How Have Relationships Between Banks and Corporate Clients Changed?
There is no doubt that the relationship between the banker and the corporate client has seen significant change over the past 10 years, with most of the change occurring in the past five years. What has driven this change – the marketplace, the client or the bank? The quality of the relationship between bank and client is key to the success of both parties.
The landscape a few years ago was characterised by the geographic diversity of markets from a banking perspective. In the past, there was more emphasis on the need to have multiple banks, local banks per in-country subsidiary and banks with locations within the country. Relationships existed between the bank and client at many levels within each organisation.
Over time this landscape has changed. A common currency in most of Europe, EU accession, real-time gross settlement (RTGS), and further on going developments such as single euro payments area (SEPA) and pan-European ACH (PEACH) etc are contributing to the change. Corporate restructuring has also been prevalent, moving from diverse decentralised operations to shared service centres. Consequently, best practice is being achieved with single or primary bank relationships, limiting the number of banking relationships and interfaces and the management of these. Furthermore, outsourcing has become an important factor in achieving optimal operational efficiencies for both parties, the bank and the client. Consolidation between banks has also facilitated great change within the banking community, as the main contenders buy geographical reach and product penetration.
Resource management, people and time, are key to all organisations. Cost reductions and efficiencies are continually being sought, and relationship management is accordingly affected. There are higher expectations of the bank and client relationship in the current environment. Bank service quality and standards are an integral part of the corporate and bank relationship. As cash management products, services and pricing all become very similar between banks, companies look to be able to assess banks from a standpoint of their quality of service and relationship management.
The relationship manager is required to have a thorough knowledge of the clients company, its industry division and the future developments within the bank and client marketplace. In essence, the relationship manger must act as the trusted advisor. They need to be able to respond to the strategic developments within the clients industry with proactive advice as well as the innovative products and services needed to respond to these market developments.
Clients are more reliant on their banker to keep them up to date on developments and to generate new ideas. As such, the relationship between the bank and the client has now evolved to a higher level of commitment, to that of a partnership. The partnership needs to be sustainable in the longer term, as significant investment is made in selecting the primary bank. The bank needs to add value, provide credit as needed, deliver a full suite of products and have ongoing investment and commitment to the business.
A partnership as opposed to relationship management demands a lot more commitment, investment and risk taking by the bank. To be a true partner, the bank is required to support not only the client needs today but also future requirements. Corporates are continually growing and expanding their businesses by moving into new global markets. The bank partner needs to be ready to respond and deliver. In fact it’s increasingly apparent that the bank should pave the way into these new markets for its clients, thus creating the financial services framework necessary to support businesses, and early identification of potential stumbling blocks ahead of the corporate’s entry to market.
The evidence of a true partnership will be manifested in the commitment and approach to access these new markets. To be effective, the bank must build not only the basis of an existing business but more so on the potential future service requirements. This involves risk and investment dollars, which together create the levels of innovation that is the hallmark of the optimal bank partner.
It is not sufficient to have just a branch presence in these markets. Full financial services across the market, coupled with embedded local presence and reliable market knowledge is paramount to providing full support and financial advice to the large corporate entering the market. Hence, regional or global banks committed to this objective are focused on strategic expansion across the developing global market.
It is most important to the corporate that a regional or global bank has branches locally working together as a network rather than a set of individual units. Typically, these banks will be connected through a single telecommunications network, offering similar products and services in each country. Common standards in terms of quality customer service and the ablity to operate a consistent pricing approach across each country are important. Multi-nationals are looking for a standard high quality service worldwide and many are prepared to pay slightly more to obtain the value added services available through these regional and global bank providers.
It’s important to note that ‘one size does not fit all’ and the bank must be flexible enough to respond to clients who expect something different from their bank in terms of relationship management. The traditional relationship management function is important; banks are primarily service providers or institutions who should serve their customers. Some corporates will continue to require the more traditional coverage, such as local relationship managers in country by division for example. The EU has made it easier for banks and corporates alike in Europe by providing the basis for harmonisation within the marketplace and creating a true single market. However, many regulations still remain unchanged within the euro zone (tax, central bank reporting, etc) and as such, a local bank presence will be necessary for some time to come.
The traditional role of the relationship manager is also of critical importance today, the relationship manager needs to be competent in all matters and consistency of coverage is key. Relationship coverage changes need to be planned with as much lead-time as possible and a solid change management approach adopted to minimise or if possible negate client impact.
Corporate clients in general, believe the relationship approach has changed and banks are now providing better service to corporate needs. Banks are more willing to be flexible in the services they provide to them and do realise that one profile or structure does not fit all clients.
Banks are also playing a more proactive rather than reactive role in the relationship with the client. Banks have moved towards providing experienced relationship managers, who specialise in international cash management and banking requirements and who have a very good understanding of their corporate businesses by sector. This focus has very much assisted the corporate, as different industries generate very different corporate requirements.
The larger companies focused on using one bank globally/regionally admit to putting pressure on their bank to provide all services to fit their needs i.e., streamlining, one bank should mean a “one stop shop”. Such companies have streamlined the number of banks they use and rely primarily on one bank for the majority of their cash management needs – the process needs to work, and for this the commitment from the bank needs to be strong. With fewer banks in this arena, the corporate is focused on the banks long-term commitment to cash management investment.
Companies in general, regardless of size, are keeping track of the business transacted with each bank with a view to meeting current and future banking needs. Most have found that a successful relationship depends upon their own openness and proactive interaction with the bank. A focal point within the client organisation is key for bank negotiations to be able to advise of on going requirements and changes within the organisation. Corporates also appreciate the importance of tracking the performance of the bank to ensure the relationship is mutually beneficial.
Overall, there is a significant partnership based on trust built between the bank and the client, where each is working in tandem and much closer than ever before. There is also greater competition between banks and this has served to benefit their clients with cost competitiveness, innovation and differentiation being strived for at all levels. Also, evaluation of performance is being eagerly sought by the banks that highly value the feedback both from their clients through service scorecards and external surveys.