How to Successfully Navigate the Bank Selection Process
Payment factories and cash pooling structures within the shared service centre (SSC) scheme and in-house bank concepts are en vogue. Nearly all global players in Germany have already set up these kind of projects or are in a launching stage. In order to enable these concepts, the bank structure grown over several years has to be revised.
The number of banks used can differ from 10 (mid-sized company) to more than 40 relationships in multinational companies. The number of bank accounts can reach a four-digit figure. One of the targets of the above mentioned concepts is to streamline the bank relationships and select a few core banks that will support the new set-up with their products, services and global coverage in order to generate cost savings. The reduction of banks is mainly driven by the transaction business. Limitation of banks could have negative side effects. These topics, such as funding and credit line management, will not be covered by this article.
But how can corporates select the bank(s) that fit their own needs the best? Starting with a request for information (RfI) will provide a first impression of the capabilities of a bank. At this stage, the focus is not about details but rather to figure out if a bank is, in general, able to support the proposal from a high level point of view.
Experience has shown that the RfI should be sent out to banks that already have a substantial share in the transaction business and can offer their services and products in the main regions the company is operating in.
Usually at the beginning, the company does not have a completely clear view on the target design. Within the RfI, cornerstones such as global presence, product and technology capabilities are requested. As the questions are more general, the company can benefit from the experiences of the banks by asking for their expertise for a proper solution. The evaluation of the answers then leads to a short list of four to six banks with the best fit to the proposal.
Banks on the short list will be then invited to the request for proposal (RfP). Banks will be provided with questionnaires specifying the requirements for products, services, costs, technology and global coverage. At this stage, the company has already finished the business specification and is able to ask for much more detailed information than during the RfI.
Because it is not possible to answer all questions properly, a clarification period should be scheduled. This could be organised as workshop together with colleagues not only out of the project but also with responsible persons out of the operating departments. This enables the banks to address their questions regarding the RfP directly to the responsible persons. The downside is that the company has to provide resources for the workshop, but this is more that set off by a higher quality of information. At the end of the RfP, banks should get the chance to discuss and present their proposal.
The following points should assist when setting up an RfP and address critical issues gained from practical experience. These points will decide the quality of the outcomes of an RfP and the overall success of the selection process.
Open questions will often lead to information overkill. Banks will try to present themselves as most competitive. Answers will look more like advertisement than hard facts. That makes it nearly impossible to evaluate and to compare. Use templates with a choice of given answers you would expect. Don’t forget a remark field for comments. Advise banks to stick to your templates. Nevertheless, open questions cannot completely be avoided, because banks can present their own ideas of a creative solution. This can provide a significant better general concept than initially drafted.
To avoid misunderstanding the questions, banks should have a good understanding of the customer needs and wants as well as for the preferences and limiting factors. Give a rough figure of volumes, name companies focused on and countries in which the solution will be rolled out. This will give banks a better base for their proposal and pricing.
Experience has shown that sole communication for the open questions via email is not practical due to long conversation cycles and misunderstanding. Instead, it is advisable to have one or two dedicated central contact persons who can be reached during a given timeframe by phone. Of course, these conversations have to be documented.
Give banks the chance to present their RfP answers in a meeting or a workshop. This allows you to get an impression of the people behind the RfP answers and of the specialist you will work with during the implementation phase and later on in the daily business.
Define the knock-out criteria. If banks do not meet these key requirements, the evaluation can be stopped and the workload can be minimised. Beside these knock-out points, questions should be classified with different importance levels. Some questions will be important for the set-up, others more or less informative. Banks should get an understanding of what the focus is on. Categorise/cluster questions to ease the evaluation. Define main areas, such as product competence, technology and global coverage. Order each question to one of these areas.
To define several scenarios increases the chance for a best-in-class solution. Different alternatives can be evaluated regarding services and pricing. You should also be open to new scenarios given by banks but keep in mind that the downside of individual scenarios is that the different offers will be less comparable. Ask for a recommendation of which of the scenarios fits the best to reach the project targets from the bank’s prospective.
For the evaluation, adapt scoring tools from the purchase department. There are several models on how to evaluate questionnaires and to rank suppliers. This methodology can be transferred to the bank questionnaire. It is optimal that the evaluation method is defined before getting the RfP back. Nevertheless, the method might have to be modified for new scenarios. The target should have as much transparency as possible, so that the evaluation is traceable and not biased. The tendency to alter the evaluation criteria to get the desired outcome has to be avoided.
Banks tend to make the pricing as non transparent as possible. Draw up a model to be priced on. The pricing within the RfP should be understood as rough figures. When it comes to the negotiation phase, prices will be fixed depending on the agreed scope of the business. It has to be kept in mind, that pricing is not everything. Other factors, such as product offerings, services and reliability (both during the project and the daily business), need to be weighted as well.
Don’t consider bank selection as just a project. Include the bank relationship manager of the treasury department and the responsible persons in the treasury centres as soon as possible to avoid discussion afterwards when the RfP is at a stage when there is no way back. Ask for senior management support, as the banks will do so with their management.
Name an overall person responsible for co-ordinating the whole process as the project members are normally from different departments and are focused on their special issues. This person would act as ‘single point of entry’ to and for the banks.
Don’t stick to established group structure. Of course, the recent set-up (accounts in place, established cash pooling or payments structures) will have an impact on the costs of change but established bank structures should not overrule alternative thinking.
This makes the decision afterwards transparent and safe for internal audits.
Banks cannot act as advisors, especially for legal issues (e.g. cross-border possibilities, on behalf payments and taxes). To make sure that the solutions proposed are realisable, the legal and tax department should be involved at an early stage.
As the banks mandated for the business or parts of it will enter into a long-term relationship, the resources (time and human) for preparing and evaluating the RfP should be sufficient. The effort and resources spent in a professional selection process will be rewarded. The bank with the best match to your identified needs will be selected. You will have the best access to the products, services and coverage you have defined in your concepts. This is essential in supporting your business case and meeting your targets.
With this RfP, the banks are in direct competition. As banks do not offer completely similar solutions, differentiators can be identified and be used to the best advantage of the company. Finally, the different and confusing pricing models become comparable. Direct and indirect costs will become transparent, cross-selling effects visible. The cost-leader can be identified.
Setting up an RfP for the bank selection process is much more than collecting questions from different departments and flicking through glossy bank product and presentation folders. As a result of the RfP process, the bank structure will be changed and new long-term bank relationships will be established. The importance of a professional RfP should not be underestimated. At the end, the banks you work with can decide the success of the payment factory, cash management structure and in-house bank concept. The choice of the bank(s) you use determines whether or not the project will be successful and if your business case will be fully supported and realised.