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Do you budget for bank fees?

bank feeWhen working on your 2015 budgets, how are you budgeting for bank fees?  Many Treasurers and Cash Managers make the mistake of simply using last year’s net fees, plus a 3% increase, but forget to consider events that could drastically alter the cost of banking services.

1.  Reducing cash balances in DDA accounts will reduce the amount of earnings credits applied to offset fees.  If your company is tracking net fees as a single expense item, instead of splitting gross fees as an expense item and earnings credits as an income/revenue item, the impact of cash balances needs to be considered.

2.  Acquiring a new line of business, opening new stores or locations or bank accounts, or adding bank accounts overseas?  Don’t assume that those new accounts will automatically be priced in the same way as your existing portfolio.  Be sure to inflate the budget for bank fees to allow for implementation fees, programming costs (internal and external), and maintaining open accounts in multiple places during any transition.

3.  Do you consider expected changes in interest rates in your forecasted bank fee budget?  With rates expected to rise at some point in the future (they can only go up from the current), Cash Managers should also conservatively forecast a rise in the ECR and corresponding earnings credits.

4.  Implementation of new services and technology such as treasury workstations, remote deposit, outsourced payables, and e-receivables products will all have a considerable impact on bank fees.  While reducing internal soft costs, these efficiencies may end up increasing the hard costs associated with bank fees and need to be included in your budget.

5.  The experts at Montauk help companies save an average of 28% on bank fees through service restructuring, price reduction, and yield improvements.  What more could you afford if your bank fee budget was reduced by 28%?

While the majority of companies spend between $2,000-$10,000 per month in bank fees, 26% spend more than $50,000 a month for treasury services.  It is surprising how many companies do not budget for bank fees or consider the impact of the events above as part of their yearly budgeting exercise.  Perhaps it’s time to take a second look at your budget for bank fees and then give Montauk a call.

Managing Partner, Bank Relationship Management Products & Services
The Montauk Group, LLC.

The 822 and BSB Electronic Statements. Are they for me?

Wouldn’t it be nice to have all commercial account bank billing statements, domestic and foreign, available in a standard, electronic format? Then I could use “electronic eyes” to check for billing errors, detect unused services, examine balance usage, bill services to the appropriate departments, aggregate costs on a global basis, budget for the future, analyze trends over time, compare prices, pay bills and get rid of all those mounds of paper statements and 300 page PDFs. This vision has become reality. The US based 822 and now the global BSB provide all this and more – at your fingertips.

It began in the early 1990’s with the advent of the ANSI 822 electronic billing standard. At the urging of major US corporations and with the help of the Association for Financial Professionals (then known as the NCCMA) the 822 standard was developed. Today every national bank and all regional commercial banks offer the 822. Over 1,200 corporations now receive and use the 822 and have experienced major cost savings and analytic benefits. The success of the 822 in the US provides a dramatic “proof of concept” of electronic bank billing statements for commercial accounts.

But what about offshore accounts? The 822 is a US ANSI standard. Companies used to the US standard were disappointed to learn that electronic billing statements in a standard format did not exist outside the US. But now that void has been filled with the BSB, Bank Standard Billing statement, first from TWIST and now under the ISO20022 standard. Read More →

Negotiate, but what about?

Ever look at your monthly bank fee spend and wonder if you are paying too much? Thinking you’d like to negotiate better terms but don’t know where to start?

The first step is to gather the past history of your accounts in terms of fees, rates, errors and balance levels. Knowledge is power when you come to the negotiating table. If you don’t receive statements in an electronic format or you are not a current Montauk Hawkeye client, you shouldn’t underestimate the level of effort required to consolidate this information across all accounts – especially from paper or PDFs. Read More →

The Compensation Cycle

Let’s say you’re on a monthly Compensation Cycle for your analysis and billing statements. This means that you receive a statement every month and your compensation to the bank, if any, is due every month either by direct debit or by an invoice. If you’re offsetting fees with earnings credits (which means that your fees are “balance compensable”) and if you have an excess of earnings credits, then what happens to this earning credit excess? The answer is that it goes bye-bye. You lose it. Let’s give an example.

Let’s say that in the months of April and May you ran an earnings credit excess (your balance based earned credits exceeds your charges) and in the month of June you ran a deficit (your balance based earnings credits could not cover your charges and you were in a deficit position). Since you are in a monthly compensation cycle you loose your April and May excess credits and you have to pay the bank $70.00 in June. Read More →

How Many Days in a Month and a Year?

Simple. Remember what we learned in grammar school: “Thirty days has September, April, June and November. All the rest have 31 except February which has 28 except for leap year when it has 29 days.” Fine. But how many days in a year? It’s 365 normally but 366 for leap year. Now the questions get harder. How do we know if it’s leap year? If the year is evenly divisible by 4 it is leap year, otherwise it is not. So 2000/4 =  500.0 and 2013/4 = 503.25. So 2000 is a leap year and 2013 is not.

Hold on a minute. Due to the earth’s rotation around the sun not conforming to even intervals, there is more to the story. Every year which is evenly divisible by 4 is normally a leap year. However, every year evenly divisible by 100 is not a leap year. However, every year evenly divisible by 400 is a leap year after all. So, 1700, 1800, 1900, 2100, and 2200 are not leap years. But 1600, 2000, and 2400 are leap years. Most readers will be sampling their heavenly reward by 2100 but you can still use this information to win a drink in a bar. Read More →

The Hidden Overdraft Charge

What’s to hide? If I overdrew my account for an average monthly OD balance of $50,000 in October, 2013, at a 6% OD charge, I should pay the bank $50,000 * .06 * (31/365) = $254.79. That’s correct. But what is the proper earnings credit offset amount I should receive in my October analysis statement? The answer is based on the particular balance used to calculate the earnings credit amount. If the wrong balance is used, I suffer a “hidden overdraft charge”.

First, let’s look at the wrong balance. In this case the average daily collected balance (210,000) is used to calculate the Balance to support services – the balance used to calculate the earnings credit. But note that the average balance, by 8th grade math, is the sum of both the daily ending positive and negative balances. Read More →

Cyberattacks – Can Legislation Save Us?

Numerous articles were released this week surrounding potential new government legislation to help prevent fraud and cyber attacks in our financial institutions. J.P. Morgan Bank announced that it is investing $1 billion dollars to increase staff and technology to help them monitor threats. What about the smaller regional banks that are pressured to keep up with the technology of the big banks but without the resources to also invest heavily in the prevention of the additional risks they cause? The Comptroller of the Currency Thomas Curry warns that “hackers will increasingly turn their attentions to small community banks with less sophisticated defenses and a reliance on outside IT vendors.” Already 750 institutions have attended briefings by the Office of the Comptroller to learn ways banks can work together and with the Federal Government to stop the continued Denial of Service and other cyber attacks that continue to plague the industry.

While I doubt that further legislation can truly help the fight against cyber attacks, at least the bad guys are creating jobs in the financial sector. Large corporations are usually slow to adopt new technologies but all have grown increasingly dependent on online banking platforms to perform all kinds of treasury services. As the attached article says, “The spate of DDoS hits on bank websites over the last year may have caused minimal damage but there is the potential for not only disruption but destruction of systems, hitting public confidence in the whole industry.” My confidence is shaken, but not enough to make me switch back to the old manual way of doing things. I think we all need to maintain a healthy balance of efficiency and caution when it comes to our bank relationships – no matter the size.

Read More: US bank regulator raises prospect of cyber-security legislation

Product Manager, Bank Relationship Management Services
The Montauk Group, LLC.

It’s Time To Clean Your BRM Closet

Relationship pricing is a blessing and a curse to those in Treasury. Large companies enjoy getting relationship discounts from a single bank, but at the same time struggle because no two banks’ bills (account analyses) are alike. Determining whether they are getting a fair deal from one bank by comparing it to another is a daunting task that takes time, expertise, and patience to perform.

Last week we spoke at the TEXPO conference with FISERV/Open Solutions and AT&T about this very subject. In two weeks, Steve Weiland, representing The Montauk Group, will be speaking again on the topic in Chicago at the Windy City Summit. No matter how you sugar-coat the project, or claim it can all be automated, or swear by the effectiveness of AFP codes, cross-bank comparison projects are a chore.

Going through the exercise is like taking every piece of clothing out of your closet, looking at it, sorting it, and thinking about how much you’ve used/worn it. After all shorts, pants, shirts, shoes, belts, hats, etc have been properly classified by color, use, and effectiveness, you have to make the decision to keep, donate, or trash each item, and in some cases buy new items. Some decisions are obvious – “Do I really need 10 blue shirts?” Some are hard – “This shirt has a lot of sentimental value but I’ll never wear it, do I keep it?” Some discoveries are fun- “Oh, I forgot about that!” Some lead to shopping to replace things that are just worn out. At the end of the exercise, you will be exhausted, but you’ll know exactly what and why you have everything in your closet.

A cross-bank comparison exercise is a cleaning of your banking services closet. Each company needs to take a hard look at each line item to determine what they have and why they have it. You won’t be tempted to add new services you don’t need if you know and understand what you already have. Instead, you’ll shop to replace services that are outdated or worn out and make your overall experience more efficient, less costly, and sensible.

Are you ready to dive in?

Product Manager, Bank Relationship Management Services
The Montauk Group, LLC.

Who is the best bank for me today? Ask me tomorrow.

At Montauk, our clients often ask us “Who is the most competitive bank for my company today?”

The problem with the possible answer to that question is that what may be the case today may be the complete opposite tomorrow.

Deposits are a simple example of this erraticism. One day banks are aggressively pursuing deposits. The next day they need to shed deposits.

How could this be? Shouldn’t banks have an insatiable appetite for cash deposits? Not necessarily. The attached article demonstrates the balancing act that all banks – large and small – must perform each and every day. In this case, Citibank needs to reduce it’s cash on deposit so that it isn’t paying out interest on cash that it can’t put to use.

So how do these necessary ebbs and flows push down to your relationship managers? Retracted proposals, reduced ECR’s, and higher fees.

Who is the best bank for you today? Ask me tomorrow.

Read More:  Analysis: Citigroup looks to cut cash holdings to boost earnings

Managing Partner
The Montauk Group, LLC.

A Stark Reminder From Cyprus

When you look at the blog postings and news at the end of 2012, the hot topic was the expiration of unlimited FDIC coverage. Treasurers scrambled to determine what, if anything, to do with their millions in cash held on deposit. Three months later, the FDIC expiration is “old news” and very few treasurers would admit that they made any real changes. Banks continue to pass through an FDIC assessment on full balances yet the corporation is only receiving $250,000 in insurance. Even with that disparity, a sense of general acceptance has already replaced the fourth quarter sense of urgency as priorities shift to other projects scheduled for 2013.

Today’s announcement from Cyprus should shake up our complacency as companies and individuals face enormous losses with the closure of largely state-owned Popular Bank of Cyprus, also known as Laiki. The government will shift deposits below 100,000 euros to the Bank of Cyprus while the level of losses on uninsured depositors will be “under or around 30 percent.” While Cyprus has had a myriad of problems and some may say they had this coming, can we truly say that our banking network has fully recovered and is flawless?

Read More: Cyprus reaches last-minute deal on 10 billion euro bailout

Managing Partner
The Montauk Group, LLC.

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