Treasurers train their sights on banking charges

Treasurers train their sights on banking charges

Source: KPMG Corporate Treasury News, Edition 43, May 2015 - "What bank charges do I actually pay? And are they reasonable?" These are the kind of questions that can cause embarrassment to cash managers, who often lack sufficient transparency to provide clear answers.


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Yet are the questions relevant in the first place? I believe they are! In a Germany-wide survey conducted in Q4/2013, 11 percent of respondent companies put their annual bank charges at more than a million euros. At a time when corporate finance and treasury functions are being called on to focus on efficiency and cost awareness, it is therefore perfectly legitimate to query the composition of charges for banking services, ask whether they are justified and look for ways to sustainably reduce them.

The first step toward active cost management is to create transparency about the actual charges incurred for payment transactions and other banking services. This alone is a challenge for most companies, as the necessary data can usually only be gathered – if at all – with a great deal of manual effort. The costs incurred must be analyzed from every angle and compared with the contractually agreed terms – a task that is painstaking and time-consuming, as the following considerations illustrate: 

  • To what level of granularity can the data be gathered and where are the costs regularly recorded? Between around 10 and 30 different cost items must be examined for each bank account. Moreover, many of these items can be compared across banks only to a limited extent or not at all.
  • How valid is the data used? It is important to examine the internal processes used to collate data on bank charges and, for example, to ask how collective monthly items are validated. In many cases, it is likely that – for reasons of "immateriality" and simply due to trust in the bank concerned – bank charges will have been entered for the relevant cost centers without further screening. As a result, it remains unclear not only whether the charges billed correspond to actual services provided, but also whether the company genuinely needs these services for its business operations.
  • Who is the right point of contact within the company? The sum total of a corporate group's knowledge of its bank charges is often spread across various departments and, above all, companies. Whereas cash managers and/or local managing directors often agree the charges, for example, the bank statements – and hence the actual bank charges incurred – are normally entered, checked and posted by the (corporate) accounting department.

Although one-time manual "harvesting" creates an initial set of data resources, this is anything but efficient as a regular process. A different approach must therefore be adopted if cost management is to be placed on an active, rules-based footing: 

  • Suitable IT solutions from treasury management system providers or software providers that specialize in electronic bank account management (e-BAM), for example, enable transaction codes (TCs) to be assigned to charges. This in turn facilitates the automated clearing of account statements and the assignment of charges to cost blocks, all of which reduces the volume of manual entries. Even then, however, it is still vital to clarify whether all charges can be cleared and assigned automatically.
  • For this reason, it is also worth considering the approaches that were initially propagated by the TWIST initiative and have now become part of the CGI initiative. The original objective of TWIST was to realize seamless, automated straight-through processing (STP) in the finance industry, including charge billing. These efforts are now gaining momentum within the framework of the CGI-MP initiative now that the camt.086 message type has been established. camt.086 is defined as the Bank Service Billing (BSB) standard based on the eXtensible Markup Language (XML).
  • A further step is the regular validation of billed charges based on internal bank charge costing. To this end, banks' pricing structures must be stored centrally and the variable parameters needed to calculate variable charges must be fed into the system (e.g. the number of e banking users, the number of cross-border payments per bank account etc.). Where deviations are identified, the bank in question must be consulted.

Once the data has been collated, the second step toward active cost management can be tackled. This involves defining measures to cut costs.

Quick wins – cost items that can be reduced at short notice – can be realized if data transparency allows services to be identified that are no longer needed or, in the worst case, are not even used. One example is the identification of accounts that are no longer needed, but for which account management charges are still being billed.

These short-term measures must naturally be complemented by more long-term ones: 

  • Analyzing the charges billed for each account and each bank reveals the cost drivers. It is also possible to calculate each bank's share of wallet and conduct an internal bank benchmarking exercise for the various services provided. This information in turn gives the treasurer a stronger position from which to negotiate with the various banks.
  • Based on the data from the bank benchmarking exercise, a company can also determine the costs that could be reduced by issuing a call for tender for banking services and identifying the payback period for the associated project costs. Many cash pooling structures, for example, have grown organically over time, so systematic realignment could certainly optimize their costs. (Cash pools in Central Europe, for example, are operated by two banks, even though one bank could provide the service and handle the associated payment transactions at lower prices.)
  • If efficiency and automation are to be realized in all aspects of cash management, the support of software either from specialist niche providers or as modules from major treasury management providers is indispensable. Only then can genuine straight-through processing become reality, for two reasons: First, suitable software provides the necessary controlling and reporting options. Second, it also allows manual processes to be redesigned and minimized. Aside from cost and compliance considerations, treasury units can then be organized much more flexibly and can conduct their own focused and sophisticated analyses.

To summarize: Sifting through bank charges by hand and drawing up an initial list of cost drivers is a laborious but essential one-off activity if a company is to gain a transparent overview of the banking services it uses and what, exactly, they cost. The key levers for sustainably cutting these costs are to reduce the number of bank accounts and to consistently apply a core banking strategy. The whole procedure must be supported by integrating and applying suitable IT tools in order to realize smooth, seamless processes. Implementing these measures demonstrates the treasury unit's cost awareness – and provides reasoned, substantiated answers to the two supposedly tricky questions with which we began: "What bank charges do I actually pay? And are they reasonable?" 

Author: Nicole Fritsche, Manager,

Corporate Treasury

Our KPMG team of experts show you the right way for Finance and Treasury Management.

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