The relationship an organization has with its bank has long been a vital plank in its success, and a key role of the finance department has been developing and maintaining this relationship. However, since the 2008 financial crisis, events have conspired to change the way that banks treat relationship management, and many in business are unhappy with the way in which it has evolved. Indeed, recent surveys suggest that as many as 74% of CEOs do not believe their bank understands their business or even cares about them, and this is detrimental to both parties.
It is not easy for corporations and banks to build a close relationship. Trust is the foundation for all banking decisions, and this takes time. Central to nurturing this bond has long been the role of the bank’s account manager. In recent years, though, they appear to have seen their standing greatly devalued by the banks. In his recent presentation at the CFO Rising West Summit, Neil Morling, CFO at Olswang, discussed how his experience of account managers had changed. It used to be they were a point of contact you could just call up for advice whenever necessary, he argued. Because you knew them well and trusted one another based on previous interactions, you could have character deals pushed through by the bank on better terms and quicker than otherwise might be the case. When the bank was changing your account manager, they would present you with some options and you would pick the one most aligned to your business. Now, however, they are being changed far more frequently and usually without any warning, just an email saying here’s new account manager, deal with it. Furthermore, a lot of the governance and decision-making around things like renewing a facility is no longer done by account manager, and major decisions have moved up the chain of command, essentially reducing them to little more than just a point of contact, an inbox and an outbox. This loss of personal interaction with who is actually making the decision around your request means there is less trust in the relationship, and character deals have become a thing of the past as a result.
A number of factors have caused this change. The obvious starting point is the financial crisis. Since 2008, organizations have had to focus more on risk and regulations and there is a great deal more rigour around analysis of results, with questions now often coming after quarterly results and in far more depth than before. This has its advantages in preventing unnecessary risks being taken, but it also removes a lot of the flexibility that allows business to flourish. Treasurers and CFOs are more alert to indications of a bank’s creditworthiness after the failure of financial institutions who’s failure was previously considered unimaginable. Bank failures can impact on access to credit and banking services that are crucial to a company’s business operations. Companies that used to concentrate funds with a single bank are now more inclined to spread business across several banks to distribute the risk, which means they are less focused on each relationship.
Another reason for the shift has been the globalization of corporates, which has caused greater demand for more sophisticated payment and cash management services by companies of all sizes. Banks now have to offer products and services that support a company’s evolving business. This needs a more detailed understanding of the business model and operating environment that is unreasonable to expect from an account manager. Indeed, many banks are turning to algorithms to deal with this new level of complexity, removing the human touch from every stage of the process altogether.
The increased complexity of the banking environment may have forced banks to adjust the way they treat customer relationships, but there is still much to be gained from an important account manager. A longstanding, close relationship brings a range of advantages for both business and banks. It enables greater potential for credit availability and lower collateral requirements for the borrower, a higher level of quality and support, better cost management and closer monitoring of risks. Equally, it works to banks’ advantage. Some businesses may be willing to pay a slight premium to borrow from a bank with which they have a strong relationship and it is likely to result in additional revenue from multiple product lines or loans, and the potential for referral business and cross-selling opportunities - various derivatives and insurance, for example. With technology opening up a range of new lending avenues, big banks cannot afford to expect businesses to remain with them simply because they always have. It is now easier to switch banks than ever, and the power of the relationship manager is extraordinary when they are given the knowledge and the opportunity.