Corporate scorecards shine spotlight on bank strengths and weaknesses

By:
Kimberley Long
Published on:

The way in which companies select their banking partners is evolving. Drawing up scorecards allows corporate treasurers to monitor the state of the relationship between the firm and its financial institutions.

The long-term nature of transaction banking partnerships between corporates and their financial institutions will always run into trouble if the needs of either party are not being communicated.

Jonathon Traer-Clark-160x186
 T he challenge is using the most appropriate analysis relevant to the corporate

Jonathon Traer-Clark,
BAML

To ensure the relationship is a mutually beneficial one, treasurers can actively monitor the situation using scorecards.

The scorecard has long been a feature of the request-for-proposal process, but over time it has become a useful tool for assessing how well things are working between the company and the bank.

At the recent Association of Corporate Treasurers (ACT) conference in Manchester, Gavin Jones, treasurer EMEA at Avon Cosmetics, explained how he effectively uses the rating systems to understand in depth how well the bank is working with his teams and how well it is providing the services they need.

Scorecards generally have the support of banks, as they can be indicative of the wider success of the banking relationship.

Speaking to Euromoney, Jonathon Traer-Clark, director, global business solutions, GTS EMEA, Bank of America Merrill Lynch (BAML), says: "In general, corporates should assess the current state of services provided by banks: the associated fees; revenues – bilateral in many cases; coverage – geographical and other; service performance; product mix; depth and so on.

"Given the variety of services provided by banks, it is also appropriate to go beyond transaction services, to cover investment, debt capital markets and other capabilities such as value add services – for example, consulting. Essentially one is looking to achieve a balanced view of the banks."

Since the transaction banking partnership regularly lasts for up to a decade, making the most of the working relationship between the corporate and the existing banking partners is crucial. Gaining insight is mutually beneficial to both the corporate and the bank when they understand the granular details of the criteria being assessed.

Peter Matza, engagement director at the ACT, says: "Dialogue between the senior levels of the corporate and financial institution will be better informed if both sides have relevant metrics. The bank will have a better understanding of what the corporate does and which of its product suite will be most useful to its client.

"Scorecards allow the bank internally to be more honest with itself and how it works with its clients."

The process also works to identify the different needs of the various sections of the treasury that make up the department. The ways in which corporates are looking to select their banking partners is evolving and the various employees need to have their say on what they require from the working practices.

'Greater understanding'

Avon’s Jones explained how working on the scorecard criteria gives the treasury team a reason to meet up on set occasions each year to revaluate if their criteria remains the same, of if changes have to be made. It can also bring understanding across the whole division of the needs and wants of each department, and where similarities are being experienced.

Matza at the ACT says: "The company can gain a greater understanding of its own operations and review this with their bank. They can assess why they work in a certain way, and look into issues like transaction volumes. They can also ask questions on pricing, such as if there would be any reductions due to greater volumes.

"This knowledge can be used to decide the most effective bank product for the service the corporate needs."

These discussions can enable a better quality of conversation between the banks and corporates, as evidence can be provided of the issues being experienced. It can empower the corporate with the ability to ask questions about the cost of certain services, and assess whether certain tasks would benefit from being completed by one of their other banking partners instead.

Matza says: "Scorecards can enable a more robust conversation about costs between parties. It can generate more open, informed dialogue on what is costing the most money and what the charges are in relation to and where value is being added."

Jones explained that by pulling together the results of the ratings, they can create a heat map which shows the areas that are ranking the highest for satisfaction, and which are in need of further work. This can go beyond gathering quantitative data.

Peter Matza-160x186
Peter Matza, ACT
Matza says: "Assessments are not only based on financial metrics – some treasurers grade according to qualitative value. These can be how materials are presented, or the generation of new ideas and innovations for the client."

BAML’s Traer-Clark adds: "By using a standard method of assessment, corporate clients can evaluate their banks on a quantitative basis. Not only does this set a baseline for data capture, measurement and assessment of banks, it also means that corporates can use this information to support dialogue with their banks.

"Scorecards can provide a consistent method by which to drive this process, and with appropriate qualitative data, can capture the essence of a bank-corporate relationship."

The rating system can also work in the opposite direction. The possibility also arises that banks could use the processes to rate the working behaviour of their corporate clients, and suggest where they could copy the best practices of the other clients the bank works with.

Traer-Clark says this option can draw out some of the most deeply rooted issues being experienced on both sides.

"Banks, much like all businesses, use various tools and applications available in the market to provide insight and data about corporates," he says. "As with all assessments, more information sources are better than less, but the challenge is using the most appropriate analysis relevant to the corporate.

"A bank’s client may communicate on a variety of levels with regard to performance, pricing and so on, but the actual issue is likely to be something far more fundamental – perhaps matters associated with processing a particular payment file, for example."

Traer-Clark concludes: "Root cause analysis, active listening and diagnostic capabilities are equally as valuable as dashboard toolsets in developing and improving relationships. It takes two after all."