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Many dissatisfied small and midsize companies are inviting competitive bids for their banking business.
Vincent Ryan, CFO.com | US
August 11, 2010
Thinking about leaving your current bank for another one? Join the club. According to Greenwich Associates, an historically high number of companies have put their banking business — almost all of it — out for bid.
In the past six months, according to a Greenwich survey of banking decision makers in late June and early July, 20% of midsize firms and more than 15% of small businesses issued requests for proposals (RFPs) for a new bank. What's more, another 19% of midsize companies and 16% of small businesses are planning to do the same in the coming 12 months.
And the changes corporate clients are seeking are not of the add-on or complementary variety: 39% of small businesses and 37% of midsize ones have put out RFPs for a new, comprehensive banking provider, says Greenwich, a financial-services research firm.
Greenwich calls the numbers "truly striking," given that typically only about 10% of companies switch banks in a given year. The number of companies putting out RFPs for new banks has also accelerated in the past 18 months. In the first half of 2009, only 4% of small and midsize firms were seeking a new bank, says Greenwich.
The primary driver of the new fluidity in banking relationships: companies' desire to reduce hefty banking fees. About half of both midsize and small companies cited fees as one of their top three concerns; the others were unhappiness with the current level of customer service and increased capital needs. For small businesses, dissatisfaction with banking service trumped access to new sources of capital, 33% to 27%. But among midsize businesses, 37% attributed the RFP to increased capital needs, while 23% cited unhappiness with the current level of customer service.
Greenwich was cautious to say that more than poor customer service might be at work in the increased willingness of small businesses to switch banks. "Since credit is such an important part of business banking relationships, it can be difficult to separate companies' satisfaction with the customer service they experience from their ability to secure credit from these providers," the company says.
Reuben Daniels, managing partner at EA Markets, a capital-markets advisory firm, says many of the firm's clients are "just not getting covered by the banks with the focus and creativity the companies are accustomed to receiving. Banks generally don't view lending as profitable business, so many don't invest the time, effort, and resources to help clients get great results."
During the boom in credit, as spreads compressed toward zero, this lack of interest from the banks had less impact on outcomes, Daniels says. "Companies were getting great results without trying very hard, but in challenging markets, everyone needs to work harder," he says. The second factor behind the willingness of CFOs to switch banks is the historical changes in the banking landscape that took place following the credit crisis. Companies' banking needs, in many cases, are no longer aligned with the capabilities of their banking providers. "Many bank groups have changed materially over the past 18 months — the consolidation, the capital constraints, the change in the banks that are lending versus those that aren't — without any actions on the clients' part," says Daniels.
The survey results echo in part those of a poll CFO recently conducted on the state of banking relationships. Among other findings, the poll showed that almost half of the more than 600 financial executives who responded are more likely to actively explore switching banks now than they were two years ago. It also found that almost one-quarter of financial executives think their relationship with their primary bank is "strictly transactional." The full results of the survey will appear in the October issue of CFO magazine.