A survey conducted by Treasury Strategies in 2018 suggested that more than two-thirds (70%) of US corporate treasurers reviewed their bank service fees on a monthly basis.
According to Heena Ladhani, Ecosystem Manager at GTreasury, there is vast potential for reducing the amount US corporate treasurers spend on bank service transactions fees by becoming better informed for price negotiations.
She highlights two ways in which treasurers can perform more accurate analysis and optimise their bank transaction costs, the first being comparing fees across all banks and not just those they already use, and the second taking account of bundled services and volumes when calculating costs.
However, Daniel Blumen – a US-based treasury consultant and partner at Treasury Alliance Group – says he has never met a corporate treasurer that reviews banking fees on a monthly basis.
“Most will review their monthly statement (or account analysis in the US) but this is for service usage rather than the level of fees,” he says. “Fees might be scanned annually – or more frequently if the bank is doing a review – but the reality is that most treasuries don't make banking moves based on fees.”
Modern treasuries have got so much going on that bank fees don't make the high priority list unless they are a large retailer, suggests Blumen. “Hedging, investments, new payment channels, tax changes, new business models, and acquisitions are the big impact items,” he says. “So, the wise treasurer will bundle bank fee benchmarking with these impact items as they will require banking changes to be made anyway.”
The way banks charge their clients is opaque and it is difficult to find appropriate benchmarks. In addition to transaction volume, they need to consider factors such as the credit rating of the company and the scale of deposits left with the bank.
That is the view of Sander de Vries, Senior Manager at treasury consultancy Zanders. “Following the broader trend of centralisation and digitisation, best market practice is to centrally negotiate bank requirements and pricing and add local requirements to the umbrella agreement,” he says. “In this way, pricing grids are centralised and standardised.”
Of those treasurers who use benchmarks, many only do so on a line-item basis, says Ladhani. “Most also lack processes to recognise the impact of volume on benchmark prices,” she adds. “These factors leave a lot of room for misconceptions and missed opportunities to trim costs.”
The problem is that it is far from easy for corporate treasurers to access and compare data on bank charges across all banks, not just those they have a relationship with. “This is not accidental,” says Blumen. “Identical fee codes from different banks – particularly in the US – often describe different services.”
It can be challenging for corporates to get clear visibility on the total bank fees which are paid across the company, let alone the bank charges at non relationship banks.
“This could be done through a regular request for proposal process, although that would only include relationship banks,” says de Vries. “But in many respects, a narrow focus on pricing is the wrong approach. It is much more important to look at other performance indicators such as response time or issue resolution and the extent to which the bank’s capabilities are addressing the company’s requirements.”
Finally, Blumen recommends corporate treasurers review their statements annually to ensure they are not paying for services they don't use or services that could be replaced with more cost-efficient alternatives.
de Vries also suggests setting up a red flag system to identify new conditions or fees, which should be put on the agenda of the next bank relationship review.