Nothing lasts forever, and the same is true of banking relationships. With the COVID-19 pandemic putting both corporates and banks under immense pressure, whilst also prompting the development of new, digital opportunities, we evaluate how the process of switching banks might change – and whether those changes will benefit the treasurer.
For a treasurer, changing banks can be a daunting prospect. The idea of switching over sometimes hundreds of accounts is off-putting enough that many simply choose not to do it. The 2019 PwC report, Digital Treasury – It takes two to tango, found that nearly one-third of respondents only review their core banking relationships on an ad-hoc basis, or not at all – although 7% review core banks on a monthly basis, 9% do so quarterly, and 48% annually. The report issues a call to action for treasurers to conduct “systematic, regularly scheduled reviews” of bank relationships, adding that such reviews should emphasise both quantitative and qualitative elements.
As various technologies are introduced to automate manual processes and centralise treasury systems, banks are having to adapt to keep themselves and the products they offer ahead of the curve and relevant to the modern treasurer. The 2019 CGI Transaction Banking Survey found that client satisfaction is at an all-time low, with just 49.5% of respondents rating the service they receive as a ‘4’ or ‘5’ on a five-point scale (‘1’ is not at all satisfied and ‘5’ is very satisfied) – a 6.5% decline from 2018.
The report also found that 46.3% of respondents cited ‘improving digital customer experience/service’ as a driver behind the review of banking relationships. Meanwhile, when establishing a banking relationship, ‘bank continually improving their products and services and providing innovation ideas’ and ‘bank conforms to industry standards, systems and processes’ were the joint highest rated as ‘very important’ or ‘quite important’ factors considered – each at 84%.
The social distancing measures forced upon everyone by the COVID-19 pandemic have had the unexpected benefit of also forcing digital solutions on those who were previously reluctant. This has particularly been seen in the banking sector, explains Etosha Thurman, Head of Treasury Management Sales and Client Engagement at Capital One. “There have been many clients that have been very resistant to moving forward with digital processes, but in this ‘new normal’, many are asking how they can move away from paper and cheques, and leverage digital solutions instead,” she says.
Likewise, a key challenge for corporate treasurers that became evident at the beginning of the pandemic was the frequent need for wet signatures, says Brice Zimmerman, Global Head Treasury at Alcon. He adds that banks that offered flexibility in this area have had a clear advantage. Treasury is more likely to steer towards banks that make account opening, KYC and deposit confirmations digitally easier, than those who continue to insist on wet signature, postal/courier services and time delays while documents are checked and verified.
Thurman is of a similar view, and notes that the importance of IT support when tackling this manual and paper-based challenge is often underestimated. “I think that’s because historically, IT has not been a function that people associate with treasury, as many of the processes are manual and paper-based,” she explains. But in this day and age, when most best in class treasury management solutions and processes are digital, involving IT is essential.
Banks are also facing similar challenges when onboarding new clients: gaining and verifying client signatures, and coordinating document requirements between different functions for due diligence processes, is a struggle when both parties are no longer centrally located. However, for treasurers, Thurman says they shouldn’t be left alone by their banks to struggle with this. “For us, it’s important to not just focus on getting solutions out there, but to really look at the full client experience, which includes the onboarding effort.”
For Carrie Reyna, Director, Global Treasury Operations at Sysco Corporation, a key thing that treasurers should keep in mind when changing banks is the cost of doing so. “Transition costs can be high or low, depending on your processes,” she explains. “While it may not be intuitive, the more automated your processes, the higher the transition costs may be.” Indeed, whilst the long-term benefits of automation can be substantial, it can significantly increase the costs associated with moving business to a new banking partner.
She gives bank statements as an example. If a treasury accesses its bank statements manually – for example, one person in the team logs into a bank’s portal, accesses the statements and distributes them to the required parties – the transition cost comes only from establishing access to the new bank’s online portal for the appropriate team member. However, if bank statements are received through SWIFT for Corporates, with a service bureau automatically distributing the files to multiple systems, the transitions costs can be significantly higher. This is because multiple teams and third parties will be needed to perform configuration and testing activities to convert from one system to another.
Zimmerman is of a similar view, and notes that this consideration for systems integration is a necessity when considering changing banks. “Treasurers should ensure that sufficient internal resources are available for the projects, as banks tend to jump at the new opportunities with large project teams to support,” he says. Indeed, treasury teams tend to be on the smaller side, and so can struggle to match the size of team needed and supplied by the bank.
A global pandemic isn’t an ideal time for most things, and as Zimmerman points out, that includes switching banks. “During the worst period of the pandemic, I definitely would not have recommended to change banks,” he says, noting that organisations were rightly focusing their attention on ensuring ‘normal’ operations and having sufficient liquidity. “Adding the complexity that comes from changing banks would not have been advisable,” he says.
However, Zimmerman also notes that the picture will be different when things settle down post-pandemic: changing banks can bring new ways of working, with opportunities to improve and automate internal processes and bring additional efficiencies.
Thurman, likewise, explains that the pandemic has presented an opportunity for companies to reassess their account and operational structures. With many companies operating outside of their usual structure anyway, she says the opportunity has arisen to “challenge the status quo” and also to evaluate which bank can best move the company forward. “It gives an opportunity to simplify treasury management, to reconsider the mix of payment channels,” she adds.
The re-evaluation of payment channels is something that Reyna is also optimistic about. “Customers and vendors are more willing to discuss electronic and automated payment methods,” she says, adding that payment types that require employees to be in an office setting or use specialised equipment are being reconsidered for safety reasons. “Electronic payment methods can be executed in remote locations, are usually less expensive, and the settlement timing is easier to predict,” she points out.
Additionally, automatically scheduled electronic payments can save time related to tracking down delinquent invoices, increase the accuracy of cash forecasting and improve working capital. “As you explore these options, you may discover that new banking partners are better suited to executing automated electronic payment transactions that integrate well with your existing systems,” she adds.
When it comes to choosing a new bank, the value of a formal request for proposal (RFP) cannot be underestimated. Reyna supports this and says that if a bank that takes the time to answer a RFP thoughtfully and discuss the requirements, it could be a good indicator of a positive long-term relationship. “A RFP also provides to you, in writing, what the bank is willing to offer. If the bank fails to deliver on the promises they made in the RFP, you have a written document you can reference in your negotiations to resolve the issues or to gain concessions,” she adds.
Similarly, Zimmerman says it’s important to choose a bank with a local presence in the necessary markets. “Local presence should always be the preferred option, as working with partner banks adds complexity in the onboarding processes and in the daily interactions,” he says. Additionally, treasurers should consider and evaluate all services on offer by the bank, even if they will not be used immediately, he adds.
For Thurman, the banks’ perspective should be similar. Banks should always keep a focus on helping their corporate clients get what they need out of the banking relationship. “We’re not just here to sell a solution, we’re here to be part of that solution,” she says.
Offering a few top tips from a banking perspective, Thurman begins with one previously mentioned: leveraging IT as a key partner to help manoeuvre the journey to digital treasury management. “Even if you’re not ready today, have an IT perspective for what you can do in a technology sense to enhance your cash management processes, even if it’s just a foundational understanding,” she says, explaining that this will pave the way for further digital growth and transformation.
Keeping with the theme of partners, she says it’s also necessary to engage internal stakeholders “early and often”. One of the things she thinks is always underappreciated is the breadth and scope of treasury management. “What treasury does touches many teams, so they need to actively engage and create a partnership with those key internal stakeholders.” Thurman believes this will not only make the switch more efficient and effective, but also yield more robust conversations, more best in class practices and will ultimately accelerate the achievement of the cash management, risk management and payables management outcomes that the business is looking for.
When it comes to hopes and predictions for the future, Reyna wants to see a change in KYC processes. “I would love if the banks would get behind a consolidated KYC platform,” says Reyna. “Currently, most banks are either developing a proprietary platform or still processing documents manually. An electronic system with standardised KYC forms by jurisdiction would benefit customers by reducing redundant work and allow for standardisation.” There are of course various initiatives underway for this, most notably SWIFT’s KYC Registry.
Meanwhile, both Zimmerman and Thurman are hoping to see the continuing adoption of digital processes. Zimmerman wants to see fewer exchanges of physical documents and greater acceptance of PDFs as valid forms of a contract, as well as wider acceptance of electronic signatures.
Thurman, meanwhile, wants to see a change in the philosophy of banks. “We’re not just supporting the treasury group, but the broader payables team,” she says. “Banks need to recognise that there’s a wider team that needs support, and we’ve been really investing in training, how-to guides, best practices and operational instructions because we know how critical this multi-stakeholder alignment and awareness is for clients’ success.” She expects and hopes that post-pandemic, this focus on exceptional client service will continue.