Watch out for rising bank fees. The troubled economy has "wreaked havoc on the banking industry, putting them in desperate need of capital," warns Peter Weiland, an internal consultant at Weiland Financial Group in Chicago. Many banks will turn to cash management fee increases to buoy sinking profits, he predicts. They'll raise fees now "because they need to and because they can," Weiland says. Cash management relationships are "sticky," and concern over access to scarce credit makes it even safer for banks to raise fees without fear of losing many customers, he argues.
In this environment, "account analysis statement neglect is no longer acceptable," Weiland insists. "Those who pay little attention to their statements will suffer bigger bank bills, broken budgets, failed audits and strained bank relationships." (Weiland's company sells cash management fee analysis software.)
Volume declines resulting from reduced economic activity may make it easier for banks to increase fees because they won't necessarily result in a higher overall cost of services, Weiland says. "When treasurers mind only the bottom line, these individual price changes are easily and often overlooked."
Tight control over bank fees is paying off for the U.S. Postal Service. USPS has locked in fees with multi-year contracts and automated analysis of its bills for 85 accounts with Weiland. "In our latest solicitation for field depository services, we narrowed the account analysis statements to nine pricing points," reports David Kosturko, bank relations specialist with USPS. "Statements that used to run up to 15 pages now are only four or five."
"We have a pricing table," he says, "and any charge that doesn't match the price in the table is flagged for investigation, including any service we didn't contract for." Banks can't raise fees unless the Postal Service signs off on an amendment to the table, Kosturko notes.
Like USPS, Lincoln Financial Group (LFG) in Fort Wayne, Ind., locks in bank fees with contracts, but those contracts didn't prevent banks from passing through their increased FDIC insurance costs, says treasury analyst Darrilyn Lawrence. The company, with $181 billion in assets under management, has renewed some contracts since last September and had to accept prices that were higher but "fair," she reports.
Bullet-proof USPS and protected LFG are the exceptions. The vast majority of companies do not have contract pricing and would be vulnerable to higher costs if banks raise fees, notes Craig Jeffery, managing partner of Strategic Treasurer in Atlanta. He thinks large increases are unlikely, however. Treasury staffs are cost-conscious these days and would likely object if banks raised fees substantially, he says.
"We're not planning to increase existing fees," says Nick Alex, director of product management and development for treasury and payment solutions at SunTrust Bank, "but we are planning to increase fee income by repackaging products to provide more data and analysis." And SunTrust plans to customize pricing, not by geography or company size, as has traditionally been done, but by industry--offering bundled pricing to industries that prefer it that way and per-item pricing to sectors that like that, he explains.
Most experts think Weiland's predictions are on target. "Banks are under tremendous pressure to increase revenue to outgrow their problem assets," notes Dave Bochnovic, executive vice president of Phoenix-Hecht, a leading provider of bank pricing data in Research Triangle Park, N.C. "It's very understandable that they would try to increase cash management fees."
Banks need revenue and profit, and treasury management and transaction banking are seen as likely sources, reports Dave Robertson, a partner at Treasury Strategies in Chicago.
Many banks raised prices in late 2008 and early 2009, and they're likely to do it again, perhaps by 5% to 8% overall, Robertson says. Bank pricers know there is not much treasury departments can do. "Prior to the crisis, corporate treasurers enjoyed tremendous buying power and drove down prices at the margin," he notes. "Banks now recognize they have never been more valuable to their clients and are looking to get paid for value."
Watch for banks to raise fees in two ways, says Francis DiBacco, a consultant specializing in bank fee analysis at F.E. DiBacco in Woodbury, N.J. They'll simply raise existing fees, which is easy to detect. Or they'll spin off "new" services for which they charge a fee. "The line items continue to grow," DiBacco explains. "Companies that used to get an account analysis with 20 line items may now see 150 lines or even 180." Creative unbundling is adding to fee income, but banks are also inventing truly new services that add value and pricing them at a healthy profit margin, he adds.
Treasury staffs are not helpless. To protect their companies, they should consider five actions, according to Weiland:
o Reduce service usage. Look for ways to eliminate unneeded services, consolidate accounts and service providers, find cheaper alternatives and alter business practices.
o Push back on price increases. Compare prices across the banks you use. Consult the Phoenix-Hecht Blue Book and the AFP Informa benchmarks. And use that knowledge to negotiate lower prices.
o Optimize earnings credits. Ask for credit on all your balances, not just 90%, now that banks are earning interest on reserves. Request rolling compensation cycles, hard charges only on pass-through services and an earnings credit rate pegged to a standard index like the 90-day T-bill rate. Don't let earnings credits expire unused.
o Don't pay erroneous overcharges. Don't allow the bank to debit fees from your account until you review each statement. Consider asking for electronic statements (822 or BSB) to automate error detection.
o Strengthen bank relationships. Quibbling over specific charges won't work well unless your bank sees you as a valued customer.
Knowledge is leverage when it comes to resisting fee hikes, notes Stephanie Andersson, outsourcing operations manager at Weiland. "You need to know how it all works and how certain prices are calculated to negotiate a better deal." Usually banks send out a new price list when they raise prices, but it's not too unusual for them to simply start billing higher rates without notice, she reports.
The quest for knowledge points back to account statements. LFG has automated the review process for complex account analysis statements, Lawrence says, and those statements definitely contain errors. Without systematic checking, LFG would be overpaying for its banking services.