It is disheartening to hear more and more stories of banks that are unwilling to help clients with transactional accounts.
As Group Head of Banking & Treasury, we are increasingly aware of a “what’s in it for me” attitude from some banks which is prompting service providers to move relationships and seek new solutions, moving away from “unhelpful banking”.
This is not an attack on banks. We work with some of the very best in the world to create innovative outcomes for institutional and private clients.
However, by taking their current stance, certain banks are at risk of losing key relationships within financial services.
So why are banks taking this approach?
In the ever-evolving financial landscape, banks have played a crucial role in supporting businesses and individuals. Over time, a significant shift has occurred, leaving many questioning whether banks are as helpful as they once were, particularly in the realm of opening client bank accounts.
There are many reasons given as to why it is so expensive to open accounts, but most centre on compliance and regulatory checks. Additional commercially focused reasons such as a lack of FX transactions, or prohibitive minimum balances of £10m or GBP equivalent, are also not helpful to the client wishing to open a bank account.
What is causing the hidden costs incurred by banks, the complex on boarding processes they undertake, and the shifting dynamics of their relationships with corporate service providers and clients?
Behind the scenes, banks bear numerous non-itemised costs that often go unnoticed by their customers. Opening a corporate bank account, especially for corporate entities, requires substantial infrastructure and resources, including robust security measures, IT systems, compliance frameworks, and dedicated personnel.
However, these costs are not typically passed on to customers, leaving banks to absorb them.
From our research, banks have advised that the average cost a bank incurs for opening an account in the UK is estimated to be £5,000 to £10,000. While customers might not directly pay this amount, it is a significant expense for banks, which impacts their overall profitability.
Mounting regulation and shifting priorities
To ensure regulatory compliance and mitigate potential risks, banks are obligated to follow rigorous on boarding processes for clients. These processes involve extensive due diligence, Know Your Customer (KYC) procedures, Anti-Money Laundering (AML) checks, and other compliance measures.
Banks are required to thoroughly scrutinise the entities, its ownership structure, beneficial owners, and source of funds. While these steps are essential for the overall security of the financial system, they often result in time-consuming procedures that can cause frustration and delays for clients.
In recent years, many banks have transitioned from traditional relationship-based models to more commercially driven approaches. This shift in perspective has led to a change in how banks view their interactions with corporate service providers and clients.
Instead of fostering mutually beneficial relationships, many banks have become more focused on maximising their own profitability. As a result, the level of personalised assistance and support provided to corporate clients has diminished, and the overall experience has become transactional.
The renowned economist John Maynard Keynes once said, “If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”
This quote aptly captures the changing dynamics between banks and their clients. Banks, driven by profit considerations, prioritise large-scale corporate customers while overlooking the needs of smaller businesses and start-ups.
The increasing commercialisation of banks has inadvertently led to a rise in the use of unknown providers by some corporate service providers.
Frustrated by the lack of personalised attention and suitable solutions offered by some traditional banks, many businesses are seeking alternative financial service providers. These lesser-known providers, including fintech start-ups and online platforms, offer innovative and tailored solutions that often better suit the specific needs of businesses.
While this shift presents opportunities for greater flexibility, it also introduces new risks, as the stability and reputation of these providers may not be as well-established as those of traditional banks.
Warren Buffett’s famous quote captured the delicate relationship between banks and their customers, “It takes 20 years to build a reputation and five minutes to ruin it.”
With the shifting landscape and increasing commercial focus, banks risk jeopardising their hard-earned reputations by prioritising short-term gains over long-term customer satisfaction.
As corporate service providers and their clients seek alternatives, banks must recognise the value of maintaining strong relationships built on trust, support, and a genuine understanding of customer needs.
Building bridges and relationships
Amid these shifting dynamics, corporate service providers have emerged as valuable allies for banks who are seeking to help clients with their banking solutions. Corporate service providers offer specialised expertise and assistance to clients navigating the complexities of opening and managing bank accounts.
By understanding the intricacies of the on boarding process and compliance requirements, these providers streamline the experience for their clients, ensuring efficient and compliant account setup.
Moreover, corporate service providers often maintain close relationships and partnerships with various banks and other financial institutions. These expertise and established connections allow them to identify suitable banking partners based on the specific needs of their clients. By acting as intermediaries, these providers help bridge the gap between banks and clients, ensuring a smoother and more tailored banking experience.
While the role of banks remains pivotal in the financial ecosystem, the paradigm has shifted, and many banks are no longer as helpful as they once were, particularly in the bank account opening space. Rising costs, complex on boarding processes, and a shift towards commercial perspectives have contributed to this change and go some way to explaining it.
In this evolving landscape, corporate service providers have emerged as essential facilities/partners, offering expertise, personalised assistance, and valuable connections to bridge the gap between banks and their clients.
As businesses navigate the challenges of the modern banking environment, the collaboration of banks with corporate service providers becomes increasingly valuable in securing efficient and tailored helpful banking solutions.
To find out more about how JTC can support banking and treasury services for institutional and private clients, please get in touch with Paul Fosse directly.