Bank relationships: It’s not you, it’s me

“Indifference and neglect often do much more damage than outright dislike.” While JK Rowling didn’t pen that line with corporate treasurers in mind, it certainly has a grain of truth in the context of bank relationships.

Poor service is cited as one of the main drivers for switching cash management banks. New clients are often fawned over, while existing ones slip down to a schedule of regular maintenance – and not much more.

Pricing competitiveness can also go off the boil in an established relationship, according to Doug Tropp, corporate treasurer at the travel online services group Priceline. “As a large corporate, you need to make sure that your banks aren’t getting complacent about pricing and that there is a regular review to ensure it remains competitive, as well as commensurate with the size of your operations,” he suggests.

Growing apart

Just like people, banks and corporates often outgrow each other too. As Aurélien Viry, head of payments and cash management, Société Générale, explains: “Corporates are not static – they grow, they expand internationally, they sell certain subsidiaries. As such, they have evolving cash management needs and the driver for switching banks is often that the one they currently work with can no longer support their strategic plans.”

Or perhaps the bank simply doesn’t offer the range of solutions required to run a modern, efficient treasury function. “We see a number of corporates moving banks in order to access more value-added services, so things like debtor management or treasury management, not just pure banking or cash management functionalities,” says Valérie Zerlini, Société Générale’s head of cash management marketing and products.

Of course, banks change too, not just corporates. “The bank may be merging with another institution, for example, or perhaps refocusing its strategy in terms of geography, or customer segment, and moving away from certain business lines,” says Jürgen Kohler, group treasury manager, treasury and funding at Austrian polyethylene and polypropylene producer Borealis.

Indeed, in 2015 Royal Bank of Scotland (RBS) decided to exit its global cash management business – which at its peak looked after 7,000 businesses – and cater only for corporate customers in the UK and Ireland. While an optional referral relationship was arranged with BNP Paribas, thousands of treasurers were left simultaneously looking to switch banks.

What’s more, as Tropp notes: “When a bank is sliding downhill, or decides to refocus its strategy and pull back on operating in certain jurisdictions, the worry is that their talent is already leaving. This means that the most skilled people who can help with ensuring a smooth transition to a new provider won’t be there anymore, presenting a level of operational risk.”

Avoiding pitfalls

Whatever the catalyst might be, switching banks requires significant effort and preparation from all sides. For corporates, this starts with defining exactly what is required of a new bank and deciding which ones to invite to tender.

While large corporates, with an existing panel of banks, typically find it easy to decide who to invite into the request for proposal (RFP) process, smaller organisations appear to have a decreasing number of banks interested in their business. “There was a time when certain global banks dreamt of being able to service all client segments in all geographies. But that simply isn’t practical. Today, each bank has to be clear about which segments it is in a position to serve, and in which geographies,” confirms Viry.

As a result, small and medium enterprises (SMEs) have a limited choice of banks, especially ones that operate internationally – a vital criterion for growing SMEs. They must therefore seek out international banks that are open to smaller businesses in the specific geographies required. They do exist – around one in three exporting SMEs in France are clients of SocGen, for instance – but finding the right one(s) will require careful research.

The perfect RFP  

Significant homework will also be required – by SMEs and large corporates alike – to nail down the scope of the RFP. “During our latest cash management tender, we drew up a ‘1000 points’ matrix containing all of the company’s needs, which also served as the different fields that we would use to assess the banks’ responses to our RFP,” says Eddy Jacqmotte, Borealis’ manager cash and bank – head of back office administration. “This covered everything from service to technology and regional footprint.”

Among the added benefits of this kind of matrix, he says, is that it enables you to give specific feedback to the banks after the RFP process – which is important for maintaining good relationships, whether or not they were awarded the business.

Masquelier also has tips for ensuring that relationships don’t turn sour. “Sometimes, banks expect too much from corporates in terms of ancillary business,” he says. Corporates therefore need to be careful that they don’t oversell their own potential during the RFP process and give the banks the right figures for the volumes they can expect.

He also urges treasurers not to issue ‘false’ or unfair RFPs. “If you go through an RFP process, you should be prepared to switch banks based on the results produced by your balanced scorecard. An RFP shouldn’t be an exercise that is solely undertaken with the aim of reducing the fees at your current provider.”

Ensuring compatibility

Leaving the morality of RFPs aside and returning to the practicalities, Tropp says that the RFP should be circulated widely within the company so that any function that is touched by banking can contribute to the RFP process. This will help ensure that wider operational wants and needs – not just those of the cash management team – are addressed by the next bank.

In his career, Tropp has been fortunate to see the RFP process handled “really well, where everyone in the organisation is on the same page.” However, he adds that there are several horror stories out there in the industry; for example where decisions have been taken in isolation and it is only at the implementation stage that companies realise that certain interfaces won’t work in other departments.

This comes as no surprise to Andreas Günther, general manager for continental Europe, global technology and operations, at fintech provider Broadridge, “since new projects demand new set-ups, which impact the whole sequence of functionality and departments – technology, operations, external back-office providers and treasury management systems (TMSs),” he says.

The situation is exacerbated by the fact that banks don’t always use the same technology, which is why standards are becoming increasingly important to corporates and more companies are considering channels such as SWIFT. A good way of ensuring compatibility with your bank’s technology – and testing it upfront –  is to use SWIFT’s MyStandards, says Masquelier. This is a collaborative web platform where banks can share their message implementation guidelines and other documentation for MT, MX and ISO 20022 messages.

Invest time

Another useful tip for weeding out potential incompatibilities, technical or otherwise, is to invest face-to-face time in the RFP process. Borealis spends a day with each bank to ensure that they understand how the company works and what it is looking for. “We have found that spending a little time up front leads to a much better quality response to the RFP and ultimately saves time further down the line,” notes Kohler.

Before making any decisions, the company goes one step further. “We typically allow our banks a one-month timeframe to respond to the RFP and then we set up a meeting with each of them to go through the details in person,” says Jacqmotte. “This is helpful because in the world of transaction banking, apples are not always apples, so it’s important that we have a clear understanding of precisely what the bank is proposing.”

This is also a good opportunity to air any foreseen hurdles – such as acceptance of know your customer (KYC) requirements – which is a common stumbling block when changing banks. Kohler recommends compiling your own KYC package before switching banks and getting this pre-approved to make sure that everything runs smoothly. “After all, if your KYC is rejected, you won’t be able to open any accounts,” adds Masquelier.

Patience is a virtue

A final piece of advice is to build-in sufficient time for any move. Common pitfalls, says Viry, include underestimating the timescale needed to achieve complex set-ups, such as cash pooling structures; and trying to make up for lost time by condensing the testing phase. “It’s critical that corporates allow enough time for testing in order to avoid disruption of service,” he adds.

Given the long timeframes involved – it can take six months or more to migrate from one bank to another – Zerlini believes that making sure you click with the bank’s implementation team is also important. “You need to be comfortable with, and confident in the abilities of, the people you are going to be working with on a daily basis.”

Having a good relationship with the implementation team – and their direct dials – should also assist in getting any issues, including connectivity problems, resolved as quickly as possible. After all, some hiccups are only to be expected; but with sufficient groundwork and the right contacts, they can be minimised.

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