October 2016

Understanding the drivers of client satisfaction in bank-to-bank cash and trade services has always been key for competitive performance. Doug Ziurys, Senior Vice President, FImetrix explains, why it is especially important in today’s transaction banking world.

Trends in client bank satisfaction

What client banks currently consider important is being seriously affected by other trends in the world of transaction banking, namely the global consolidation of relationships, the reduction in the number of credible provider banks, and the media hype around Fintech.

The process of de-leveraging bank relationships in recent years has had a negative effect on how client banks view this dynamic, and has changed what matters to them. In the Asia Pacific (APAC) region, the number of overall relationships maintained by banks has decreased considerably since 2006 in euro and US dollars to about half the number of relationships, a similar trend identified in the two FImetrix regional studies conducted prior to APAC (see chart 1).

The number of provider banks offering services globally has declined with the pressure of client consolidation, regulation, KYC, and profitability. Fewer provider banks offer products/services globally and in all major currencies; many are more focused on select regions, and some only on select countries. Many longstanding relationships have ended or been damaged, and this has meant less loyalty among client banks towards their providers, an increase in RFPs (requests for proposals) to replace existing providers, and due diligence reviews of existing relationships.

High expectations

So what has relationship consolidation and fewer provider banks meant for client banks in terms of what they consider important in their provider bank affiliations? To begin with, expectations are high that the range of traditional products/services being offered by the fewer core provider banks will be adequate to handle payments and trade volumes going forward. In addition, client banks are looking to their remaining providers to offer banking services along with the standard transaction banking services, principally FX, liquidity management, and various forms of trade financing.

Furthermore, client banks globally are increasingly looking to their provider bank for advice, support, and training in the areas of KYC, regulatory changes, and basic payment/trade products. They are looking for relationships built more upon the concept of a ‘trusted partnership’ rather than a reciprocity driven two-way street.

Critical drivers of satisfaction

FImetrix utilises a proven form of multivariate analysis to identify drivers of satisfaction at both institutional (non-product-specific) and product levels. In five out of the six regions studied over the past two years, three critical drivers of satisfaction were the same: Operational Product Quality, Commitment to the Long-Term Relationship, and Customer Service Quality. client banks’ focus on commitment, customer service and quality of service delivery should not be a surprise as these are basic tenets of bank-to-bank business. In fact, three of these critical drivers have been crucial for years, as evidenced in chart 2.

Customer Service Quality has been a global driver of satisfaction consistently since 2011, and previously from 2006 up to 2010, when it was globally less relevant. While Commitment to the Long-Term Relationship has been consistently critical since 2009, both RM Follow-up and Operational Product Quality have become critical again after a hiatus of three years between 2011 and 2013. Considering the trends in the market over the past few years related to relationship consolidation and increased expectations from client banks, this is no surprise. The same applies to Provides Regulatory and Industry Information, which fits into the trend over recent years of client banks looking to their provider bank for support in various areas. We expect these drivers to remain critical in 2016 and 2017 studies.

In chart two, we have also earmarked Competitive Pricing as it emerged in the latest APAC study as a critical driver, having not been critical since the 2010 study. It is pretty much the same story in the other geographic regions: the driver has not been critical anywhere since 2011, with the exception of Latin America in 2012. Could its re-emergence as a critical driver in Asia/Pacific Rim be the start of a trend to appear in other regions as studies are conducted over the next 18 months? Certainly, the current bank-to-bank atmosphere – low interest rate environment, de-leveraging of relationships, highly increased costs due to regulation and KYC cost cutting – would suggest that client banks have been forced to view pricing differently. Competitive Pricing could be rearing its head globally as a critical driver of satisfaction again.

Staying competitive

Market and regulatory developments in recent years have made it increasingly more difficult for banks to remain competitive in the bank-to-bank business sector, forcing many banks to re-evaluate their short and long-term strategies. This has led to the consolidation of relationships and a contraction of revenue potential in this line of banking business. Competition among provider banks has heated up, as fewer client banks deemed ‘partner worthy’ are being pursued by, an albeit fewer, but a proportionally equal number of provider bank as in the past. In this competitive atmosphere, differentiation from the competition can be advantageous, and understanding what is truly driving Client Bank satisfaction can offer provider bank a form of differentiation in their discussions with existing and target clients. Combining the insights gained through understanding critical drivers of bank relationships on a moving basis, together with the client knowledge of calling officers, can benefit a Provider Bank against competitors, resulting in a higher level of Client Bank engagement.

Doug Ziurys

Senior Vice President, FImetrix

Doug Ziurys

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