Request for proposal: a quiet revolution

Nothing lasts forever – and for even the strongest corporate-bank relationship there comes a time when that partnership is put to the test.

Sooner or later, even if everything is going well, a corporation will issue a request for proposal (RFP) to check the bank or banks they are working with are the best fit for their company and the pricing they receive is still competitive.

Many factors can prompt a company to issue an RFP for their cash-management business. A reassessment is often driven by specific events. A strategic decision to expand into new countries by acquisition might lead to an RFP, as might the arrival of new technology or regulatory changes.

In Europe, the Single Euro Payments Area (Sepa) has been a particular catalyst. “Many corporates are looking at Sepa as an opportunity to review their current cash-management set-up across Europe and even beyond to fully embrace the benefits that Sepa offers,” says Steve Everett, global head of cash management at RBS.

Everett adds that these benefits might include centralization into structures such as payment factories and collection factories, as well as the harmonization of processes, standardization of systems and optimization of liquidity and account structures.

A change in the company’s relationship manager might also trigger a review. “Relationships are key and therefore should this change, companies are more inclined to see what else is out there,” says Kash Ahmad, managing director, head of UK cash origination at Barclays.

Ahmad points out that companies might also review their provider if service levels are not meeting expectations, or for contingency purposes to avoid being dependent on a single bank.

Even when specific events do not prompt a review, companies tend to evaluate their cash management on a regular basis. At the very least, companies typically issue RFPs when their bank agreements have expired and re-negotiation is needed.

Nevertheless, this process varies from company to company. “What we find is that some companies will sign up to long-term agreements, typically four to five years, whilst others want greater flexibility and will review their agreements each year,” says Ahmad.

To give themselves the best chance of retaining business – and winning new clients – banks need to understand what companies are looking for in a cash-management provider and how this is changing over time.

Karin Flinspach, EMEA head of payments and receivables, treasury and trade solutions at Citi, says companies are drawing upon consultants to help them prepare RFPs and analyze the answers supplied by different banks.

Another recent development is the arrival of the e-auction. “Pioneering treasury organizations are starting a small bidding war within the banking community by moving online-to-buy products and services via e-auctions,” says Everett at RBS.

“Third-party e-auction hosts provide standard spreadsheets for bidding banks to enter a combination of variables that affect the price: rebate percentage, payment volume, service fees, etc.”

Once the bank has entered the variables and submitted the bid, the net present value of the proposal is automatically calculated by the software, enabling companies to rank their bidders.

Banks might be ranked according to price or other elements such as time, and companies using this type of software will still take into account other factors such as service when selecting a cash-management bank.

“Given the work required and effort on both sides, banks and corporate, this development has not been widely adopted,” says Everett. “However, banks need to be prepared and equipped to be able to manage this process in the best way.”

Another consideration that is particularly important in the current climate is counterparty risk. “In light of the diverse crises over the last few years, it has become more common to look at the overall balance-sheet strength, capital ratios and risk-rating of the financial institution that is going to handle a substantial part of a client’s money movements,” says Martin Runow, head of cash management corporates for the Americas at Deutsche Bank.

He adds that at any given time a company could have a substantial amount of cash sitting with their transaction bank, which needs to jive with their counterparty risk and concentration risk policies – a factor that did not play a large role before the financial crisis.

Ahmad says that “companies are increasingly prioritizing innovation when considering their banking partner”, and that more companies are looking for a bank that will be able to grow with them and meet their needs.

Everett says managing risk and ensuring transparency, control and access to cash remain priorities for treasurers in this credit and risk-focused climate. Flinspach adds that corporate clients are now focusing on service and implementation capabilities as points of differentiation.

While the RFP continues to be the primary tool used by treasurers when selecting a cash-management partner, the composition of the RFP has changed and today focuses on the recommendations, solutions and advisory a bank provides, says Mike Edwards, head of market management for global transaction services, EMEA at Bank of America Merrill Lynch.

“This is especially true for larger transformational projects where multiple providers may be selected as part of a global solution,” he says. “The scorecard remains an important due-diligence step but is often a secondary driver of decision-making.”

Nevertheless, Edwards says the scorecard continues to be a key reference tool when mandate decisions between two or more providers are close.

And while the RFP remains central to the corporation’s decision-making process, for some companies the exercise begins earlier with a request-for-information stage. This can be used to gather information about the providers under consideration and to draw up a shortlist, including the most suitable banks.

“We’ve witnessed a notable increase in request-for-information and pre-RFP workshops as treasurers look to tap into the wealth of experience available across their banking group,” says Edwards.

RFPs might not be the most cutting-edge topic in transaction banking, but the ways in which companies select their banks can and do change over time. Understanding these changes is a fundamental component of winning new business and retaining existing clients.