How global companies can demystify complex global bank fee structure 

With fees often buried in lengthy and sometimes complex bank statements, deciphering the bank fee requires specialized knowledge, reporting tool, considerable time and resources of global corporate treasuries. This lack of transparency leads to misunderstanding of the true cost of banking services, potentially resulting in suboptimal bank fee monitoring process and an inaccurate view of wallet share of the banking services with banking partners.

Past global surveys conducted across geographies have given the below insights:

• 80% of companies are challenged by visibility into global banking operations
• 60% of companies do not reconcile bank charges periodically with agreed rates as per contracts
• 80% of companies are not aware of the wallet size of their banking relationships based on volume of transactions and value of charges
• 60% of companies are not satisfied with the visibility of their current bank charges

Additionally, as banks continue to raise their fee income mandate, corporates must remain vigilant in monitoring their banking fee expenses. This necessitates a robust bank fee analysis strategy that allows for regular review and renegotiation of terms with banking partners.

The complexity of bank charges varies across geographies, reflecting differences in market conditions and regulatory environments. For instance, companies operating in Europe may face different fee structures compared to those in Asia or North America. Understanding these regional variances is crucial for corporates aiming to optimize their banking relationships and manage costs effectively.

The monitoring and optimization of bank charges as a percentage of regional revenue can vary significantly:

• In mature markets, such as the United States, Canada, Germany, Japan, France and Australia, bank charges are more transparent due to developed and standardized reporting systems of the banks. This helps facilitate more effective monitoring of the bank fees. Consequently, it provides corporates with a stronger opportunity for optimization of the bank charges.
• In emerging markets such China, India, Brazil, Mexico, Turkey, South Africa, UAE and Korea, banking infrastructure is seen to be complex owing to differences in description of bank fees services, multi-layered bank fee, obsolete systems and high share of domestic banking partners leading to less homogeneity in banking relationships. This makes deciphering of bank fees in these geographies more complex, which hinders the ability of global treasurers to monitor and optimize the charges across their banking relationships.

As the landscape shifts, managing global bank fees is now a key strategic priority for CFOs and corporate treasurers.

Monitoring global bank fees is crucial for CFOs and global treasuries, as it provides greater visibility into cost elements associated with banking relationships. This visibility helps identify strategic banking partners and areas where bank fees can be negotiated. Additionally, it aids in analyzing wallet shares of each bank, supporting negotiations across various banking services.

Key benefits of effective bank fee monitoring include:

• Uncovering blind spots due to complex fee structures, lack of standardized reporting, and international banking intricacies
• Identifying strategic banking partners across regions, leading to improved reporting and reduced complexity from multi-layered fees
• Ensuring that organizations do not pay for redundant services no longer used in daily banking operations
• Improving the monitoring of Earning Credit Rates (ECR) or return on investment (RoI) on average cash balances to offset transaction fees and lower overall banking costs. Companies may also shift banking services toward institutions offering higher ECR

Despite these benefits, misconceptions often prevent CFOs and Treasury Heads from recognizing the strategic importance of bank fee management. These myths can undermine financial efficiency and hinder the optimization of banking relationships.

Common myths of CFO and global treasurers

Myth 1: Bank fee management is not a key performance indicator for treasury

One prevalent myth is that bank fee management is a secondary concern and not a key performance indicator (KPI) for the Treasury. Contrary to this belief, bank fee management is a direct reflection of the Treasury's efficiency and the CFO's stewardship of the organization's financial resources. By focusing on this component, the CFO's office can demonstrate a commitment to sustainable cost control and value maximization, which are essential for the financial well-being of the company.

Myth 2: Regular monitoring of bank fees is unnecessary

Another common misconception is that once agreed, bank fees do not require regular monitoring. This approach can lead to missed opportunities for savings and a lack of responsiveness to changing market conditions. Failing to regularly monitor bank fees can lead to unchecked expenses, resulting in unexpected charges that may significantly impact the bank charges’ General Ledger (GL) line item. Regular reviews enable the CFOs and treasurers to stay agile, renegotiate terms, and ensure that the organization is not overpaying for banking services.

Myth 3: Bank fees have little impact on strategic banking relationships

Some CFOs and Treasury Heads believe that bank fees are merely transactional in nature do not influence the strategic alignment of banking relationships. However, bank fee management can drive strategic banking relationship alignment for global treasuries. By actively managing bank fees, treasuries can engage in informed discussions with their banking partners, fostering relationships that are based on transparency, mutual benefit, and strategic fit.

Myth 4: Rationalizing bank fees offers no significant upside

The myth that rationalizing bank fees offers no significant upside is perhaps the most damaging. The reality is that a well-executed bank fee rationalization strategy can lead to sustainable and substantial cost savings, improved cost benefits, and enhanced operational efficiency across banking partners. It also allows the Treasury to distribute global business operations efficiently across cost-effective banking partners.

Myth 5: Bank fee structures are too complex to understand

Another myth is that the complexity of bank fee structures makes them inherently incomprehensible. While it's true that fee structures can be intricate, with the right tools and expertise, CFOs and treasurers can gain a clear understanding of these costs. This transparency enables them to identify inefficiencies and negotiate better terms with banking partners.

Myth 6: Periodic negotiating of bank fees is not worth the effort

Some believe that the effort required to negotiate bank fees periodically does not justify the potential savings. This is a false assumption, as banks are often willing to discuss fee structures and provide concessions to retain valuable corporate clients after analyzing the volume of transactions. Regular reviewing and negotiating of bank fees should be an integral part of the treasury's cost management strategy.

Myth 7: A single banking relationship is easier to manage and more cost-effective

The idea that maintaining a single banking relationship simplifies management and reduces costs is a myth that overlooks the benefits of diversification. Multiple banking relationships can provide competitive pricing, access to a wider range of services, and a hedge against localized financial risks.

Myth 8: Global bank fee management is solely a bank reconciliation or accounts payable process

While the Treasury department plays a pivotal role in managing bank fees, it is a strategic concern that should involve the CFO and other senior financial executives. Effective bank fee management impacts the overall financial strategy and requires a coordinated approach across the organization.

Myth 9: Technology cannot significantly improve bank fee management

The myth that technology offers little advantage in managing bank fees is rapidly being disproven. Advanced Treasury Management Systems (TMS) and financial analytics platforms provide powerful tools for tracking, analyzing, and optimizing bank fees on a global scale.

Myth 10: All banks charge similar fees, so monitoring them across banks is pointless

This myth fails to recognize the competitive nature of the banking industry. Fees can vary widely between banks, and shopping around can uncover opportunities for cost savings. It is essential to regularly benchmark banking services and fees to ensure that the organization is receiving the best possible value.

As organizations navigate an increasingly complex banking landscape, managing global bank fees has become a critical priority. 

Intricate fee structures, regional regulatory variations, and evolving market dynamics make it essential for Chief Financial Officers (CFOs) and corporate treasurers to adopt best practices that enhance transparency, optimize costs, and strengthen banking relationships.

A structured approach to managing global bank fees

One of the foundational steps in effective fee management is improving visibility. A centralized and detailed reporting system enables treasurers to track all banking costs, beyond just interest expenses. This level of transparency helps identify inefficiencies, uncover cost-saving opportunities, and negotiate better terms with banking partners while assessing the overall global bank fee cost.

Centralizing treasury operations into a Centre of Excellence (CoE) can further streamline fee management. By consolidating banking activities under a single function, organizations gain a unified view of fees across different geographies, making it easier to monitor costs and negotiate favorable terms.

Technology also plays a crucial role in optimizing bank fee management. Leveraging financial technology such as bank fee analysis tools and treasury management systems (TMS) allows companies to automate data collection, standardize reporting, and analyze fee structures. These tools minimize errors, reduce manual effort, and generate actionable insights for better decision-making.

Key strategies for cost optimization

A structured approach also requires regular monitoring and review of bank fees. Periodic assessments help verify that charges align with contractual agreements, detect discrepancies, and eliminate overcharging. This proactive approach ensures that companies do not pay for underutilized or unnecessary services.

Benchmarking bank fees against industry standards and internal company services provides a clearer perspective on competitiveness. By comparing fees across banks and markets, businesses can identify cost optimization opportunities. Regular renegotiation of terms with banking partners helps secure more favorable conditions and drive cost efficiency.

Another critical aspect is reviewing Earnings Credit Rates (ECRs). By periodically assessing the use of ECRs to offset transaction fees, companies can ensure that unutilized balances contribute to reducing overall banking costs. This ensures that idle cash is used effectively rather than becoming a lost opportunity.

Accounting for bank charges with precision

Accurate accounting of bank charges is vital for transparency and financial control. Implementing a sub-general ledger (GL) accounting system allows corporates to categorize fees based on their nature, ensuring better organization and reporting. Fees can be segmented into distinct categories such as:

• Trade finance-related charges (Letter of Credit, Bank Guarantee, other trade finance fees)
• Transaction-related fees (domestic/international wire transfers, SWIFT charges, ACH fees)
• Foreign bank charges (FX conversion fees, A1/A2 payment charges, FX short realization charges)
• Cash collection charges (cash management and CMS charges)
• Business-to-consumer charges (debit/credit card fees, POS charges, payment gateway fees, MDR charges)
• General service fees (account maintenance, cash pooling, dormancy, and banking application subscription fees)
• Miscellaneous charges (one-time fees, facility renewal fees, other unspecified charges)

By accurately categorizing these fees, corporates gain a clearer understanding of their banking costs and can take targeted action to optimize them.

Measuring success: Key Performance Indicators (KPIs)

To ensure the effectiveness of fee management strategies, organizations must track key performance indicators (KPIs). Some essential KPIs include:

• Ratio of bank fees to relationship banks and across all banks: Measures the percentage of total fees relative to existing banking relationships, indicating cost efficiency.
• Ratio of volume/flat-based fees to ad-valorem fees: Assesses whether charges are fixed or percentage-based, with flat rates generally being more optimal.
• Volumetric discounts offered: Evaluates the benefits gained from conducting high volumes of business with banks, leading to fee reductions.
• ECR utilization and Return on Investment (RoI) on cash balances: Determines how effectively cash balances are used to offset fees and reduce overall costs.
• Fee discrepancy analysis: Tracks variances between expected and actual bank fees to enhance auditing and forecasting accuracy.
• Negotiation success rate: Measures the percentage of successful fee reduction negotiations, reflecting the treasury team’s effectiveness.
• Visibility score: Develops a metric for assessing how well treasury teams can track and analyze banking fees across operations.

Conclusion

As global corporates expand their operations into new businesses, geographies, and onboard new banking partners, they are likely to encounter an intricate web of bank fee structures, bank fee reporting formats. This complexity can create a blind spot for global corporate treasuries and hinder their objective of bringing in efficiency and optimization in costs associated with their global banking operations.

It is imperative for modern CFOs and corporate treasurers to debunk their myths and embrace a structured approach to bank fee monitoring and leveraging advanced financial technology tools to enhance transparency, and meticulously assessing the bank fee wallet share to drive strategic banking relationship across their operative geographies. Bank fee monitoring poses as a strategic initiative that is pivotal for navigating the complexities of global banking relationships and optimizing the cost of financial operations of global corporates. 

Nushad Irani, Senior Manager, EY India and Prakhar Mehrotra, Senior Consultant, EY India have also contributed to the article.