Corporates call for tailored TS services amid retrenchment fears
Treasurers tell Euromoney that banks should provide more bespoke solutions to fulfil their ever-more complex demands for transaction services. Banks' retrenchment, from products and services, is further widening the gap between the expectations of corporates and banks.
A growing compliance burden – from know your customer (KYC) due-diligence to anti-money-laundering efforts – and market pressures to retrench from low-returning countries are challenging wholesale banks’ efforts to provide products and services for ever-demanding corporates.
Sometimes banks focus too much on the services they offer rather than the quality or insight those services can deliver
Christopher Donohoe, Ingersoll Rand
As a result, banks in the past two years have committed to providing a customer-centric, often product-neutral, approach, which, in theory, consists of a bottom-up assessment of the needs of a given corporate and bespoke solutions.
However, the jury is out on the success of such an approach.
Matthew Davies, co-head of product management GTS EMEA, at Bank of America Merrill Lynch (BAML), says: “Historically, what we saw was banks that had a very standardized approach to their offering with no deviation, and those who said they would do whatever and wherever.
“This latter approach is not sustainable in the long term. The cost of operating continues to grow and results in a position, as we have seen, where some banks have to pull out of offering certain services or products.”
The cost of meeting KYC due-diligence requirements can be up to $50,000 for a single client, forcing some banks to withdraw from less-profitable markets if the business is not covering the cost.
Davies is seeing increasing numbers of corporate-issued requests for proposal requiring banks to show a dedication to a particular market, through investment or the products they are planning to launch.
Banks are attempting to react to the requirements of their individual clients, but creating a wholly custom-built service is not always feasible due to the expense involved.
“There needs to be a balance between creating something that is bespoke, and giving clients a degree of flexibility,” Davies adds.
The split between corporate demands and what the bank ultimately delivers partly lies in a mismatch of expectations.
Banks must strive to understand the needs of their clients going beyond pure financials
Enrico Camerinelli, Aite Group
Christopher Donohoe, assistant treasurer at European industrial company Ingersoll Rand, says the shifting banking landscape is creating a lack of transparency around what corporates can expect to receive from financial institutions at a time when they need greater guidance.
“Banks need to act more as an advisory service to their corporate clients and be transparent in aligning strategies which needs a strong relationship built on credibility," he says. "We have seen a number of announcements over the last year in relation to banks pulling out of various products and countries, as well as bringing in holistic changes on existing products.”
Donohoe adds: “Transparency is also required in terms of assisting their clients to choose the right products and services for their business, and helping them stay abreast of upcoming changes. Sometimes banks focus too much on the services they offer rather than the quality or insight those services can deliver.”
Enrico Camerinelli, senior analyst at Aite Group, agrees banks run the risk of developing fragmented methods of dealing with their corporate clients, which is re-shaping their expectations.
“As soon as a bank claims to be customer-centric and willing to sell solutions and not products, customer expectations immediately grow exponentially,” he says.
“Banks must strive to understand the needs of their clients going beyond pure financials.”
Camerinelli is writing a paper on the support corporates need to go global. He has found 75% of the concerns they face are not related to finance, but rather on issues around organization, such as not having a workforce experienced in exports, to commercial questions, such as how they will cultivate an expanded customer base. These areas also need to be addressed as part of the bank and corporate relationship.
Matthew Davies, BAML
Davies explains that BAML has worked on developing products, which can be modified to suit individual client needs, but that more work might be needed on providing clients with further education to ensure they are reaping the full benefits. The bank developed its Global Liquidity platform to be universally accessible, but easily modifiable, to suit the reporting and cash-pooling needs of the individual treasurers.
The bank also offers educational sessions for its CashPro platform, its proprietary global payments channel, but he admits this is not a substitute for having a strong understanding of a given corporate’s operations.
Ingersoll Rand’s Donohoe suggests banks can provide more targeted methods of assistance for their clients. He suggests pre-defined alarms to alert treasurers to particular changes that could impact their business, such as shifts in sanction regimes, regulatory requirements or a move to a negative-interest regime on cash-pooling structures, for example.
The treasurer also says bank-led education efforts would also be highly beneficial to increase the skillsets of treasurers, such as in-house banking sessions on specific issues and proactive training.
There is a limit to the extent to which banks can operate within the shifts in the market, but still they can take proactive steps to preempt changes and create systems that are beneficial to clients in the long term.
Jim Volkwein, head of trade finance and cash management for corporates, Americas, at Deutsche Bank, cites the example of the need for a common messaging standard, which was made apparent in 2001. However, the standard ISO 20022 took several years before it gained international adoption, driven by Sepa backing.