#GoStrategic Series:
Part 2 – Domestic and International Bank Fees

INTRO: 

Welcome to the Treasury Update Podcast, presented by Strategic Treasurer, your source for interesting treasury news, analysis and insights in your car, at the gym, or wherever you decide to tune in. 

 

Announcer: 

On part two of the Go Strategic series, host Craig Jeffery meets up with senior treasury consultant Stephanie Villatoro to discuss bank fees on both an international and domestic level. Topics of discussion center around cash management services, merchant cards, credit, foreign exchange and bank relationships. Listen into the discussion to find out more. 

 

Craig Jeffery: 

Welcome to the Treasury Update Podcast. This is Craig Jeffrey. I’m here with Stephanie Villatoro. She’s a senior advisor at Strategic Treasurer. So what’s the topic about today? We’re going to be discussing managing bank relationships and how that’s an integral piece of treasury management and discuss how it impacts different areas of an organization across the globe. And this includes both cash management services, merchant card activity, if you have that, the access to credits of different types, FX and other types of trading and transactions, as well as the overall relationship with your banking partners. Welcome to the Treasury Update Podcast, Stephanie. 

 

Villatoro:

Thanks Craig. It’s great to be here today. 

 

Craig Jeffery: 

I think we had spoke on the topic of bank relationship management in the past, but as part of this series, I wanted to get your take on how should a company view their bank relationships and fees? What should be top of mind? 

 

Villatoro:

So the overall bank relationships in general and managing those, an integral piece of that is your bank fees, not just the relationship part, but the fee part. And companies should be looking at their share of wallet, specifically with their credit banks and other banks, tiering those out in order to make decisions that are more strategic on a day-to-day basis and looking forward into the future. 

 

Craig Jeffery: 

So what are some of the types of fees that you’re talking about or some of the charges that are levied as part of the relationship and transactions and credit? 

 

Villatoro:

So overall fees is your cash management fees. Those are your day-to-day operations, your wire fees, your information reporting, those types of typical cash management fees. There are others that you look at as well. That’s foreign exchange. That is also your merchant card, and your credit facility fees too. So it’s across the board of anything that’s related to one of your banking vendors, fees that relate to them, looking at that overall share of wallet. 

 

Craig Jeffery: 

Now, you talked about share of wallet. Can you explain that again? I mean, wallet or a billfold or the concept of your cash. What do you mean by share of wallet? 

 

Villatoro:

So share of wallet is the overall snapshot of fees that you pay your bank partners. That is the cash management, the merchant card services, your credit facility fees, looking at their share of your total bank spend on a typical point in time. 

 

Craig Jeffery: 

So why do you care about a particular bank, the amount you’re spending with a particular bank? 

 

Villatoro:

So that gives them to the relationship part, so the building of relationships, especially with those that are extending credit to you. Making sure they have a piece of the pie builds that relationship as well. So you want to be able to review, looking at where you’re spending, where you can do individual benefits like FX at a given point of time to give someone an additional piece of the business or a share of the wallet per se, but also helps you make decisions on a go forward basis. When you’re looking at a relationship, you’re going to tier them. If you’re a credit bank, probably a tier one bank, if they are someone that has a lot of cash management services and they may not be in the credit facility, they may be at tier two and then looking at those that are more, “I have to have an account here because I pay taxes in this country,” more of a tier three because it’s a necessity, but they’re not a viable banking partner for long-term. 

 

Craig Jeffery: 

Fair enough. So when you’re looking at this, how do you be important to the share of wallet or how are you important to the different banks? Because you’re looking for long-term relationships, asking for credit, you need certain services that might be specialty or in particular regions. What are some of the challenges when you start looking at those bank fees and the different aspects of the relationship across the globe with your current relationships? There’s a number of complicating factors. We’ve talked about this a lot, but I want to hear what you would summarize that. 

 

Villatoro:

So digging a little deeper into just bank fees, primarily cash management fees on a global basis, banks make it challenging to look at their fees in comparison to another provider. There’s no standardization basically between banking partners. Now, there’s been attempts to do that. That’s your AFP codes through the Association of Financial Professionals. Banks will utilize that, but they still make it a little challenging to compare apples to apples. So that standardization makes it very difficult from a bank to bank. That’s only if you’re in the same country. US is very robust in that regard. Other countries are not. They don’t have any standardization. They are rolling out global AFP codes. But again, very generic, not down to the specific from country to country. Cannot compare apples to apples. 

 

Craig Jeffery: 

More opaque than clear. 

 

Villatoro:

Yes. 

 

Craig Jeffery: 

So with those as challenges, lack of standards, lack of information and ability to see items in a consistent manner, what are some other elements that create complexity? I think the idea of how fees are levied or charged across the globe, there’s certainly significant differences there. Maybe you could just illuminate us on that. 

 

Villatoro:

So when you’re trying to contract with your banks, and let’s just say it’s one bank, you have a global relationship with one bank across the globe for your cash management, that is your primary banking partner. The difficulty there is you can span multiple countries. So if you have 60 countries and bank accounts in each of those 60 countries with one bank, there’s no standardization or way to negotiate your fees and your services with one person. It is very siloed in the organization of banking. They also peg their fees to inflation in country. So that adds another complexity to it. So rising fees in one country don’t correlate with your standard fees in another, maybe your base country. If you’re headquartered in the US and you have fees in Argentina with high inflation, they’re not going to mirror up, so that makes it very, very difficult. 

 

Craig Jeffery: 

It’s not a unified or unitary scheme for pricing, price changes, et cetera. It is like that in multiple countries. 

 

Villatoro:

And there’s attempts by banks to do that. If you have a relationship in the US and headquartered in the US and you have a global relationship manager, they are your quarterback in the bank to do that. There are banks that can, if they’re not as siloed, but most global banks are very siloed because the fees and the revenues in country are tied to that particular silo. They have their own goals, they have their own standard rates based on the in country revenue schemes and maybe even tied to their salary or bonuses. 

 

Craig Jeffery: 

Stephanie, this is part of the series Ongoing Strategic, so we want to hear how do we go strategic with bank fees both domestically and internationally. And I want to give you a little more context. So I know they’re important to review and to look at for a lot of different reasons, but how do we go strategic here? Give us the rundown. 

 

Villatoro:

I’ll talk about three main points here. The first is being that share of wallet that we talked about earlier, knowing what and whom you’re spending with cash management services amongst other services. 

 

Craig Jeffery: 

This is the baseline. 

 

Villatoro:

That’s the baseline. That’s going to give you the ability to help with making current and future decisions for things like foreign exchange. You have a payment, you need to do a very large payment, who are you going to choose to do that or which banks are you going to bid it to? And also when you’re looking at, “I have new banking needs. We’re going into a new country or we’re making an acquisition. How do we integrate that into our current banking architecture?” That will help you look at the snapshot at any given point in time on a regular basis to say, “Okay, this bank has 90%. We can’t utilize them in this new country. We need to share it amongst our banking partners.” 

 

Villatoro:

The second is just recognizing issues. So a lot of people think bank fees, it’s like a utility bill. We just pay it. We don’t really care. But there can be some issues. So this is not only going to recognize issues with the bank prices of what they’re charging you, but it’s also going to show you if you’re paying for services that you’re not using or if new ones pop up that you didn’t realize you had or that were implemented or they can also be an indicator that there’s an issue. Just like you have reconciliation in accounting, this is a reconciliation in treasury on your fees. It could be an internal issue going on that’s creating unwanted fees. An example of that would be wire repair fees. 

 

Villatoro:

And the last is just keeping abreast, keeping the treasurer abreast of what’s going on. This is the overview of where you’re paying, what you’re using in treasury for your cash management services. That can be reported up to the CFO if they have questions and it’s readily available to them through that share of wallet. And it’s also going to help the treasurer to respond quicker and reduce those elements of surprise within an organization. 

 

Craig Jeffery: 

I guess the question I have on that last one about keeping the treasurer abreast of what’s going on, knowing the share of wallet, the types of services, the access to credit, the bringing of new ideas, the support on key initiatives, those all seem relevant. What’s the most important thing that the treasurer needs to make sure that the CFO, the CEO knows about relationship management? 

 

Villatoro:

That access to credit is a huge one. As the organization change, they may go through bumps in the road and banking partners may not be as open to offering that credit that a company may need. It’s also uncovering issues within the organization that may put them at risk. That could be opening accounts without their knowledge. 

 

Craig Jeffery: 

Yeah. This sounds more interesting. I mean, this sounds more interesting than credit. The credit side I think, that’s probably the most well-known and so that’s good that you covered that. But explore this area of risk. Talk to me about that. 

 

Villatoro:

So the area of risk are making sure you have proper controls in treasury with your banking services and your bank accounts. One is … especially when you’re highly inquisitive, the acquiring company’s used to doing things on their own, they may be opening accounts, you may not be changing signers on a regular basis and having that type of control in place. I’ve seen and experienced various degrees of fraudulent activity related to these types of things where money has been moved out or actually cash has been withdrawn to transferring it from a former owner from an acquisition. So there are different elements there that they need to be aware of and keep tabs on to prevent those types of things occurring. 

 

Craig Jeffery: 

Yeah, tapping into their operational risk expertise. I’m just curious. I thought when you first talked about risk, you were going to talk about macro issues with the company, and that’s important as well and probably assumed. This other area’s another significant development in value in the relationship. Is there anything else from a macro level, security advice that you see as key in this managing relationships? 

 

Villatoro:

So I do think that just reviewing your fees on a regular basis is going to provide that reporting up to a treasurer to be able to indicate issues that are out there. It could be operational or the macro level that you talked about, but you need to have that ability to snapshot where you are in your banking relationships, what is your share across the board and continue to build those relationships because you do need to tap into them for those line of credit things. You need to tap into them for knowledge transfer when you’re going into a new country. Those are the different types of things that you’re actively managing and building a healthy bank relationship that you can go to at any point in time, not just one, but multiple, and be able to utilize them for that knowledge, the credit, the banking, the services and be that partner, not just someone who provides a service that you view as a utility bill. 

 

Craig Jeffery: 

Yeah, I think that’s great. Yeah, it’s an overall relationship, not just broken down to the minutest components, so it’s part of the whole. The whole is what matters and this feeds into it. Thank you, Stephanie, for your insight and wisdom on this topic. 

 

Villatoro:

Thanks Craig. 

 

OUTRO: 

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