Energising Corporate Banking in a New World

In this interview, Cathy Bessant, president of global corporate banking within the Global Corporate & Investment Banking business for Bank of America Merrill Lynch, shares her thoughts on the present and future of corporate banking.

What changes in behaviour have you seen amongst your clients over the past 12 months?

The past 12 months have inevitably witnessed extensive changes. What will be interesting to see is the extent to which these changes are permanent. Two years ago, companies were consolidating their banking relationships. Today, the situation is very different, with treasurers seeking to achieve a balance between the efficiency of their banking and cash management structures on one side, and with diversification of counterparty risk on the other. Therefore, rather than consolidation, they are seeking to work with a group of trusted banking partners based on a business model that provides diversification, flexibility and convenience.

What does this mean in practice?

One example is SWIFT corporate access. An increasing number of companies are seeking to replace their proprietary platforms with SWIFT in order to communicate with their banking partners in a consistent, secure and robust way. In the past, there were frequently concerns that use of a bank-neutral connectivity channel would disintermediate the banks in their relationship with corporate customers. In reality, it is vitally important to support corporates’ efforts to facilitate standardised access, formats and business processes. While in the past treasurers saw competitive advantage in banks’ proprietary software, they are now keen to avoid a relationship with their banks where they are locked in, and want to make decisions on their choice of banking partners based on the quality and scope of services, rather than being tied to them with technology.

How has Bank of America Merrill Lynch responded to this shift in behaviour among corporate clients?

We have been delivering on a multi-year strategy to migrate to a consultative sales and client service approach. Since the financial crisis first hit, we have accelerated this programme to ensure that we have not only the products and geographic reach that our customers need, but also the skills and expertise that they are seeking to leverage our solutions in an optimal way for their business.

A major change for all banks is the increased focus on collaboration. The assumption has to be that a customer will be multi-banked. Consequently, the banks that will prove most successful are those that not only deliver the right capabilities in their own right, but can also make these capabilities available in a convenient way. This requires banks to work together closely to make it as easy as possible for their corporate customers to do business with them.

Corporate treasurers’ criteria for selecting their banking partners have changed in other ways too. In the past, treasurers issuing a request for proposal for payments would focus on issues such as cost and cut-off times. Today, they are looking more deeply into the capabilities that a potential banking partner could provide; for example:

• Transparency - where is cash, and is up-to-date information visible at all times?
• Access - can cash be consolidated and mobilised as soon as it is required?
• Control - is cash secure globally, and is information consistent and reliable?
• Deployment - can cash be deployed in investment solutions easily?

These requirements are resulting in different conversations between treasurers and their bankers. From my point of view, I see this is as a very welcome development, and a significant opportunity for good banks and good bankers. People who are most effective in this profession should want to be challenged and engaged intellectually in problem solving with their clients. Changing needs, however, require a new profile of individual to support their clients. Developing a workforce that can engage with clients at a strategic level has been central to our strategy for a number of years, both developing our internal skills and recruiting people with a variety of expertise. This cannot be achieved overnight, but many of the benefits of a well-timed strategy that has extended over a long period are now coming to fruition.

You mention the new basis for discussions that the bank is having with its customers. How would you characterise these discussions?

Both banks and their customers have recognised that the provision of credit cannot be taken for granted, and there is now a more direct relationship between credit and other services that a customer requires from its banking partners. Related to this, the chief financial officer (CFO) is becoming more closely involved with the company’s treasury activities. This inevitably elevates the nature of discussions between the firm and their banking partners. The acquisition of Merrill Lynch by Bank of America has been extremely positive in this regard. Investment bankers have typically held these senior level relationships and been involved in a company’s most strategic financial activities. By merging the transactional and strategic skills within the business, we are therefore equipped to engage with our customers at the right level and at on the right topics.

How do you see the future of transaction banking in the new world?

Payments have been the unsung part of the banking relationship in the past, but payments and cash management have now emerged front and centre, having delivered consistent value to both the bank and its corporate clients before, during and beyond the crisis. Looking ahead, we envisage that banks such as Bank of America will become increasingly pivotal to companies’ banking strategy. We would normally envisage that companies review their banking relationship every three to five years, so around 25% are approaching the market each year. This creates significant opportunity, but we must demonstrate excellence in execution to meet the expectations of our customers. As portability becomes more important, and diversification remains a factor in our customers’ banking decisions, the value that they place on services, and therefore how they are willing to pay for them also changes. Consequently, costs need to be balanced away from the services that customers consider commoditised, in favour of those that are considered to deliver more value. A truly collaborative financial environment is in sight, with banks, vendors and their corporate customers working together to facilitate easier communication and standardisation. This denotes a major change in the relationship across these various parties, with each one focusing on what they do best and leveraging each others’ skills. For example, Bank of America has formed an alliance with First Data to support the merchant acquiring business, a partnership to promote innovation and expansion.

Historically, this type of arrangement would have been unusual for Bank of America, which preferred to acquire businesses rather than form joint ventures, but it allows us to combine innovation with scale of deployment, and deliver a variety of new capabilities to our clients. This is an exciting time for the banking profession, and for Bank of America Merrill Lynch. The new environment creates the opportunity for fresh perspectives and new scope for collaboration and co-operation. The crisis has energised, rather than paralysed the best people in this profession, and the skills and experience they bring will be recognised and valued long after the crisis. Now is the time to accelerate our efforts, with seatbelts fastened, and we will reach our destination invigorated and successful.