just cut about $3 million from bank fees in 2004 through contract negotiations, we were not sure further savings were possible," Pedersen says. And the money saved was only part of the payoff, he says. "We took a decentralized organization, restructured and centralized it at headquarters under treasury, and integrated our provider banks and armored courier services into a standardized nationwide system of daily pickup and depository services."