Having attended both TXF and GTR conferences in Geneva over the last few weeks, I could not help a feeling of going back to normality, after over 18 months of virtual events only. What looked even better was to see everybody more concerned about how to secure liquidity and risk appetite for performing commodity-trading businesses rather than manage problem loans. Both commodity traders and their bankers need to cope with increases stemming from both volumes and prices.

In the past, as a banker the biggest business risk I saw was that of persistent low commodity prices, with credit lines utilized at 20-30% and revenue seemingly going nowhere. Couple that with low interest rate environment driving overall limited performance of the transaction banking sector and senior management quickly run their attention to cutting costs. Rather short- term thinking!

An even bigger trigger for banks retrenching was brought about by the pandemic with several commodity trading firms causing billions of losses for the main trade finance banks and some specialized direct lenders. A year ago, some banks were completely exiting the commodity trade finance sector, while others were trimming their portfolio as part of a “flight to quality” (probably one of the most misused sayings in modern finance and banking). Again, this was short-term thinking!

The business boom

Fast-forward 12 months and we are in a booming (musical) world. The commodity traders have learned to play the accordion feature of their syndicated facilities. With commodity prices 50–100% higher than a year ago, liquidity is king again – especially for those traders with the privilege of high margin calls, as driven by the rapid appreciation of various commodity prices. As rising prices go hand-in-hand with increased volumes, line utilization has also doubled – or more – over the past year. Profits are accumulating for trading companies, and they are for banks too, which means they are likely to have their best year in a decade.

But it’s not been an easy journey. Banks have been allocating a lot of risk capital to other businesses, and cut head-count s while still struggling with KYC requirements. As I anticipated a year ago, the resilient banks are now reaping the benefits of the current volume and price boom and have successfully passed the stress tests they’ve been subject to.

The “exiters” have become spectators and are now re-thinking their approach. A leading European investment bank is even considering re-entering commodities trading after exiting the arena eight years ago due to the reputation risk it involved and concerns about return potential. But as a commodity structured finance leader stated, “we don’t like banks that come and go”. That perception has a cost too, it’s not just about switching the lights on again.

Is the current business boom sustainable?

Some analysts believe that despite the economic rebound, inflation is only likely to be transitory. But if the economic recovery and pent-up demand for commodities are sustained, there will be continued pressure on liquidity management for commodity traders. The well-known global trade finance gap, as measured by the Asian Development Bank increased from USD 1.5 trillion to USD 1.7 trillion according to figures released on 12 October. This is worrisome as it witnesses the incapacity of the providers of trade finance solutions to keep up the pace with growing needs. And into 2021 this gap is probably much higher in reality, also with risk appetite for emerging markets remaining scarce.

All this means that commodity traders will have to, both compete for bank liquidity and access new, generally more expensive, sources of capital, such as funds, capital markets, family offices and private equity. The latter represents healthy diversification and a reality check, driving up average cost of borrowing.

Meanwhile, competing for bank liquidity should not mean overpaying for bank financing, especially for established players. No more covid premium. It means understanding who their banks are, the right price for the risk bank are taking, and the way it translates into regulatory capital. Basel IV standards, which are expected in January 2023, are still being formulated, and have the potential to deal further surprises affecting the cost of trade financing (watch out for the credit conversion factors and Loss Given Default levels).

Any bank is the sum of its people and its business model

As I mentioned in an article a few years ago, the better commodity trading firms understands what drives their bankers’ perception of risk, the higher the chance of increasing their credit appetite and reducing the margin charged. As one of my former managers used to say, “perception is reality”. The risk perception of your relationship manager and especially that of his business and risk chain will be the reality when it comes to your liquidity and cost of borrowing.

Are you spending enough time improving that perception, or do you think it’s simply the relationship manager’s job to write all those memos, perform risk analysis and ensure you receive an optimal deal? What drives banks’ risk appetite remains an ever- green topic! (click here for a refresher) Will your banker help you become more profitable, on a risk weighted basis, for the bank and hence be able to provide more credit? Will the structure of your facility result in risk-weighted return improvements?

On a related note, linking loans for commodity traders to ESG KPIs is becoming the new norm, almost similar to compliance. There is still work to be done educating both sides, and especially in terms of how companies should be rewarded or punished via their cost of financing in a meaningful way. One thing is for sure: the malus premium should not be kept by banks. Embracing ESG criteria and related mechanisms may alleviate certain internal pressure within banks on the sector. That explains the need to press forward full- steam ahead, embrace the change and learn along the way. But don’t be afraid to challenge what’s relevant and needed in developing the commodity trade finance sector ESG guidelines.

Conclusion

As the pendulum seems to have swung all the way back in a rather short time frame, CFOs and treasurers of commodity traders need to stick to their long term diligence with the banks! Either way, whether prices keep on surging or demand falls in the new year, NOW is the best time to monetize the trust and increased comfort across relationships with those resilient banks while still investing in newer financing partners.

About the Treasury Dragons

The Treasury Dragons foundation is designed to answer a single question: how do you decide what is the best cash management technology solution for your business? This is why a panel of experienced treasurers – the Treasury Dragons – has been brought together to ask the right questions on behalf of businesses. In a series of short online presentations, the fintechs present their cash management system to the Dragons and auditors. They present the strengths of their system and are then asked to answer live questions from the experts.

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– Why are treasury departments modernizing their approach to controlling bank charges?

– There are many reasons why a treasury department might adopt a tool to monitor bank fees: for example, to automate a tedious procedure, to prepare for a bank renegotiation, or to ensure a recently negotiated pricing grid is being applied correctly. These tools improve the treasury team’s access to and understanding of all the cash management fees the company pays to its banks. They also make it easier for the company to get reimbursed for billing violations.

The fees a company pays for cash management services tend to vary between 0.5–1.0% of its turnover, depending on size, international footprint, number of banks, and history of renegotiations with its banking partners. In a period in which companies are looking to make savings – seven out of ten finance departments are considering how to make additional savings, according to a Redbridge survey– bank fees are clearly something worth looking at.

When a treasury department’s organization is decentralized, central treasurers no longer want to rely exclusively on reporting from their subsidiaries regarding the fees they’re paying for cash management services without having the possibility to check it themselves.

Once a new company has been acquired, checking its bank fees provides a quick overview of the cash management services it uses. It also provides insight into whether the prices it pays for each service are in line with those of the group and can lead to a quick negotiation to harmonize payment practices.

Another reason to control bank fees is the desire to clean up or rationalize the company’s account structure. This can help identify the most attractive banks to use when opening new accounts or providing additional side-business. Only specialist bank fee monitoring software can easily provide this type of information in just a few clicks.

In our experience, companies using HawkeyeBSB software developed by Redbridge find that 10% of their accounts are dormant.

– What are the benefits of automating bank fee monitoring?

– Generally speaking, treasurers who control their bank fees manually focus on the most important items and rarely have time to analyze their bank billing statements in depth. Automating this task makes the process more reliable and provides a more detailed analysis. For example, automation makes it possible to compare the prices charged for the same service between banks. Treasurers can also identify services that they did not realize were being used.

I remember a client who was unaware of the importance of the costs linked to lockboxes, which are used for cashing cheques in the United States. However, after implementing our HawkeyeBSB bank fee monitoring software, he quickly entered negotiations with his banks for this service.

In summary, using a tool to control bank fees saves money and time, and results in more in-depth analysis.

– How does analyzing bank fees change a company’s relationships with its banks?

– Treasurers who regularly monitor their cash management fees become more autonomous of their banks. Bank fee monitoring software sends alerts whenever it identifies pricing discrepancies. This means that the treasury department can ask for refunds much quicker.

Treasurers who analyze their bank fees using dedicated software can also track how their consumption of banking services evolves over the years. Some services become used much more frequently over time, even if they were not important considerations in the original price negotiations with the bank, which may have been several years prior. One way of controlling bank fees is to identify the right time to restart negotiations with the banks.

– What’s the best way to successfully renegotiate your cash management fees?

– First, it’s important to know which services are needed, in what volumes, and their current price. Having an idea of volumes helps you determine what’s at stake in the forthcoming negotiations. Identifying the prices charged for each service by the various banks then makes it possible to establish a relevant benchmark against which you can compare the offers.

Finally, it’s useful to identify all the services invoiced for by each bank, as they are not always negotiated within the framework of an RFP. A tool that monitors cash management fees makes all this possible and prepares you for successful negotiations with your banking partners!

– What characteristics should a good bank fee monitoring software package offer?

– In recent years, several treasury software vendors have developed bank fee modules that are able to aggregate bank fee statements. These tools’ ability to provide in-depth analysis depends on the vendor’s knowledge about how each bank builds account analysis statements.

How a service appears on a bank account analysis statement may differ within the same banking group. For example, depending on geography, bank account analysis statements may vary. Which is why properly understanding bank fee statements requires considerable expertise.

Bank fees are the core of Redbridge’s DNA, which is why we launched Redbridge Analytics five years ago to provide a coherent suite of solutions to improve treasury departments’ performance. This platform brings together all of Redbridge’s expertise, including comprehensive mapping of each item charged based on AFP codes.

Our objective is to guarantee that each user of our HawkeyeBSB tool has access to consistent information, so that they can easily compare different banking partners, different services and different regions. What’s more, our dedicated tool is accessible in SaaS mode, which means it can easily be shared with other departments in the company. It’s also extremely flexible in terms of the banking fee formats that it accepts (such as PDF, Excel, EDI, BSB, csv and Camt.086).

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Wondering how to use technology to make bank fee analysis more efficient? Looking for a process to follow to analyze fees, spot billing violations, compare banks and improve visibility?

To explore how to efficiently control bank charges with treasury software, Redbridge interviews Frédéric Capraro.

Frédéric is the senior project manager for the treasury department at RTL Group, an international media company based in Luxembourg. He also manages the SWIFT Customer Security Program and participates in implementing organized management of banking powers to combat fraud.

Frédéric shares how HawkeyeBSB helps his organization visualize, control and reduce bank fees on a daily basis.

–  Can you give us a brief overview of RTL Group and its treasury organisation?

– Frédéric Capraro: RTL Group is a leader across broadcast, content, and digital, and operates 68 television channels, 10 streaming platforms, and 31 radio stations. RTL Group also produces content throughout the world and owns digital video networks. In 2020, its turnover was around 6 billion euros and adjusted EBITA around 850 million euros.

RTL Group’s treasury organization is decentralized. Although cash is raised at the group level in Luxembourg, each business unit in each country is autonomous and manages its banking relationships according to its needs, in line with group policies. Our bank relationships were mainly developed between 2010 and 2018 when we carried out a country-by-country RFP to select new banking partners. Historically, and for reasons related to our business, we use one or two banking relationships in each country that we operate in. Our operations go beyond Europe as we have a presence in the United States, Australia and Asia. In total, we have 13 cash management banks, and we communicate with them for our payments and the receipt of our account statements through SWIFT.

Some of our subsidiaries, such as Fremantle, are highly active in account opening and closing, as each production/season is independent and has a limited timeframe. Groupe M6 in France, a publicly listed company in which RTL Group owns a 48% stake, has an entirely independent treasury.

–  What prompted RTL to modernize the control of its bank charges?

– From a treasurer’s perspective, bank fee analysis is a difficult task. Banks use different pricing structures, and statements, generally sent by mail and less often electronically, may be pages and pages long. RTL Group has around 800 bank accounts, and the treasury team opens and closes about 100 accounts each year based on the needs of RTL’s productions. A thorough bank account analysis is a lot of work for our seven-person cash management team.

We needed to further improve our visibility of bank charges. Especially in terms of our speed to access relevant data and automating the collection/analysis process.

Typically, after the rollout of a new bank that was selected by RFP, we would pick a few accounts at random to check whether the negotiated fees were being correctly applied. Once these checks were carried out after the RFP, there would be no close follow-up over time. We assumed that the banks were organized enough to bill us appropriately.

However, we had some doubts about the banks’ ability to charge us correctly. Looking at the cash pooling fee structure of one of our partners, we found that cash pooling fees were still being applied to accounts that our group was no longer responsible for following the sale of 15 subsidiaries. The billing violation amounted to around 20,000 euros per year.

–  How did you learn about our Redbridge Analytics fintech and its bank fee monitoring software, HawkeyeBSB?

– I had the opportunity to meet the Redbridge Analytics team at EuroFinance a couple of years ago. I knew that there was a modern solution to control bank charges. Compared to other solutions on the market, HawkeyeBSB already had many BSB file formats in its library and appeared to be a plug-and-play expert solution.

–  How has HawkeyeBSB changed your view of your cash management services and its associated cost? What does the software bring you?

– Thanks to HawkeyeBSB, we were able to identify double billing and eliminate services that we did not use or were not essential for us. These savings have essentially covered the costs of setting up the tool. We also managed to harmonize the prices applied to each new account by country, and this enables us to benefit from the most favorable negotiated conditions to this day. By integrating HawkeyeBSB, we have made material progress in digitizing our treasury processes, starting with bank fee monitoring.

–  What savings have been made because of this modernization project?

–  We ended our banking services that were either billed twice or not used. The return on investment of the solution was immediate.

–  How did you implement the tool and how do you use HawkeyeBSB on a daily basis?

– The software deployment proved to be quite simple. It was a question of setting up an SFTP connection with an encrypted file exchange — that’s all there was to it. The greatest challenge was obtaining the fee statements from our banks. This required several exchanges with the banks to set up the documentation and receive the files via SWIFT. The most tedious part of the process was getting these BSB files, whether it was a camt.086, EDI or another format.

– How do you use HawkeyeBSB on a daily basis?

– We use the tool for information purposes only. HawkeyeBSB gives us visibility about the fees we pay with a level of detail that ERPs are not able to provide. It’s a real plus.

HawkeyeBSB helps us better understand the banking services we use and gives us food for thought on how to manage our payments. When we see that the fees we pay are higher in some countries than in others, we consider the possibility of migrating these payments to our payment service center by organizing POBOs, for example. We made our first savings after the software was deployed in March 2020.

We have not yet provided our subsidiaries with access to the software to carry out their monitoring independently, but the tool allows us to do so if we want. We follow up with our banks every three months. To smooth out the process, we ultimately decided to ask for fee retrocessions where double invoicing occurred.

The point of view of our expert, Gaelle Parquic, associate director at Redbridge Analytics.

Immediately after the implementation of HawkeyeBSB, there is always some analysis to be done to make savings. Receiving the information and being able to aggregate it is one thing, but you also need to take time to find out about your banking services and related costs so you can do one big cleanup.

In the beginning, our customers tend to use HawkeyeBSB almost every day. As time goes by, when they’ve come to grips with and mastered their major banking services items, the customer may decide, depending on their organization, to follow up monthly, quarterly or even half-yearly. This is not a problem as long as the tool feeds itself every month, independently of any intervention.

The vast majority of banks are capable of transmitting dematerialized expense statements. But all too often, account managers are unaware of this. The information is rarely relayed to local branches. In addition, delays in receiving the first BSB file are lengthened by the documentation that needs to be completed to set up the new service, as well as the channel for transmitting the files. For example, it is still the customer who has to list their accounts to activate the service, even though the bank obviously has the list of accounts in its systems! In an ideal world — hopefully not too far away — bank statements will be made available automatically.

Lastly, is it free? It depends. French banks charge for dematerialized bank statements. American banks do not, or charge a modest price, but they do charge a fee for transmitting the statements. Sometimes they forget to charge these transmission fees, which shows that it is not always bad faith when banks make mistakes!

Portrait

Frédéric Capraro is in charge of structuring projects for RTL Group’s treasury department. He is the guarantor of compliance and best practices, for example when he manages the Swift Customer Security Program designed to minimize the risk of cyber-fraud, or when he participates in the implementation of organized management of banking powers to combat fraud. It is now focusing on replacing RTL Group’s banking communication tool and setting up a new payment center.

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The Association for Financial Professionals releases the largest update to the code set to date

While the world was shutting down due to COVID-19, an AFP task force of 19 bankers, corporates, and software vendors embarked on a massive project, led by Redbridge, to update the AFP Service Codes^©.

The last update to the code set was in 2013, and feedback from the community was that it was necessary to improve the code set to properly reflect today’s rapidly evolving treasury services market.

The AFP task force completed an 8-week project of reviewing all 2,000+ active service codes and made the largest update to the code set to date. “I have been involved in every code update since 2001, and this is by far the largest improvement,” said Bridget Meyer, Senior Director at Redbridge and task force leader. “We left no stone unturned.”

Only 32% of the codes remain unchanged. Figure 1 shows a breakdown of the update.

Summary of Code Changes by Product

New Product Families

The taskforce added two completely new product families during its review.

The first new product family is 33 Integrated Funds Transfer Services, which includes services related to integrated payables and receivables. The committee and the industry define integrated payables as “the ability for a corporation to send a single file to the bank containing more than one type of payment (such as check, ACH, wire or instant payment) for the bank to translate into the appropriate format and release.”

Similarly, integrated receivables combine remittance information from multiple payment types into a single file for posting. Companies can provide banks with an open accounts receivable file for automated matching by the bank for increased, straight-through processing.

Accounts receivable matching, or A/R Match, codes were added in the 05 Lockbox Services, 31 Electronic Lockbox (eLockbox) Services, and 33 Integrated Funds Transfer Services product families.

The second new product family is 65 Trade Finance Services. Previously, letters of credit and documentary collections were broken out between two separate product families: 60 International Services and 55 Credit Services. The committee’s position was that these services, whether domestic or international, are maintained by the same group at the bank and, therefore, deserve their own product family, similar to the AFP global code structure.

Modifications by Product Family

Account Services

Many banks have started differentiating between debit and credit posting charges based on electronic or paper transactions, so new codes were added to further clarify this.

Imaging services and charges have spiked and more and more banks are billing for access to a single portal for all images (e.g., checks paid, lockbox, etc.), rather than separating them by product. Therefore, we added a new “0120 Multiproduct Imaging” product group.

Similarly, on the transmission and channel services side, some banks have stopped separating file transmission services by product, so we added a new “0140 Multiproduct Transmission Services” product group. Throughout the code set, we added language to include data exchange via application programming interface (API) as a part of data transmission to accommodate for growth in this sector.

We also added new codes for artificial intelligence services, mobile authorizations, and account validation services to the 01 General Account Services product family.

Lockbox Services

Lockboxes are still the workhorse for most large corporations in America, and the services are still evolving based on task force feedback. New services for A/R Match, stop files, multi-demand deposit account (multi-DDA) lockbox deposit services, and even address changes were added to the 2020 code set.

The distinction between black and white versus color imaging was removed. Data capture and sorting services were simplified, and reporting evolved to the delivery method versus the different types of content within a report.

Depository Services

The largest product family, 10 Depository Services, had major modifications in the AFP 2020 code set to better reflect today’s cash vault and image deposit environment.

With the advent of image clearing, rather than physical clearing, by the Fed, check clearing charges were simplified to either “on-us” or “other bank” by most financial institutions.

The remote deposit codes were modified to distinguish image cash letter transmission services from desktop deposits with low-volume scanners.

The 1012 product group for “Contract Vault Services” was modified and repurposed to only apply to cash vaults that are “expanded” or “extended” from the primary bank network. While many banks (if not most) subcontract their cash vault services to a third party, usually, this is not transparent to a customer. Moreover, the assignment of a “contracted” vault service code was confusing. Additional codes for vault maintenance fees, armored carrier charges, depository tracking services, and smart safes were added or clarified in the new 10 Depository Services code set.

Paper Disbursements and Reconciliation

Corporations in the U.S. still love to write checks, but more and more are outsourcing this service. The 1518 product group for “Disbursement Outsourcing” was renamed to “Check Print Services” now that the 33 Integrated Funds Transfer Services product family exists. Check paid imaging, retention, and archiving were modified to be consistent with imaging services in other product families, and the task force removed outdated physical check return services that banks no longer offer.

Banks have created every combination of positive pay, payee verification, and reconciliation services, so more codes were added to accommodate. In line with its mission to rework all reporting services to be organized by delivery method (i.e., transmission, internet, electronic message, or manual), the task force took great care to clarify reconciliation reports.

“Banks adopting the new codes should pay attention to the additional information provided in the definitions of all modified and new codes,” explained Bridget. “The task force added more direction within the descriptions, even provided examples, to help with the proper assignment of codes.”

Card (Payroll, Purchasing, Merchant Card)

While most banks in the U.S. do not report card fees using an industry-standard format, outside of the U.S., cash management banks can be more involved in the processing and reporting of these fees. There is a movement globally to move merchant fee reporting under the ISO 20022 umbrella and leverage the camt.086 message type to encompass all fees charged by banks, not just cash management services. Therefore, the task force reviewed and improved even lesser-used product families to make them consistent with the global AFP code set and to have relevant codes for banks that choose to use them domestically.

Information Reporting

Information reporting used to be the most confusing and difficult product to map due to the detail required. Before finally mapping to the correct delivery method of the report, one had to know if the report was domestic or global, previous day or intraday, and summary or detail.

The task force removed the distinction between global or domestic and summary or detail in the 2020 version, greatly reducing the complexity and sheer number of codes in this section.

ACH Services

• Product family 26 ACH Concentration was renamed to Concentration Services in preparation for the fact that corporations may soon have a choice when concentrating funds and domestic pooling across banks using instant payments.
• Product family 27 was renamed from ACH Standing Order Services to Automated Funding Services, and ACH standing order charges were moved to the 25 General ACH Services product family. Previous task forces had combined standing orders and automated funding, but it was identified that this was incorrect.
• The distinction by ACH payment type (e.g., CCD, PPD, etc.) was removed from the codes, and the ACH reporting section was reworked to be by delivery method rather than content.

Instant Payments and Wires

After much discussion, the task force added a new product group for “Instant Payments” within the existing 35 Wire and Other Funds Transfer Services product family. The 35 product family now includes all electronic payments and receipts except those cleared by the ACH Network.

Real-time (or near real-time) payments (RTP) are exploding in the U.S., with the continued expansion of The Clearing House. The Euro Retail Payments Board (ERPB) – a strategic body tasked with fostering the integration, innovation and competitiveness of euro retail payments in the EU – defines instant payments as “electronic retail payment solutions that process payments in real time, 24 hours a day, 365 days a year, where funds are made available immediately for use by the recipient.” Examples of instant payments are RTP, Zelle^®, and Venmo in the United States. The task force decided to adopt this term and call these emerging payment types “Instant Payments” in the AFP 2020 code set.

Electronic Bill Payment and Presentment (EBPP)

Product family 32 Internet Payment Initiation Portal was renamed to Bill Collection Services. This product family includes services that provide additional options for large corporations to give to their customers to pay their bills or invoices. This includes websites or apps to collect and process payments branded to look like the corporation’s, interactive voice response (IVR) systems, and over-the-counter merchant solutions. Bill pay aggregation services, such as electronic lockbox, are not included in this group as they are considered extensions of traditional lockbox services and are now coded in the newly revised product family 31 Electronic Lockbox (eLockbox) Services.

Electronic Lockbox

The 31 product family was renamed Electronic Lockbox (eLockbox) Services and includes bill pay aggregation (with or without presentment) services, otherwise known as electronic lockbox or EBIP. Remitters go to their online banking portals to initiate payments to the customer (biller). The electronic payments are then aggregated by the bank and settled in a single daily transaction. As online bill pay portals for consumers have advanced, the code set needed to be cleaned to remove antiquated software and presentment services to receive these consumer payments.

Electronic Data Interchange (EDI)

Most of the EDI product family was deprecated due to the addition of funds transfer file transmission services being added to each relative product family, the new 33 integrated payables and receivables service codes, and the new 0140 “Multiproduct Transmission Services” group added to the 01 General Account Services product family. Banks should only use the remaining EDI service codes (which have been renamed to Funds Transfer File Transmission services) when the fee is for generating or receiving files that result in the movement of funds, regardless of product (i.e., ACH, wire, checks, etc.).

In Summary

All product families were touched by this update to the AFP Service Code set. Task force members met with subject matter experts in retained assets, payment cards, trade, debt and credit, and custody services to ensure that whoever chooses to use these codes internally for data analytics, pricing exercises, or externally for an RFP or account analysis, the best options are available to reflect today’s treasury environment.

So, When Can I See the New Codes on My Statements?

That depends on your bank. Task force member banks mentioned adoption anywhere from this fall to spring 2022. During this adoption period, it is incredibly important to ask your banks which code set they are using and to ask them to adopt the new codes. Otherwise, you will have a large potential for apples mixed with oranges.

AFP Service Codes Accredited Providers will be updated during their next renewal cycle. This means BMO Harris, Capital One, Citibank, City National Bank, Hancock Whitney, People’s United, Signature Bank, and Wintrust Financial will be among the first to adopt the codes.

This Is Where HawkeyeBSB Is So Valuable

If you are a Redbridge HawkeyeBSB customer, we have you covered. Regardless of the bank you use, all HawkeyeBSB AFP codes will be updated by Redbridge as a user benefit.

About the AFP Service Codes

There are two different sets of AFP codes used by the financial industry: AFP Service Codes and AFP Global Service Codes.

AFP Service Codes are industry standard codes assigned by all major banks to their cash management services billed to large corporations on their account analysis statements. Proper assignment of the codes allows a corporate treasurer who uses multiple banks to perform analytics, cross-bank comparisons, and RFPs effectively. In this big data day and age where every corporate and bank alike are looking to implement business intelligence (BI) tools, classification of data is not only necessary – it is critical to the success of the analytics and insights expected in these projects.

The AFP Global Service Codes were created in 2011 and recently updated in 2018 thanks to efforts by the CGI-MP Swift Work Group 5, a global task force (also led by Redbridge) dedicated to a common global implementation of the international bank fee reporting (ISO 20022 BSB) standard. The global codes were designed specifically for the international community, based largely on the original AFP Service Codes created in the U.S. for use in the EDI 822 standard in 1986. In the U.S., over 800 mid- and large-sized corporations currently receive their bank analysis statements electronically using the ANSI X12 EDI 822 Transaction Set in which the U.S. AFP Service Code is a mandatory field.

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In February 2008, Barclays announced in a press release that they were the first UK bank to introduce the TWIST BSB 3.1 industry standard for bank services billing (BSB) to General Electric. Twelve years later, a bank is finally considered ‘behind technologically’ if they cannot produce a BSB file, based on recent feedback from the corporate members of the SWIFT CGI-MP Working Group 5.

“BSB capability is a very important consideration when awarding business for Nestlé,” said Shabbir Ahmad, global head of cash management at Nestlé, which has presence in around 180 countries. “If a bank cannot produce the industry standard BSB file, it leaves the impression that the bank is behind in technology and gives the impression that they are not up to the standard. If you cannot provide this type of file now, when the standard has been out for 10 years, how will your bank keep up with the rapidly evolving industry disrupted by fintech companies?”

Banks cannot say they are a leader in technology and not be able to produce a basic bank fee report in the ISO 20022 industry standard.

If your bank is late to the party of providing bank billing, here are a few reasons you should invest in this capability now:

1. Your corporate clients want it. Especially the big ones.

• Commercial clients are including this capability in RFPs, and banks need it to win business.
• It helps clients overall. Clients who use multiple banks have the definite advantage of gaining visibility into their fees across all banks, countries and markets. This allows for cross-market/cross-bank comparisons and benchmarking that open the lines of communication in an important and informed way.
• Bank fee reporting helps clients in their own standardization and efficiency journeys. One treasurer reported to the CGI working group that he used the data to consolidate treasury functions and identify opportunities for more straight-through processing.
• BSB files are not only a means to oversee the bank, but rather the medium to provide the data treasurers and CFOs need to monitor subsidiaries and ensure compliance with internal rules and initiatives. For example, one corporate client mentioned that they have an internal rule that offices should not be accepting checks or cash as payment. When volume showed up on the statement, it raised a flag internally.

2. Your competitors can.

• The large global banks are making more and more noise in developing countries and are all able to produce the ISO standard reporting of bank fees.
• Data is an important element in this day and age. Being able to provide this product is key. Bank sales teams like having the BSB reporting as an ‘opening line’ and an easy sale. The sales team also needs (and likes) this type of data with AFP Global Service Codes included because it helps them price RFPs and better forecast revenue for the bank.
• It’s not about leading the industry anymore, but rather just keeping up.

3. It helps your own bank.

• By reviewing fee income and implementing camt.086, banks can identify billing leakage and opportunities to streamline and simplify across different countries, branches and markets.
• Providing a BSB file is an opportunity to stand behind the global standard when the bank is faced with multiple clients, all asking for different types of spreadsheets and custom reports to meet their individual needs. Providing the standard file makes it much easier to manage and control (from the cost perspective) these special requests from customers.
• In this low-interest environment, fee income is becoming more important to the bank. Without aggregating fees, the bank cannot perform any analysis or benchmarking with other banks to see where the market is going.

Banks that want to keep up with the industry standard, but have not, are most likely facing one of the following challenges:

• It is difficult to get budget. Requests for billing improvements compete with upgrades and fixes required by new regulations. Billing itself does not turn a high profit. Banks need to have big clients, and the revenue they bring help pay for the cost of these improvements. Corporations do not want to pay a fee to receive a bill. Those who view the camt.086 as a bill feel strongly about this. Those who see it as a report may be more likely to pay. If the bank’s current vendor provides the option of camt.086, it is an easier sell. If it’s a brand new service and the current vendor cannot produce the file, this fundamental shift can be difficult, and the project becomes a much larger challenge. In these cases, banks that have completed their projects will tell you it is critical to have the right resources on the project that have the needed experience. This may involve the need to hire consultants or new employees as well as an investment in new technology. If the bank is a large global bank with regional payment platforms, analysis platforms, and a mix of technology, each platform will produce inconsistent reporting. If each platform were to produce the camt.086, this could be a quick-fix way to provide a single synchronized report across all regions to a corporate client. This solution has advantages; however, it may lead to the bank sending camt.086 files from different platforms that are inconsistent across the markets and/or a situation where a bank can only provide the files in certain countries. This is frustrating for a corporation that uses the same bank in 10 countries but can only receive a file with bank fee reporting on a part of their activity. This is an all too familiar story for some corporations.

Banks may believe that by providing transparency, it will result in a fee reduction and less revenue to the bank, but corporate clients disagree. The increase in customer satisfaction will result in more business and a better relationship overall.

The time is now to develop what is necessary to produce the ISO 20022 standard for bank fee reporting. You cannot afford to be late.

HawkeyeBSB

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