A less-than-solid bank relationship is risky for both the corporate and the bank. For the bank, a poor relationship not only risks loss of immediate business, but also reputational damage – which can cause loss of future business too. For the corporate, a weak relationship could mean that when the corporate needs it the most, the bank may be less of a resource than expected.
In an ideal world, treasury-bank relationships would be equal. Unfortunately, this isn’t an ideal world and so that’s not always the case. Further, some companies have more negotiating power than others: a corporate with a large cash surplus may have more freedom when choosing banking partners, whereas a small corporate that has no surplus cash may be at something of a disadvantage.
It’s a treasurer’s responsibility to ensure that the banking needs of the business are being met, and that operations run as smoothly as possible. However, this can become particularly difficult when companies have a presence in multiple regulatory geographies, resulting in numerous banking partners and decentralised treasury structures.
For Setareh Golchin, Senior Treasury Projects and Bank Relationship at Total Oil and Gas, bank relationships should always be tailored to the corporate. “Each has a unique desire. For a bank, it’s about strengthening loyalty to your client, getting to know your client’s particular situation and needs, and adopting to changes in their financial and business needs,” she says.
Golchin says banks should be focused on deepening and growing relationships with their corporate clients. Key to this, she says, is a good relationship manager “who should be familiar with the bank’s products and services in order to be able to introduce the appropriate products to the corporate.”
Etosha Thurman, Head of Sales and Client Engagement at Capital One Treasury Management, believes that communication is key. “An ideal banking relationship involves openness and a willingness to partner together to drive efficiency and transparency in cash and risk management processes, with the goal of supporting business growth and profitability.” Clear and meaningful communication with the right banking partner make this achievable, she says.
Two-way communication is imperative for a good bank relationship. But according to Golchin, the bank should be actively pursuing the corporate, keeping up-to-date with their enquiries and, more importantly, acknowledging questions when they are raised. “It doesn’t add much when you send a query to the bank and it’s not even acknowledged,” she notes. “A corporate can only do so much on their side to try and maintain a good relationship with their bank, but the bank should also be keen on maintaining it.”
Know the strengths and weaknesses
Understanding what a bank can offer a business is imperative to a good relationship. For example, a bank that is excellent for trade may not have the same strengths when it comes to cash management. PwC’s 2019 Global Treasury Benchmarking Survey found that ‘bank capabilities’ was the most cited criteria for selecting a banking partner, with approximately 76% of respondents choosing it. This is quite a significant jump from the 2017 survey whereby it was approximately 37% and only the sixth most selected option.
“On a basic level, treasurers should look for a bank that will give them access to capital necessary to support their liquidity needs,” says Thurman. However, she adds, treasurers also need to consider the bank’s ability to help drive them towards best in class cash and risk management processes.
Treasurers should therefore be asking themselves, “Does the bank have a roadmap for driving future cash management technologies?” and “Is the bank making meaningful investments in digital treasury solutions that meet current needs and anticipated future expectations?”, in order to choose the right partner.
Expand your options
For Golchin, the best way to choose the right banking partner is to go through a request for proposal (RFP) process. Through the various RFP decision and implementation stages – project planning, informing RFP participants, pilot phase testing, documentation, account opening and pooling, transfer of services – a corporate can learn and establish which bank is the right one for them to have a relationship with.
“I think one important aspect is the pricing that comes into it, and what pricing the banks can offer,” she says. “This could be a huge competition in most banks and corporates are always looking to save costs.” Golchin continues: “Also very important during an RFP process is that banks should deliver what they promise, and the focus should not just be on winning the RFP as a competition.”
To get a feeling for whether a bank is looking to just win the competition, Golchin says having face-to-face meetings during the process is the best way forward. “You can analyse and judge based on the information you have received – but when you’re in a meeting you can tell if a bank is just in it for the competition to win, or if they’re genuine with their responses.”
Reviewing your bank relationships regularly is necessary to ensure that they are still meeting your needs. However, PwC’s survey found that 48% of respondents reviewed their core bank relationships annually, whilst 27% reviewed them ‘ad-hoc’. When it comes to secondary banks, only 30% reviewed them annually and 47% on an ad-hoc basis.
The survey recommends that “treasurers should conduct systematic, regularly scheduled reviews of their bank relationships,” and that these reviews “should emphasise quantitative elements (eg the estimated wallet shared compared to the financing support received, and the investment made into new technology solutions), and qualitative elements like the level of day-to-day service.”
Automation of processes
A fair question to ask about banking relationships could be ‘why do they matter when everything is automated these days?’. And indeed, technology has taken on a significant role in all aspects of treasury. But human relationships do still matter. “Good relationships and automation are two different topics,” argues Golchin. “Corporate clients, firstly, rely on the knowledge, expertise and experience of the relationship manager prior to automating any service.”
Even when some aspects are automated, Golchin notes that human contact is still needed initially. “As much as we’re trying to step away from paper, we still have to fill in forms and file documents. We’ve always had to complete a set of documents and be in touch in person before automating any service,” she explains. For example, any documentation that needs completing and approval cannot easily be done with an automated system. “If everything has to be automated, it loses that human contact, which is just so important,” she adds.
Thurman agrees. “While the industry is moving towards fully automated solutions, the reality is that we are not there yet,” she says. Thurman notes that fintechs are “reigniting innovation” in the treasury and B2B payments space, but she also believes that banks are still leading the race in many areas. “Banks are driving towards comprehensive, optimised treasury management processes that are being built from dialogue and interaction with companies,” she explains. Having a poor banking relationship leaves the corporate at risk of missing out on insight and innovation that banks offer, particularly in an omni-channel, multi-modal environment, she adds.
Hurdles to overcome
In Thurman’s experience, the thing that affects a treasurer’s relationship with a bank the most is technological sophistication and the ability to provide insight. “A treasurer should be cognisant of their bank’s technological sophistication,” she says. “A top bank will provide outstanding service to companies at various stages in their treasury technology journey, and assist them in that digital transformation if necessary.” She adds, “While any reputable bank can provide data and services, the right bank will help you glean actionable outcomes from this information.”
Indeed, a recent survey by The Association of Corporate Treasurers (ACT), The Business of Treasury 2019, found that technology providers were sixth in the list of external organisations that treasurers engaged with, while financial institutions stayed resoundingly at the top. The report questions whether the latter suggests that treasurers are relying on banks to provide their tech needs, or if they’re simply focused on their day-to-day banking relationships.
For Golchin, it all comes back to communication. “I think banks should always be proactive in exceeding expectations. Failure to notify the client prior to establishing the issue does happen sometimes, and relationships have failed because the corporate has managed to establish what the issue is and let the bank know before the bank has even reached out itself,” she explains.
Some communication issues, such as not responding to emails promptly, or at all, may seem small – but they can soon add up and lead to doubts about the capability of the bank, and how well equipped it is to meet the service demands of the corporate.
If a relationship with a bank isn’t working out, the logical thing to do would be to leave the partnership and find a new one. But this is easier said than done. In Golchin’s experience, corporates, and especially medium-large corporates, often have hundreds of accounts, and the process of opening accounts and going through know your customer (KYC) and due diligence checks can take months.
“The transitional period could take anywhere from three to six months, and if it’s a bigger project with a high number of accounts, this could potentially last up to over a year,” she explains. Rather than go through with the lengthy, and sometimes costly, process, she has found that some corporates occasionally just tolerate the bad relationship with the existing bank instead.
This isn’t the norm, of course; nor should it be. “Switching should be easy,” says Thurman. She suggests that if a treasurer believes that a bank cannot meet the company’s needs, they should initiate a conversation with the bank to first see if there is anything additional that could be done. “If you remain unsatisfied, your bank should make it easy to move somewhere else,” she says. “Banks are not interested in hindering their clients’ progress or in penalising them for finding the right solution for their business,” she adds.
Golchin agrees that switching should be easier, noting in particular that the process should not be long-winded. “Account opening processes should be reduced. I think in this day and age, documentation needs to be reduced, the processes need to be improved to at least reducing account opening from, say, a month, down to a week or two weeks,” she explains. Strong relationships are important for both corporates and banks, so it makes sense that both parties should work together to make them as successful as possible.