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Trying to Make Sense of Bank Fees

By August 29, 2019 December 20th, 2019 No Comments

The challenges of comparing fees when banks don’t use the same terms to describe similar services.

The problem for treasury teams at multinational corporations is not that they have to pay bank fees. It’s that they often don’t have enough visibility to compare those fees among banks or know what exactly they’re paying for or exactly how much something costs. GCBG members addressed these issues and discussed solutions with representatives of Greenwich Associates and Redbridge Debt & Treasury Advisory. Here are some highlights:

The bank fee challenge. One member whose treasury has relationships with about 15 banks said, “We want to get our arms around” the fees they’re paying and to find out if “we are using all the things that we’re paying for.” Her company is considering using bank fee analysis services offered by Redbridge, NDepth (Treasury Strategies/Novantas) or Weiland BRMedge (Fiserv).

The Greenwich presentation included these comments from respondents to a survey about the biggest challenges with banks’ cash management fees: 

  • “One of the biggest challenges is understanding what a particular service represents on the analysis statement and then being able to compare that with a similar type service that you might be paying a fee for at another bank.”
     
  • “The biggest challenge is each bank seems to have different terms for different types of fees and weeding through an analysis statement to understand what exactly is being charged and how often it’s being used and if we’re using it.” 

The problem with AFP service codes. The problem with using codes from the Association of Financial Professionals (AFP) to compare fees among banks is that, as the Redbridge presenter said, “No two banks call an apple the same thing.” In other words, each bank uses a different description for services that are essentially equivalent. For example: 

  • Account maintenance
  • Monthly fee
  • Maintenance
  • Maintenance charge 

About three-quarters of the participants indicated they have used AFP codes, which the presenter said can be both a blessing and a curse. “The job of assigning standardized AFP codes to bank services usually falls to someone within the bank or is left to the practitioner to figure out,” he said. They’re “exactly the wrong people” to ensure the proper use of one standardized set of codes, he added. And this state of affairs means there is no way to answer key questions that are part of a bank fee audit, such as: 

  • Which of my banks is giving me the best price on these services?
  • How much is my company spending on maintenance fees as a whole?
  • Which countries are the most expensive for me to bank in? 

An accreditation solution. The Redbridge representative said the only true solution to the code problem is AFP’s creation of an accreditation service for banks that use standardized service identification codes. Redbridge is a partner with the AFP and is the designated facilitator of the AFP Service Code Accredited Provider program. Banks provide a list of all their billable services (current mappings, definitions of service, unit of measure, etc.) and AFP audits and assign US and Global AFP Codes to each service ID by geographical region.

The flat fee solution. One member of the group offered a different approach—paying banks a flat fee that covers everything for the year. The former banker said he’d done that when working in treasury and said at the end of three years an accountant is likely to ask if you overpaid. The Redbridge presenter said he’s seen examples of flat fee models that work.

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Christina Popik

Author Christina Popik

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