The importance of the relationship between treasury professionals and banks cannot be overstated. It’s one that needs to be managed as closely as any other treasury risk, as positive banking relationships create a system of financial stability and resiliency.
Regular reviews help to determine the services a company is using with each banking partner, along with the associated costs. Armed with this information, treasury professionals can make comparisons and negotiate better fees and rates, potentially saving the company a lot of money.
The AFP Treasury Connect: Bank Relationship Management, exclusively sponsored by apexanalytix, explored the topic of bank relationship management from multiple distinct points of view. The following are key takeaways from the five sessions.
INSIGHT #1: CONSIDERING A NEW BANK CAN SERVE AS A WAKE-UP CALL
There are a wide variety of reasons why you may be going through the RFP process and reconsidering your current bank relationships. Anything from simplifying complex banking relationships to seeking to take advantage of new services your bank doesn’t offer could be driving the review. Regardless of the reason, the very act of conducting the review can serve as a wake-up call for you — and for your banking partners.
In the first session, “Operational Considerations of Bank Selection,” Jeff Diorio, Managing Director of PMC Treasury, and Kasandra Jones-Wells, CTP, Vice President of Tax and Treasury at Oaktree, laid out seven considerations that need to be made when selecting a bank.
- How are you going to compare and evaluate the potential providers? One key consideration is the bank’s portal: Do you like it? Is it easy to use? Does it have adequate security controls and features? Can it integrate with your internal systems?
- Can the bank integrate with your ERP and/or your TMS?
- What coverage do they offer? Locally, regionally, internationally? Depending on your needs, this could be a significant consideration.
- Then there’s scalability. Can the bank grow with your company?
- Specialization can be a factor. Are they versed in treasury products? Are they familiar with your industry, e.g., retail, the auto industry?
- Capabilities — For example, fraud and audit controls such as a positive pay and lockbox.
- Cost and fee structure — “This is last on purpose,” said Diorio. “Costs should not be the only driver for the relationship. Sometimes the lowest cost provider is certainly not the one that’s going to give you the best service.”
One internal consideration was added at the end by Diorio, and that is internal support. “If you’re changing banking relationships, that’s going to impact a lot of people,” he said. “If you’re about to fundamentally change how certain individuals throughout the organization are going to interact with the bank, you don't want that to be a surprise to them either.”
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INSIGHT #2: THE STATEMENT FORMAT YOU USE CAN MAKE A DIFFERENCE
One of the topics covered in the session, “Adopting the Principles of Bank Fee Analysis” — presented by Todd Yoder, Executive Vice President and Chief Financial Officer, S&B USA, and Bridget Meyer, CTP, Head of Strategic Relations, Redbridge Debt and Treasury Advisory — was the pros and cons of different statement formats.
Ultimately, “The journey starts with the data — getting access to it, getting the best statement formats available from your banks in order to automate and digitize where you can,” said Meyer.
Here’s how it breaks down:
|PDF statements||The official statement of record; the source of truth. Helpful for analysis, provides notices and announcements, and the cost is low.||You have to do everything in a PDF, which means it relies on human eyes and makes them difficult to analyze.|
|CSV statements||Free (or very cheap), provided by banks and will include AFP codes generally, as well as internal bank codes. Filterable and sortable, so no manual entry or special software is required.||Not all banks offer CSV. Additionally, automation is limited, multiple tabs cause issues, and there are some challenges with the formatting consistency.|
|EDI 822 statements||Completely machine-readable and provide data and analytics — great for more than two banks or if your goal is automation. Vendors can use them for comparison with monthly pricing grids.||Single currency only, so they don’t work outside U.S. Also need special software, so they cost more. And banks cannot go back historically, so you need to enroll immediately if you ever plan to automate.|
|BSB statements||International and offer automated visibility, which provides treat data and analytics. Easy monthly automated allocation and error checking, and you can report on taxes with multiple currencies.||You have to enroll. Banks cannot go back historically, so if you ever plan to automate, sign up now.|
Regardless of the format you choose, “It is a huge, rich data set that gives complete visibility into your treasury and overall financial operations,” said Meyer.
INSIGHT #3: SUPPORTING AND PROTECTING THE LIFECYCLE OF THE COMPANY’S BANK ACCOUNTS IS AN ESSENTIAL PART OF YOUR BANKING RELATIONSHIPS
In the session aptly titled, “The Bank Account Management Lifecycle,” Jessica Sager, Director, Corporate Finance and Treasury Management at PwC, and Ryan Millard, Senior Manager of Treasury Operations at American Airlines, discussed seven key components:
- Opening bank accounts: Requirements vary across banks and countries; however, we know that KYC is going to be a part of the process regardless. And you can get started on the standard items ahead of time, even without knowing which bank you’re going to use. These include items such as physical and registered addresses, and tax and registration identification.
- Closing or modifying bank accounts: There is most likely a centralized process for this procedure. That said, be sure to check with both Tax and Legal to confirm the account is no longer needed. Any changes to a bank account can have organization-wide consequences.
- Adding and removing signatories: Typically managed centrally, a couple of best practices include fully replacing the signatory card instead of simply adding a name, and performing a regular review of signatories. KYC requirements are part of this process also in the form of employees being required to provide passports or address verification documents.
- Managing bank requirements and legal documents: Secure storage of these documents, particularly given the private information included in them, is critical. How this is done can vary depending on the region or country where they are being stored. Refreshes of key documentation may be required by banking partners.
- Account services and access reviews: Regular reviews of bank account services should be conducted to make sure everything is working as it should, and to see if there are any new services you want to add or any unused services you can remove. Portals and TMS systems should also be reviewed regularly to ensure only the proper people have access.
- FBAR reporting: These reports must be filed annually to report 1) a financial interest in or signature or other authority over at least one financial account located outside the U.S., and 2) if the aggregate value of those foreign accounts exceeded $10,000 at any time during the calendar year. Many TMSs have the capability to create FBAR reports.
- Bank fee analysis: Bank fees should be reviewed every month to ensure accuracy and that they are aligned with what you committed to. Comparison shopping is highly recommended to make sure you’re receiving a competitive rate and to see if there is any room for improvement. This is all made a lot easier with technology, i.e., automate the analysis.
INSIGHT #4: THE END GOAL OF THE API IS NOT THE API, IT'S TO ENABLE SOME TYPE OF BUSINESS FUNCTION
“So, what do we do to get started with APIs?” asked Paul DeCrane, CTP, Zanders Partner & Americas Leader, and one of the presenters of the session, “Getting Bank Connectivity Right.” As DeCrane and Bruce Edlund, Group Director and Assistant Treasurer for the Cloud Software Group explained, there are four strategy milestones to help you get started with APIs.
- Plan. “For anything to get done from an innovation perspective, you’ve got to have a problem statement or a use case for which it provides benefit,” said DeCrane. Lay out the risks and opportunities as well as the costs associated with it.
- Organize. Collaboration and transparency are key here. “Get organized around how you're going to collaborate in developing those APIs,” said DeCrane. Identify available resources, including human and financial capital. Regarding transparency, ensure you have buy-in from the owner, stakeholders and affected departments.
- Lead. This is where you drive the technology strategy via a project mandate, which may include a team charter with your goals, objectives and constraints clearly outlined. Decide whether this is better constructed by way of an SOW or a project plan.
- Control. At this milestone you’re asking, what did we learn? What value did you get out of the investment? How have you improved your capabilities across the organization? What are the KPIs? The information should be shared with both internal and external stakeholders. And finally, you want to look to continuous improvement — what can you do to make sure the applications and interfaces stay alive, and connectivity is at its best, not just with the current technology, but with new innovations? “Because again, the end goal of the API is not the API, it's to enable some type of business function,” said DeCrane.
INSIGHT #5: AUTOMATE AS MUCH AS POSSIBLE TO PREVENT CYBER ATTACKS OR PAYMENT FRAUD
In the final session of the series, “Preventing Fraud through a New Standard in Bank Account Change Controls,” Matthew Morookian, Director of Marketing at apexanalytix, shared the latest in cyberattacks and payment fraud — and how you can help to prevent them.
“We named the enemy … manual processes,” Morookian said, quoting one of his clients. “Anything manual is susceptible to fraud, and it's vulnerable,” he said.
Key takeaways from the session include:
- Cyber criminals are leveraging the latest technology to get past controls – and they are sharing every vulnerability about you with other criminals.
- Layers of bank account controls are required to protect against today’s payment fraud.
- Automated bank account ownership verification is the least used but most effective control.
- Enterprise community data sharing fills the gaps and can help us protect each other.
“You want to remove human interactions with the supplier as much as possible and replace them with automation to prevent cyberattacks and payment fraud,” said Morookian.
The more treasury professionals understand about the intricacies of managing banking relationships, the better prepared they are to add value to their organization. Exploring key considerations in bank selection, learning which statement format is best for your organization, understanding key components of the bank account management lifecycle, having a roadmap to get you started with API, and learning the latest in cybercrime and payment fraud — and how to best protect your company — made this a highly informative and valuable event for treasury professionals at every stage of their career.