Strategic treasury management significantly impacts profitability, liquidity, risk mitigation, and overall bank relationships. Despite this, misconceptions around negotiating bank fees and optimizing cash management are still common within finance teams.

For treasury managers, teams, and CFOs looking to improve their financial strategies, here are five common myths discussed with our perspective at Redbridge along with actionable tips.

Myth #1: “My strong bank relationship means no negotiation is necessary.”

Reality:

A strong relationship doesn’t automatically ensure competitive bank fees. Treasury teams frequently overlook substantial savings by neglecting fee benchmarking against market standards. This is either because they don’t know the questions to ask or because they don’t have the data needed. Utilizing market intelligence from independent treasury advisory experts typically results in significant cost reductions.

You’re Probably Facing:

You have a longstanding, solid relationship with your bank and worry that questioning fees might strain that rapport, especially since your bank supports multiple business lines. You might feel uncertain about how to challenge pricing without harming your partnership, or you may simply lack the data necessary to support your position.

Myth #2: “Treasury management is only about managing account balances.”

Reality:

Effective treasury management includes liquidity optimization, yield enhancement, bank fee negotiation, efficient debt structures, and global payment acceptance solutions. With the right foresight and management, treasury activities transform from an administrative function into a profit-driving, strategic advantage.

You’re Probably Facing:

You’re overwhelmed by routine daily tasks, other priorities, or lack of time that keeps you from addressing tasks like reconciling accounts, managing cash positions, and ensuring payments are disbursed correctly. These responsibilities leave little to no time for strategic initiatives such as fee optimization, liquidity strategies, or improving returns on idle cash.

Myth #3: “Multi-bank FX platforms guarantee optimal FX margins.”

Reality:

Multi-bank platforms introduce competition but don’t eliminate strategic margin inflation. Banks often subtly adjust FX margins based on your historic tolerance, increasing costs incrementally and quietly.

You’re Probably Facing:
You’re relying on a multi-bank platform, assuming it consistently provides the best available rates, but you aren’t actively monitoring how margins change over time or benchmarking them against the broader market.

Myth #4: “Negotiating bank fees hurts my bank relationship.”

Reality:

Bank relationship management thrives on proactive fee negotiation. Banks expect discussions around fees as part of strategic relationship building. Transparent dialogue strengthens partnerships, aligns service expectations, and fosters long-term success for both parties.

You’re Probably Facing:

You have bank relationships extending over decades that include additional services like credit facilities, merchant services, and investments. This depth can leave you feeling “trapped” and hesitant to ask for further concessions or favorable terms.

Myth #5: “Negotiating bank fees will harm my credit facility terms.”

Reality:

Effective treasury management includes concurrent negotiations for bank fees and credit facilities without compromising either. Specialist treasury advisors with knowledge and experience in both credit and bank relationship management ensure coordinated and favorable outcomes.

You’re Probably Facing:

You depend on your bank for critical credit facilities and worry that challenging fees might jeopardize those terms or strain your overall relationship, especially when renewals are approaching.

Final Action Tip

Treasury managers and CFOs should actively challenge assumptions about bank fees and treasury management practices. Your teams should leverage independent benchmarking, transparent bank communications, and strategic advisory partnerships to transform treasury management into a significant competitive and financial advantage.

If your team has questions or hesitations related to benchmarking, analyzing, transforming, and monitoring your treasury operations, contact our team at Redbridge today.

With Corporate Debt, the Devil is in the Details

When it comes to evaluating your corporate debt facilities, it’s critical to look beyond the headline pricing and assess the total value of the facility and the relationship. While cost matters, a low-rate loan that is poorly structured can result in higher long-term expenses through hidden fees, rigid covenants requiring amendments, or missed strategic opportunities. Finance leaders must evaluate the entire borrowing agreement to determine its real financial impact.

Six Key Drivers That Influence Your Debt Pricing Strategy

1. Pricing Level and Fee Structure
   Is the quoted fee a commitment fee applied to undrawn balances, or a facility fee on total commitments? How are base rates (SOFR, etc.) defined, and are credit-spread adjustments added?
2. Bank Relationship Strength
   How well does the lender understand your business? Will the bank finance M&A activity or support you through covenant breaches? A strong banking relationship can drive financial flexibility when it matters most.
3. Operational Efficiency of the Facility
   How easy is it to draw funds? What are the operational hurdles? Which currencies are supported? Smooth operations contribute to overall debt facility optimization.
4. Flexibility for Growth
   Are there prepayment penalties? Can the lender assist with M&A strategy and financing? A flexible structure supports long-term capital planning.
5. Covenants and Baskets
   Are leverage tests based on gross or net debt (remember: cash matters)? Pay close attention to permitted baskets for dividends, debt, and acquisitions—and the process for requesting exceptions. Covenant negotiation is key to executing your growth strategy.
6. Pricing Grid Structure
   Understand how definitions affect your pricing tier as it is not always straightforward. Would offering a higher “opening” pricing level help lenders secure internal approvals? Credit agreement strategy starts with reading the fine print.

Hidden Levers in Debt Pricing: Capital and Side Business

Some of the most important drivers of pricing are the capital requirements tied to your facility and the ancillary business you provide to your bank.

• Capital Requirements are influenced by Basel rules, internal facility ratings, and expected loss models. Strong, liquid collateral can reduce spreads.
• RAROC (Risk-Adjusted Return on Capital) determines how banks price risk. Spreads are set to meet return thresholds after capital, bank expenses and loss adjustments.
• Ancillary Wallet Share – including treasury services, FX, derivatives, or investment banking, improves your debt pricing power. A diversified wallet helps increase the bank’s return, improving your negotiating power.

Why You Need Regular Debt Facility Reviews

Ongoing debt facility reviews are essential to optimize your cost structure and maintain strategic flexibility. Redbridge helps corporate finance teams:

• Evaluate the RAROC and qualitative metrics impacting your facility.
• Benchmark against similar credits and debt structures.
• Negotiate definitions, grid tiers, and covenant baskets using real-world benchmarks.
• Explore alternative debt structures, including asset-backed lending, private credit, or debt capital markets.

Optimizing Debt: You Don’t Need to Choose Between Cost and Flexibility

While market conditions always set the stage, details matter. With Redbridge’s experience negotiating credit agreements and evaluating complex debt structures, we help clients identify hidden costs, avoid overpaying, and design corporate debt facilities that balance cost with strategic freedom.

A debt structure analysis can uncover hidden value and improve terms without sacrificing flexibility. Treat your debt with precision and get more value from every dollar you borrow.

You Should Frequently Audit Bank Fees Like Any Other Vendor Invoice

If you choose not to read beyond this paragraph, leave knowing that you are likely overpaying for your bank services, and it is imperative for your team to create a cadence of reviewing the costs of your bank relationships.

As a method of ensuring control while preventing fraud, companies like yours have put in place extensive Accounts Payable processes before paying any type of vendor for the goods and services they provide, including:

• Invoice received
• Goods or services confirmed
• Pricing verified against contract
• Payment scheduled per terms
• Final approval and release

There is no reason that a bank should be treated differently from other corporate vendors. Banks Are Vendors Too. So, Why Don’t We Treat Them That Way?

Banks (despite providing critical cash management services) often bypass this scrutiny entirely.

Instead of invoices, banks issue account analysis statements. These reports summarize monthly services, volumes, and charges. Yet across more than 100 corporate-bank relationships we’ve reviewed, only six companies applied even a basic vendor-style approval process before paying their banks.

Common Reasons Teams Skip Review

Why do treasury teams let this slide? Here are the most common reasons we’ve heard from cash managers and treasurers:

• “There is no simple way to validate and confirm that the volume of activity reported on each service line item listed on the account analysis is what our company actually processed at the bank.”
• “The bank is paid via auto-debit each month. There’s no actual payment for us to make.”
• “The account analysis is system generated, so I would expect there to be few, if any, mistakes or errors.”
• “We believe a spot check of month-over-month totals is sufficient.”
• “ECR and associated earnings credits usually offsets most of the fees anyway.”
• “It’s not a priority for us — our team does not have time/resources to do it.”

Are these valid business reasons, or excuses?

What Redbridge Found: Billing Errors Are Common and Costly

Let’s explore just one of those beliefs:

“It’s system-generated. There shouldn’t be many errors.”

Our analysis tells a different story. On average, we uncover 4.68 billing errors per 100 line items across account analysis statements. These issues include:

• Incorrect calculations
• Unapproved pricing or ECR changes
• Inconsistent pricing for identical services across accounts
• Volume-based tier discounts not applied
• Unauthorized services added

Based on our review of more than 300 account analyses, the average error rate is $54.44 per $1,000 in gross fees.

That means if your company pays $50,000 in monthly bank fees, you could be losing $2,722 per month — or $32,664 annually — to billing violations that could be avoided.

How to Take Back Control (with HawkeyeBSB)

There are many reasons why your treasury department might start using a specialized tool to monitor bank fees. These could include automating a tedious procedure, preparing for a renegotiation of your bank fees, or ensuring a pricing structure is being applied correctly.

Redbridge created HawkeyeBSB, our bank fee monitoring platform, to solve this problem.

HawkeyeBSB automates the tedious task of auditing account analysis statements. Once your bank files are uploaded, the system scans for exceptions, billing violations, and pricing errors which gives you visibility and control with minimal effort from AP or Treasury.

Whether you use HawkeyeBSB or a manual process, the important thing is to act. Monthly bank fee reviews should be non-negotiable because your banks are vendors.

Redbridge clients typically uncover 20–40% in fee reductions through monthly audits and vendor-level oversight.

Let’s talk about how we can help you get the same results.

Whether your company is navigating market disruptions, preparing for tighter bank lending conditions, or assessing refinancing timelines, your treasury team must proactively manage your financial strategy to safeguard liquidity, mitigate risk, and capitalize on opportunities as they arise. At Redbridge, we have conversations with clients every day so we took the opportunity to compile the top seven questions treasury leaders are asking and the answers you need to navigate these financially volatile times.

How Treasury Teams Should Navigate Debt in Volatile Markets

Q1: What are other companies doing to respond to current volatility?

At Redbridge, we’ve observed companies pausing new investments, holding onto cash, and reassessing financial forecasts. Many are proactively engaging banks, preparing for tighter credit environments, and assessing refinancing opportunities to maintain financial flexibility.

Q2: Should we renegotiate bank fees in this climate?

Yes—but not alone. Banks are highly sensitive now due to increased portfolio risks. Treasury teams should leverage expert guidance to ensure negotiations protect vital banking relationships rather than disrupting them unnecessarily. Redbridge’s independence ensures clients achieve favorable outcomes without damaging critical partnerships.

Q3: How long does refinancing or financing take?

To be fair, if there is a lot of money to be made, financing partners can move very quickly, the following guidance requires focus but are not overly aggressive time frames:

• Simple maturity extensions: Approximately 4–6 weeks.
• Major changes, facility restructures, or new financing: Typically 2–4 months.
• Capital markets or complex restructuring deals: Often 3–6 months or longer.

Timing matters, and waiting could mean missing critical refinancing windows, exposing companies to unnecessary risk.

Financial Priorities and Managing Credit Risks Amid Uncertainty

Q4: What financial actions should we prioritize?

1. Clearly understand your company’s credit profile and proactively manage relationships with rating agencies and lenders.
2. Evaluate refinancing opportunities to capitalize on favorable market windows.
3. Diversify financing sources globally to mitigate geopolitical and tariff-driven risks.
4. Strengthen your hedging strategy to protect against currency, commodity, and rate volatility and other market disruptions.

Analyze your exposure to external disruptions such as tariffs, supply chain disruptions and customer risk.

Q5: What’s the current risk with banks and internal ratings?

Banks often downgrade internal risk ratings for numerous companies in periods of economic uncertainty. This reduces the profitability of loans, and puts upward pressure on pricing and pressure to reduce risk. Proactive communication can help companies maintain or even improve their perceived creditworthiness.

Q6: What if my company doesn’t know its credit rating?

You’re not alone. Many treasury teams lack a clear understanding of their credit profile and underestimate how external ratings can anchor banks’ perceptions. Redbridge addresses this critical gap, offering clarity on credit ratings, improving communication strategies with banks and rating agencies, and mitigating unnecessary financing risks. We also recommend asking your banks for their rating on your company and debt. They will not always answer, but some countries require banks to provide this information.

Q7: Should companies prepare different financial scenarios (recession vs. non-recession)?

Absolutely. Recently, a number of companies have withdrawn public earnings guidance and United Airlines even offered two ranges of guidance for recessionary and non-recessionary scenarios. Understanding how you can survive extreme scenarios will allow you to make investments and grow while other companies retreat. Companies should model multiple financial scenarios, ensuring they remain agile, informed, and ready to act as market conditions evolve.

Take Strategic Action with Redbridge Debt Advisory

Treasury leaders who engage early, clearly understand their credit standing, and strategically manage their banking relationships will better navigate volatility. At Redbridge, we empower finance and treasury teams with independent expertise, global market intelligence, and customized solutions designed to strengthen your financial position even amid turbulence.

Start asking the right questions and get ahead of volatility today.

You Can’t Fix What You Don’t Measure

Ever looked at your personal credit card statement and realized you’re still paying for that streaming service you forgot to cancel? That’s how most treasury and payment teams discover inefficiencies in their card processing environment. The true costs and realities of vendor relationships become obvious when someone decides to do a deep analysis (and has the benchmarking data available to analyze their position.)

Redbridge’s Card Fees Insight Report is designed to make it easier to understand those complex fees and hidden areas of opportunity. This report is delivered monthly and gives payments leaders clarity on their full card environment — with detailed cost breakdowns, actionable insights, and recommendations informed by peer benchmarks. It’s an always-on audit and advisory tool, built for teams who need insights they can actually use.

Why Visibility is Difficult

Card fees don’t always show up neatly, they can be clear and crisp, translucent, or sometimes impossible to view. They’re buried across acquirers, gateways, payment types, and internal business systems – often using different naming conventions, pricing structures, and formats. That’s why most payments and finance teams struggle to get a complete picture. Even if they know something’s off, they don’t have the time or tools to pull it together.

This is especially true for smaller treasury departments. Most are juggling different priorities, overseeing liquidity, risk, and cash, with little capacity to dive into payment cost analysis. What gets lost is the clarity needed to take action: What are we paying? What are the main drivers of those costs? Could we be overpaying? Are these fees market standard? What’s driving any fluctuations? Without centralized visibility, the cost of inaction compounds over time.

What the Report Delivers

The Card Fees Insight Report turns fragmented data into actionable intelligence. Every month, the Redbridge Payments Team delivers a clean, comprehensive report that highlights your volumes, costs, and performance. This report provides better insight into your current payments landscape, the fees, card usage, areas for improvement as well as the why behind them.

Redbridge Clients Receive:

• A normalized audit of their card fee data across providers
• Insights informed by provider and industry benchmarking
• A visual dashboard tailored for finance leaders
• Clear metrics like effective rates, category-level breakdowns, and month-over-month trends
• Commentary from Redbridge advisors that flags unusual activity or opportunities for savings or negotiation

The Ongoing Process: Audit. Measure. Enhance. Evolve.

The value of the Card Fees Insight Report isn’t just in the data — it’s in the rhythm it creates. Each month, Redbridge follows a consistent cycle to help your team move from uncertainty to insight to action.

1. Audit – Your raw card fee data is ingested and normalized
2. Measure – Reports are generated, highlighting costs, trends, and benchmarks
3. Enhance – Redbridge flags areas of opportunity or concern, with context and recommendations
4. Evolve – Over time, you’ll identify what’s working, what needs attention, and how to adapt

This continuous loop turns reporting into a strategic advantage. Whether you’re managing multiple business units, preparing for growth, or simply want to understand your fees with confidence, this process ensures you’re never in the dark again.

Start Seeing What You’re Paying For

Treasury and payments teams need clarity. When you can clearly see what you’re being charged (and why) better decisions follow. The Card Fees Insight Report equips you with the data and analysis to stay ahead of cost increases, justify spend, and make informed adjustments.

This report and our expertise becomes an extension of your team, helping you manage a critical part of your cost structure with clarity and confidence.

Ready to get started?

Contact Redbridge to request a sample report or learn more about how monthly reporting can strengthen your payments strategy.

For decades, businesses have accepted card payments as the default, paying fees and dealing with fraud risks as part of the cost of doing business. But things are changing. Bank payment flows — often called “Pay by Bank”, “Open Banking”, or “account-to-account (A2A) payments” — are gaining traction. It’s not just hype. Governments and regulators are pushing the industry to develop alternative, cheaper, and more secure payment options, and technology is making that possible.

Key terminology explained

Account-to-account (A2A) payments are a process whereby money flows between sender and recipient bank accounts via established bank payment rails such as SEPA transfer, ACH, and Faster Payments.

Open Banking pertains to technical and regulatory frameworks that help non-bank participants move money and access data, often enabled by fintechs through their secure API protocols. A2A payments can be enabled through Open Banking service providers.

Pay by Bank is a method of payment offered by merchants to their customers. For example, a Pay by Bank payment button can be included at an e-commerce checkout page alongside credit cards and other payment methods. The Pay by Bank feature can be implemented by merchants through Open Banking fintechs or PSPs that enable A2A payment flows.

So, why does this matter? And what should businesses be doing about it right now?

The rise of Pay by Bank: Why now?

Across the world, businesses and consumers are demanding cheaper, faster, and more secure payment options. This has led to a growing adoption of open banking and real-time payment rails that bypass traditional card networks.

Here’s why Pay by Bank is at the center of this shift:

• Regulatory-driven innovation
  New regulations, particularly in Europe and the UK, are mandating banks to open their infrastructure to fintechs, allowing for seamless and direct payments between accounts. This removes the need for card networks, reducing fees and improving speed.
• Cost savings for businesses
  Businesses accepting card payments pay processing fees (also known as swipe fees), which include card interchange. These fees may range between 1-4% of the total cost of the sale, depending on the market and card type. In contrast, Pay by Bank transactions often come at a fraction of the cost as there are fewer intermediaries taking their cut of each transaction. For high-volume and high-average order value merchants, this represents a major opportunity to cut costs.
• Reduced fraud and chargebacks
  Unlike card payments, where compromised sensitive data can be more easily exploited, Pay by Bank transactions require biometric authentication and bank-level security, reducing fraud risks. Plus, reducing the false disputes and chargebacks often associated with card payments unlocks improved revenue predictability for merchants.
• Customer service
  If an order is canceled, or returned, a refund of the original payment can be processed faster through account-to-account transactions. In some cases, the refund could be instant once keyed by the merchant. Integrated Pay by Bank solutions processed via API carry richer data, enabling faster more accurate order look-up and reconciliation processes. This can improve customer satisfaction and brand loyalty.
• Faster settlement and liquidity benefits
  Traditional card payments can take days to settle. Open Banking-enabled Pay by Bank flows enable funds to move instantly or within hours, improving cash flow, reducing working capital constraints and improving reconciliation accuracy. ACH in the US can take a little longer to settle and carries increased risk of post-confirmation errors and returns – however the benefits often outweigh the risks when enabled via a comprehensive implementation framework.

Who benefits most from Pay by Bank?

Pay by Bank has universal applicability across industries, but certain sectors stand to gain the most:

Merchants

• E-commerce & Retail – Lower transaction fees mean higher profit margins. Merchants can also incentivize customers with discounts for choosing Pay by Bank.
• B2B Payments – Businesses processing large invoice payments can significantly cut costs compared to wire transfers and corporate cards.
• Subscription Services & Bill Pay – Utility companies, telecom providers, and SaaS businesses can improve cash flow and reduce failed payments.
• Luxury & High-Value Transactions – High-ticket merchants, from automotive sales to fine jewelry, can avoid excessive card fees while ensuring secure, real-time payments.

The customer

• The buyer also stands to benefit from cashflow certainty, with some options baked into the service as standard, including:
  • Bank-grade security
  • Faster refunds
  • Cashflow certainty
• Incentive to purchase via Pay by Bank instead of other payment methods is a challenge that merchants will need to tackle through development of their own custom strategy. There are a variety of methods by which this can be achieved, of which merchants will need to select an approach that suits their business model and buyer profile.

It is important to note that Pay by Bank may not follow every business model and payments environment. To determine whether it may add value requires careful analysis.

Implementation: How hard is it?

One of the most common questions from merchants is: “How difficult is it to implement Pay by Bank?” The answer broadly depends upon the maturity of the business’s technical change management processes and the facilities available from their existing payment providers.

For most businesses, integration falls into one of three categories:

1. Simple: If your company already works with a PSP that offers a range of local and alternative payment methods, Pay by Bank may be a relatively lighter lift to implement.
2. Moderate: If your PSP doesn’t support Pay by Bank, you’ll need to evaluate new providers, integrate APIs, and adjust operational and financial workflows.
3. Complex: If your business sells in multiple markets or is undergoing a full-scale payments transformation — such as replacing acquirers, fraud systems, or tokenization services — Pay by Bank may be a piece of a broader strategy.

Regardless of complexity, the key first steps to take include a thorough business case assessment, including risks and opportunities. Redbridge helps merchants analyze potential savings, operational impact, and customer adoption strategies to determine whether Pay by Bank is a viable addition to their payments ecosystem.

The Redbridge perspective: Why now is the time to act

There’s no doubt that Pay by Bank is one of the most-discussed topics in payments today. But despite the buzz, many businesses remain hesitant to act.

That’s understandable. Payment innovation always comes with uncertainty — especially when it involves regulatory shifts and new industry players. However, those who wait too long risk being left behind.

Companies that implement Pay by Bank today can:

• Gain a competitive edge with lower payment costs
• Improve security and fraud protection
• Enhance customer experience with seamless, real-time payments
• Future-proof their payment strategy as adoption accelerates

The opportunity is here. The question is: Is your business ready to take advantage of it?

Let’s talk. Redbridge is helping businesses navigate this transformation, from assessing feasibility to executing strategy. We have helped enterprise businesses selling B2B and D2C implement Pay by Bank, including ACH in the US, Open Banking-enabled flows in the UK and Europe, and more.

Contact us today to explore how Pay by Bank can fit into your payments roadmap.

London, 27 January 2025 – Redbridge, an independent advisory firm providing comprehensive treasury operations and debt advice to corporations around the world, is pleased to announce the appointment of Hugh Paterson as Managing Director – Global Head of Payments.

Hugh joins Redbridge from Farfetch, a luxury clothing and beauty products marketplace generating several billion dollars in gross merchandise value, where he was Director of Payments – Fintech Operations. During his tenure, Hugh developed a world-class payments organization to support the company’s growth. He has also held leadership roles at PaySafe, Omio, Huawei, Visa and Worldpay. He has expertise in payment optimization, fraud prevention, risk management and the selection of cutting-edge payment technologies.

Reflecting on his new role, Hugh Paterson stated: “ I’m delighted to join Redbridge, an organization that shares my vision of bringing transparency to the relationships between merchants and stakeholders in the payment industry. We are investing to build cutting-edge data-driven software to improve our services and this is a pivotal moment as our new platform will provide richer data insights for our clients, leading to improved operational performance and savings. I’m looking forward to using my experience to strengthen Redbridge’s leadership in analytics and advisory services, providing expertly crafted industry intelligence ”.

Patrick Mina , Chief Executive Officer of Redbridge Debt and Treasury Advisory , shared his enthusiasm about Hugh’s appointment: “ Hugh’s extensive knowledge of the payments ecosystem is a tremendous asset to our clients and teams in Europe and the United States. His experience in building world-class payments organizations for merchants and selecting payment methods, gateways, payment service providers, acquirers and fraud prevention vendors will add great value to our company. His appointments underscore Redbridge’s commitment to accelerate strategic investments that enhance our ability to provide unmatched advisory services and data-driven insights in the payments space. ”

About Redbridge Debt & Treasury Advisory

Founded in 1999, Redbridge is an independent advisory firm providing comprehensive treasury operations and debt advice to corporations around the world. With offices in Houston, Chicago, New York, London, Paris and Geneva, Redbridge helps companies optimize their financing and treasury operations, from the design of treasury organizations to the creation and implementation of operational solutions. The services we provide include providing advice on bank and merchant processing fees, treasury systems and debt financing structures.

About Redbridge’s Global Payments advisory practice

Redbridge’s Global Payments team helps companies navigate the rapidly evolving payments landscape, enabling them to adopt advanced payment architectures and stay at the forefront of innovation and client experience.

We’re using proprietary technology to provide high-quality advisory and analytics services, helping our clients increase their revenues, acquire new customers and cut costs.

Our areas of expertise include:

• Cost of sales, fees and pricing
• Authorization rate optimization
• Fraud and chargeback strategies
• Global and local payment methods
• Data analytics, insights and reporting
• Payments and risk provider selection, RFIs and RFPs, renegotiation
• Provider agreements and terms
• Scheme compliance management
• End-to-end processing flows and architecture.

Redbridge serves some of the biggest brands in the world and is growing fast.

To learn more:
www.redbridgedta.com/us
www.redbridgedta.com/us/payments-advisory

———————————

Media contacts

Europe
Emmanuel Léchère
elechere@redbridgedta.com
+ 33 6 08 21 69 53

United States
Michael Denison
mdenison@redbridgedta.com
+1 346 207 0250

Nine out of ten companies are overpaying for their foreign exchange (FX) transactions. That’s the key takeaway from Redbridge Debt & Treasury Advisory’s extensive experience working with businesses of all sizes on cash management, financing, and banking relationships.

According to Pauline Lion, Associate Director at Redbridge, “Optimizing forex fees and gaining full visibility into transaction costs is typically a privilege reserved for companies with high trading volumes and sophisticated FX management systems. “Large corporations that use platforms like FXall and 360T can create competition between banks to secure better rates. However, for smaller companies handling FX operations directly with their banks, fees can be ten times higher or even more.”

The costs spike even further for account-to-account transfers where banks apply automatic exchange rates. “In some cases, fees can reach several percentage points,” Lion explains. She recalls working with a large company that, despite having advanced treasury operations, only monitored its FX transactions periodically. “For certain automated transactions, the bank’s margin was as high as 220 basis points. That didn’t align with our client’s profile at all,” she says. “We renegotiated the terms and cut their FX costs by 75%.”

“All-in” Pricing

Many companies unknowingly overpay for foreign exchange services simply because they don’t have full visibility into what they’re being charged. “Banks typically provide an ‘all-in’ price that blends the actual exchange rate with their markup,” says Lion. While trading platforms generate detailed post-trade reports that clarify pricing, companies that receive only individual transaction confirmations from banks struggle to analyze cost, often because the process is time-consuming and complex.

Bringing Transparency to FX Pricing

That’s where Redbridge steps in. The firm helps businesses analyze their spot and forward FX transactions to uncover hidden fees. “We can reverse-engineer the bank’s margin using transaction confirmations, something banks are required to send to customers, combined with our deep market intelligence,” explains Lion.

The results speak for themselves. “Our clients have significantly reduced their FX costs after renegotiating their terms with our help,” Lion says. “More importantly, they’ve built stronger relationships with their banks by fostering more transparency and constructive conversations around FX pricing. Bridging the information gap between companies and banks is always a win.”

Operating Globally? Your Payment Strategy Matters

If your business is growing in South America or planning to enter the market, how you handle payments can make a big difference. Managing payments across borders includes following regulations and evaluating your cost of processing, efficiency, and how smoothly your customers and partners can transact with you. Without a solid payment system in place, you could face high fees, delays, and frustrated customers.

South America’s payment systems are complex, with each country using different banking regulations, payment platforms, and (don’t forget) customer preferences.

Businesses looking to expand here need to keep traditional banking methods and new digital payment solutions in mind. This guide breaks down the most common direct debit services in four key countries — Brazil, Argentina, Colombia, and Peru — so you can build a smarter, more efficient payment strategy for your organization.

Direct Debit Services by Country

Colombia

• ACH Colombia: The main processor for interbank payments, including direct debits.
• PSE (Pagos Seguros en Línea): Initially designed for online payments but now widely used for automating payments by linking bank accounts to service providers.
• Major Banks: Institutions like Bancolombia and Banco de Bogotá offer direct debit options for recurring payments.

Brazil

• Débito Automático: Offered by major banks (Banco do Brasil, Bradesco, Itaú, Santander), enabling automated payments for utilities, insurance, and loans.
• PIX: A real-time payment system introduced by the Central Bank in 2020, increasingly used for automated payments.
• Various money transfer platforms: Known for cost-effective international money transfers, helping businesses send and receive globally payments.

Argentina

• Automatic Debt: Available through banks like Banco Nación and BBVA for paying recurring bills.
• Cámara Compensadora Electrónica (CCE): The centralized system for processing electronic payments, including direct debits.
• PagosMisCuentas: A widely used online payment platform linked with direct debit services for automating payments.

Peru

• Interbank Payment System: Banks facilitate direct debits through this system, allowing businesses to automate payments for utilities, loans, and subscriptions.
• Pagos y Servicios (PYS): A platform for managing direct debits and automated bill payments.

Deep Dive: Key Payment Platforms in South America

Money transfer platforms for Direct Debit in Brazil

Various payment platforms offer low-cost solutions for international money transfers, making it a valuable tool for businesses operating in Brazil. Users can:

• Set up direct debits for sending and receiving money globally.
• Choose from various transfer methods, including PIX and local bank transfers.
• Access multi-currency business accounts, batch payments, and invoice management features.

Here is a shortlist of a few popular platforms Brazilian citizens use the most:

• PicPay
• Nubank
• Wise
• Pay Market
• Sicoob

PIX: Brazil’s Instant Payment System

PIX facilitates real-time payments and automated transactions for businesses and consumers alike. Its benefits include:

• Instant processing, 24/7 availability.
• No pre-arranged agreements needed between banks and merchants.
• Greater transparency and control over transactions.

CCE & PagosMisCuentas in Argentina

The Cámara Compensadora Electrónica (CCE) provides an efficient electronic clearing system for automated payments. Meanwhile, PagosMisCuentas integrates with major banks to streamline bill payments, offering:

• Scheduled and automated direct debits.
• Real-time notifications for successful or failed transactions.
• User control to modify or cancel direct debit authorizations.

PSE & ACH Colombia

PSE enables direct debits by linking bank accounts to service providers, while ACH Colombia serves as the backbone for electronic payments. Businesses benefit from:

• Secure, bank-backed transaction processing.
• Efficient fund transfers between financial institutions.
• Automated payment scheduling for recurring bills.

Why This Matters for Global Businesses

If you’re running a business in South America or expanding into the region, understanding direct debit services can help you get paid faster, reduce costs, and create a better experience for your customers. A well-optimized payment strategy helps businesses:

• Lower transaction costs and reduce delays.
• Offer reliable and familiar payment options to customers.
• Improve cash flow with automated billing and collections.

At Redbridge, we help businesses review and streamline payment systems using data gathered from countries, companies, and industries around the world.

Whether you’re reviewing your current setup or looking for better solutions, we provide expert guidance to simplify cross-border payments and direct debit services.

Let’s Optimize Your Payment Strategy

If you’re looking to streamline payments, cut costs, and offer seamless transactions in South America, Redbridge is here to help. Our team of experts can analyze your payment systems, find gaps, and implement solutions that support your business goals.

Contact us today to schedule a consultation and take control of your international payment strategy.

Understanding the Cost of Foreign Exchange Transactions

Foreign exchange (FX) is the largest financial market in the world, with over $7.8 trillion traded daily. Companies regularly engage in FX transactions—whether for international payments, hedging risk, or treasury management—but many fail to realize how much they’re overpaying. Lack of transparency in FX pricing leads to higher-than-necessary costs, and 9 out of 10 companies unknowingly pay excessive margins above the market rate.

FX costs are made up of two key components: the interbank exchange rate (the rate at which banks trade currencies with each other) and the FX margin (the markup banks apply when executing transactions for corporate clients). While businesses have no control over exchange rates, they can control the margins they pay—but only if they have the right visibility and expertise.

At Redbridge, we specialize in uncovering hidden costs in FX transactions. Even companies with sophisticated FX platforms or multi-bank dealing tools (MDPs) often lack the full picture of what constitutes a fair margin. Our expertise helps finance teams benchmark their FX costs against market standards and optimize their trading strategies.

Not All FX Trades Are Created Equal

FX trades can take different forms depending on a company’s operational needs and risk management strategies. Understanding these distinctions is critical to optimizing FX costs.

Spot Trades: The Most Common Type of FX Transaction

A spot trade is an agreement between two parties to exchange a specific amount of one currency for another at the prevailing market rate (the spot rate). Settlement typically occurs within two business days. Spot trades are commonly used for urgent cross-border payments, such as supplier invoices or investment transfers.

As Pauline Lion explains:

“A spot trade is purely operational. It means you need to pay someone in another currency, and you’re not necessarily hedging against risk—you’re just making a transaction.”

However, the margin banks apply on spot trades varies significantly, depending on factors like currency liquidity and transaction size. Without benchmarking, businesses risk paying up to 20 times more than the fair market rate when dealing bilaterally with a single bank instead of using competitive multi-bank pricing.

Forward Contracts: Locking in Rates to Manage Currency Risk

A forward trade is a contract to exchange currencies at a predetermined rate (the forward rate) on a future date. These are typically used for hedging against currency fluctuations, providing certainty for financial planning.

Sara Moren describes it as:

“If you need to make a payment in a foreign currency, but you don’t need to settle it immediately, a forward contract locks in your rate so you’re not exposed to market swings.”

FX Swaps: Managing Liquidity and Funding Costs

An FX swap combines a spot trade and a forward trade into a single transaction. Companies use swaps to manage liquidity, hedge risks, and minimize funding costs, ensuring they have the right currency at the right time without unnecessary exposure.

Each of these FX instruments has its own pricing structure, and banks assess margins based on trade type, contract length, and company profile. Redbridge helps businesses evaluate whether they’re getting the most competitive pricing across their FX trades.

What Drives FX Margins—and How Redbridge Reduces Them

Several factors influence the FX margin banks apply to corporate transactions. Understanding and managing these elements is key to reducing costs.

1. Currency Liquidity Matters

Not all currency pairs trade at the same level of liquidity. The most frequently traded currencies—known as G10 currencies—include the USD, EUR, GBP, JPY, AUD, CAD, CHF, NOK, NZD, and SEK. These pairs typically attract the lowest margins. However, exotic or thinly traded currencies carry higher costs due to increased risk.

2. FX Margins Vary by Instrument and Tenor Length

The trade type and contract duration influence the margins set by the processing bank. The price for any instrument settling beyond the spot data includes the spot price and the interest charges until the settlement date. As a result, spot trades are cheaper than forwards and swaps.

3. Company Profile Shapes FX Pricing

Banks assess client creditworthiness, transaction volumes, and ancillary banking relationships when setting FX margins. Companies with high trade volumes and strong banking relationships can negotiate more competitive rates.

4. Bidding Banks Influence FX Costs

Using multiple banking partners and a multi-bank dealing platform (MDP) significantly improves pricing by introducing competition. When businesses negotiate FX bilaterally with a single bank, they often overpay by up to 20 times the market rate.

However, simply having an MDP doesn’t automatically guarantee optimal pricing. As Pauline Lion points out:

“Even with a multi-bank dealing platform, companies still don’t always know if they’re getting a fair margin. You need benchmarking data to compare against peers and ensure pricing is aligned with market conditions.”

Redbridge helps clients gain this critical transparency and negotiate better FX terms.

Redbridge is an FX Optimization Partner

Many companies assume their FX pricing is competitive, but without the right tools and expertise, they are often overpaying. Redbridge provides the missing transparency, offering:

• FX cost assessments benchmarked against live market data
• Historical trade reviews to identify cost-saving opportunities
• Negotiation support to secure better FX margins

We follow the same proven methodology used in our bank fee engagements, beginning with an FX scorecard to assess opportunities. The entire process typically takes between 1 to 3 months, depending on the complexity of your FX structure.

As Constance Véron summarizes the Redbridge offer as:

“We work with finance professionals who already have experience but need help clarifying what they should be paying. Even sophisticated companies with complex FX setups often overpay without realizing it.”

If you suspect your company is paying too much on FX transactions—or simply want an expert review—Redbridge can help you optimize costs, improve transparency, and strengthen your FX strategy.

Get Started Today

Ready to take control of your FX costs? Contact Redbridge today to schedule an FX cost review and start optimizing your foreign exchange transactions.

Finance teams must stay alert to shifting trade policies, tariff uncertainties, and supply chain disruptions, as these changes can impact corporate debt strategy. A new administration often brings challenges and opportunities, such as rising costs, operational risks, and increased M&A activity. Treasurers and CFO’s need to stay ahead of the curve.

Global trade dynamics are evolving quickly, with tariffs being considered for the U.S.’s top trading partners: Mexico, Canada, and China. This could significantly impact trade data and corporate strategies.

U.S. imports consistently outpace exports with key trading partners. Tariffs or border closures could reduce trade volumes, disrupt supply chains, and challenge corporate finance teams. Auto manufacturing and states like Texas are especially vulnerable to tariffs on Canada and Mexico. Despite a large trade deficit with the EU, there’s less talk about European tariffs.

What’s at Stake?

Everything from cash flow to your ability to fund growth initiatives is at stake. Waiting to act until the impact hits your business could limit your options, leaving you scrambling for solutions when time, flexibility and market conditions are no longer on your side. Instead, now is the time to take a proactive approach to financing.

Treasury teams that prepare now will be ready to manage rising costs, capitalize on growth opportunities, and build resilience against future disruptions.

Time to Reassess Your Financing Strategy?

Rather than waiting for disruptions to impact your business, corporate treasurers can take proactive steps to strengthen their financial position. While it’s impossible to predict every scenario, there are clear reasons why securing financing today can put your company in a stronger position tomorrow. Corporate treasurers should evaluate these four questions:

1. Are You Ready for Sudden Changes to Trade Costs?
If your company imports parts or exports finished goods, now is the time to review your trade exposures. Tariffs can quickly change the cost and availability of goods, particularly for businesses relying on imports from Mexico, Canada, or China. Financial results such as revenue levels, input pricing, and margins could be negatively or positively impacted, and should be modeled, as this could affect your credit standing with banks and institutional investors. Understanding your exposure will help you anticipate potential challenges and plan ahead.

2. Do You Have the Liquidity to Handle Disruption?
In times of market volatility, liquidity is essential. Disruptions—whether from tariffs, global events, or supply chain issues—can strain working capital and reduce free cash flow. Evaluate your cash reserves and explore financing options to ensure your company can maintain operations and seize opportunities when they arise. Ensure you have the right debt mix and the right lenders to navigate through storms and sunny weather.

3. Could Consolidation Impact Your Financial Structure?
A less restrictive regulatory environment may lead to increased mergers and acquisitions. If you’re exploring opportunities to expand, streamline, or consolidate, ensure your financing strategy supports those goals. Reexamining your capital structure while the US economy is strong, rather than during a downturn, can improve long-term stability and flexibility.

4. Is Your Company Ready for a Sale?
If selling your business is on the horizon, preparing your financials is critical to securing the best outcome. Focus on improving cash flow, optimizing operational efficiency, and addressing any weaknesses in your financial performance to make your company more attractive to potential buyers.

Next Steps to Take

A key challenge companies face in acting promptly is the lack of resources, time, data and expertise and competing other priorities.

We understand that and at Redbridge Debt & Treasury Advisory, we have the dedicated resources, market leading software, proprietary benchmarks and expertise to optimize your yield rates in a falling rate environment – as you focus on other priority areas.

What Treasurers Should Do Today

If the answer to these questions is unclear or your business relies on global trade, you should urgently gather senior financial leadership to identify key areas where changes policy or regulations could impact your operations. From there, focus on:

•  Liquidity Planning: Assess your working capital needs and consider how disruptions could affect cash flow and increase the need for diversified financing sources across products and geographies.
• Strategic Growth: Revisit your M&A pipeline and ensure you have the funding to move forward with strategic deals.
• Operational Resilience: Look for opportunities to strengthen your supply chain and diversify operations to reduce reliance on single points of failure.

Don’t Wait for a Crisis to Act

The world isn’t going to get less complicated, and waiting for the dust to settle could leave your company vulnerable. By taking steps today to secure financing, you can protect your business against uncertainty and position it for growth.

If your treasury team is ready to evaluate financing options or needs expert guidance on navigating the current landscape and answering these critical questions, Redbridge is here to help. We can help you evaluate your current capital structure and potential opportunities and vulnerabilities. Visit our website to learn more about how we support corporate finance teams in building stronger, more resilient businesses.

CHICAGO AND HOUSTON — January 28, 2025 — Thoughtworks, a global technology consultancy that integrates strategy, design and engineering, has partnered with Redbridge Debt and Treasury Advisory (DTA), a leading provider of payments, treasury and debt advisory solutions, to modernize and scale the digital platform to provide more advanced data and analytics to elevate the advisory experience for clients across all markets.

The Payments Industry exists in a state of constant flux. Redbridge helps its clients – companies navigating the world of credit card, debit card and other electronic payment forms – optimize all aspects of the payments value chain. With the rise of big data and competing interests of data privacy, Redbridge saw the opportunity to position itself as a leader in both analytics and advisory, delivering expertly crafted industry intelligence.

Redbridge Debt & Treasury Advisory has built its reputation on delivering best-in-class advisory services in payments, treasury and debt. With a clear vision on the future needs of payments advisory, Redbridge has partnered with Thoughtworks to engineer a cloud-based platform on the industry’s bleeding edge.

This collaboration will enable Redbridge to further streamline data ingestion aspects of machine learning, robotic process automation and other advanced processing capabilities, offering clients unparalleled transparency in payment transaction cost, fees, and interchange rates. The platform on AWS will provide Redbridge with rich, cross-market insights, allowing them to identify further areas for value creation and greater precision in cost-savings opportunities.

“Redbridge has always prioritized strategic investments to provide our clients with unmatched value,” said Dan Carter, Sr. Director & Head of Global Payment Strategy, Redbridge DTA. “Partnering with Thoughtworks will allow us to realize our strategic vision. This partnership brings together our goal of delivering deep learning, data-driven results with an expert interpretation allowing us to positively impact the bottom line for our clients.”

“Across the financial payments landscape, technology is driving business modernization. We’re seeing more clients adopt platform-thinking and cutting edge technology to remain at the forefront of innovation,” said Craig Stanley, Executive Vice President, Thoughtworks Americas. “We’re extremely pleased to bring our 30+ years of experience in integrating strategy and continuous delivery to leaders like Redbridge DTA who are always on the lookout for ways to deliver more value and data-based insights to their clients.”

This partnership marks a key milestone in Redbridge’s ongoing digital transformation strategy. By leveraging Thoughtworks’ global expertise in platform modernization and cutting-edge technology, Redbridge is positioned to deliver greater efficiency and a better client experience across its payments portfolio. As the payments industry continues to change while relying more and more on data, this effort continues to establish Redbridge’s role as a trusted partner as an extension of clients’ payment systems.

Supporting resources:

• Read more about Thoughtworks’ data and analytics portfolio.
• Keep up with Thoughtworks news by visiting the company’s website.
• Follow Thoughtworks on Twitter, LinkedIn and YouTube.
• Learn more about Redbridge by visiting the company’s website or LinkedIn.

About Thougtworks

Thoughtworks is a global technology consultancy that integrates strategy, design and engineering to drive digital innovation. We are over 10,000 Thoughtworkers strong across 48 offices in 19 countries. For 30+ years, we’ve delivered extraordinary impact together with our clients by helping them solve complex business problems with technology as the differentiator.

Media contact:
Linda Horiuchi, global head of public relations
Email: linda.horiuchi@thoughtworks.com
Phone: +1 (646) 581-2568

About Redbridge Debt & Treasury Advisory

Founded in 1999, Redbridge is an independent advisory firm providing comprehensive treasury operations and debt advice to corporations around the globe with teams in Geneva, Houston, Chicago, London, New York and Paris. Redbridge assists companies in optimizing financing and treasury, from strategic design of treasury organizations to creation and implementation of operational solutions. This includes bank and merchant processing fees, treasury systems and execution of debt financing structures.

Media contacts:
US – Michael Denison
mdenison@redbridgedta.com

EU – Emmanuel Léchère
elechere@redbridgedta.com

The good news is, there are steps you can take to better navigate these changes, and Redbridge is here to help.

The Challenge at Hand

Interest rates are falling, and that makes having transparency on and ensuring fair yield rate reductions a key priority.

After the Fed’s rate cut in September, many companies felt the impact on yield earnings from cash balances. If you are managing relationships with multiple banks, chances are you have seen most of them lower their rates. On average, our clients experienced a 0.45% decrease (vs 0.50% FFR cut), which directly affects earnings and cash flow.

Companies have handled this situation differently:

• Accepting the Changes: Some choose not to challenge the rate decreases at this time, as they want to see how their banks react with subsequent rate cuts.
• Taking Action: Others decided to negotiate with their banks or sought expert help to lessen the impact.

These experiences show that having detailed visibility and being proactive can really make a difference in protecting your company’s yield earnings.

How You Can Respond

Here are some steps you can take to tackle these challenges:

#1 Understand Where You Stand

Take a close look at your bank agreements. What do they say about rate changes? Do your banks adjust rates fully or only partially when the Fed makes a move?

#2 Analyze Your Recent Data

Review your September and October statements to see exactly how the rate cuts have affected you. Which banks changed their rates, and by how much? Spotting these trends can help you plan your next steps.

#3 Challenge the current level of your rates

If the rates you are receiving are already well below the Federal Funds Rate (FFR), then there’s no justification for your bank to reduce them further when the Fed announces a cut. In this situation, it’s worth pushing back and reminding your banking partner of your existing rate structure. By doing so, you can help ensure they stick to what you have negotiated rather than automatically passing along rate decreases that were never intended to apply in your case.

#4 Have a fact and analysis-based discussion with your bank

Don’t wait for the next rate cut to start a conversation. Start by gathering the facts and data needed to have a productive conversation with your banks. This requires viewing, analyzing, and understanding the data found on your bank statements. This process will help you negotiate better terms — for instance, there may be a chance you can get your bank to pass through a smaller percentage of the rate decrease.

#5 Consider Expert Guidance

Think about getting help from professionals. Treasury advisors can offer valuable insights and assist you in negotiations. Also, tools like our bank fee monitoring software, HawkeyeBSB, will help you monitor your bank rates in real time, giving you an edge.

Why Acting Now Matters

By taking action sooner rather than later, you can:

• Protect Your Earnings: Reduce the negative effects of rate cuts on your financial statements.
• Build Stronger Relationships: Show your banks that you are proactive and informed, which can lead to better collaboration.
• Stay Ahead: Prepare for future changes so your organization continues to thrive.

If you don’t act, you might miss out on opportunities and face more financial challenges down the road.

Next Steps to Take

A key challenge companies face in acting promptly is the lack of resources, time, data and expertise and competing other priorities.

We understand that and at Redbridge Debt & Treasury Advisory, we have the dedicated resources, market leading software, proprietary benchmarks and expertise to optimize your yield rates in a falling rate environment – as you focus on other priority areas.

We’re Here to Support You

We understand that dealing with these changes isn’t easy. At Redbridge Debt & Treasury Advisory, we’ve helped clients navigate similar situations, protecting their earnings and improving their treasury strategies.

You don’t have to face this challenge alone. Contact us today to set up a consultation and take control of your organization’s financial future.

About Redbridge Debt & Treasury Advisory

At Redbridge, we’re committed to helping treasury professionals like you succeed. We offer personalized advisory services and innovative tools to help you navigate the complex world of finance with confidence.

Want to stay updated? Subscribe to our newsletter for the latest insights and strategies.

Due to the high payment transaction volumes payroll processors regularly handle, maintaining transparency, streamlining processes, optimizing bank payments, and leveraging merchant services are essential for efficiency and accuracy. In this article we provide an overview of the key bank payment services payroll processors use, how they can optimize costs and efficiency across bank, FX fees, and yields on deposits.

Managing High-Cost Bank Fee Services: ACH and Paper Check Challenges for Payroll Processors

High volume bank fee services, such as ACHs and checks, significantly add to overall bank fee costs. For payroll processors, frequent reliance on these services can lead to higher banking expenses.

ACH Processing

ACHs are one of the main services used by payroll processors daily to process payments ranging from wages & salaries, travel & expense reimbursement, retirement plan disbursements, garnishment payments, and tax related payments. ACHs are the lower cost option compared to traditional paper checks and are also more secure to prevent lost or stolen payments. However, ACH processing takes two to three days for clearing and is subject to monitoring by the National Automated Clearing House Association (NACHA) rules and regulations. Payroll related payments processed are also subject to national and regional regulations that require accurate beneficiary banking information and payment.

Relying on underlying customer data for payroll processing can create a liability that is unavoidable at times by the performing payroll processor. A payroll processor can implement data checks and request the underlying customer to attest the data in the payroll file is true and accurate, but sometimes the payee’s/beneficiary’s information is not accurate. These instances can create ACH returns, rejects, or repairs requests from the originating bank, and fees assessed by the originating bank to the payroll processor.

NACHA has established threshold ratios for return rates on ACHs. These thresholds are segmented into unauthorized debit entries at 0.5%, administrative return rates at 3.0%, and overall return rates at 15%. Should ratios exceed these thresholds, payroll processors could be subject to NACHA fines.

It is important to monitor any returns, rejections, or repairs  on a monthly basis and determine if these return codes are repeated with a particular underlying customer or beneficiary. Requiring underlying customer data to be verified and accurate can reduce the risk of any payment interruption and reduce these punitive charges.

Paper Checks

Paper checks follow ACH as a high-volume service utilized by payroll processors. Although it is costly compared to ACH payments, it provides a method of payment for those who do not wish to share their banking information or those who do not have a bank account. This method carries additional support costs, including positive pay item verification and management of stale-dated checks. Paper checks are also prone to being lost or stolen, increasing the risk of fraud for issuing payroll processors, as sensitive information such as bank account and routing numbers are displayed on the check. In addition, paper checks that are not cashed by the payee/beneficiary are subject to escheatment regulations, adding another layer of complexity to their management.

International check payment processing can incur additional costs as well. Payroll processors will need to convert their currencies to fund each disbursement account. These currency exchanges can be costly and could possibly have timing delays in the funds clearing the intended account(s). Planning these fundings and monitoring the exchange rates can reduce expenses incurred by payroll processors.

Optimizing Foreign Exchange Transactions: Strategies for Payroll Processors

Payroll processing is global and requires the processor to be able to fund payments in the required currency. Payroll processors should have lead time to plan for funding or fund conversion for the outgoing disbursements. Often time processors will utilize a trading platform to aid in currency conversion, such as FXAll or 360T; however, the data used for pricing is contingent on the trading activity of the processor themselves.

When FX trades are executed, an exchange rate is applied as well as a margin by the banks. An exchange rate is the market price for one currency exchanged for another currency. This rate is influenced by many factors such as inflation, interest rates, local regulations, and market exceptions.

However, an FX Margin is the bank assessed fee for executing the foreign exchange and is influenced by:

• Liquidity – The global FX market has associated risks with the pairs of currencies that are up for each transaction. The higher the liquidity for the currency pair, the lower the risk and lower margin. Currency pairs with high liquidity are defined as G10 currencies and include: United States Dollar (USD), Euro (EUR), Great British Pound (GBP), Japanese Yen (JPY), Australian Dollar (AUD), New Zealand Dollar (NZD), Canadian Dollar (CAD), Swiss Franc (CHF), Norwegian Krone (NOK), and Swedish Krona (SEK).
• Tenor Length – the shorter the tenor, the lower the risk
• Number of banks the payroll processor is using to execute the trades – by spreading the trades amongst banks, payroll processors are able to compare margin costs offered between banks.

A lack of transparency for margins assessed by banks in these trades is common with payroll processors. When submitting a trade request, the bank provides a quote inclusive of all-in costs to execute the currency conversion. Determining the bank assessed margin and exchange rate from this quote can be difficult. Although billing for these trades with the banks is commonly presented in an accumulative total, the banks should be able to provide accounting detailing the all-in costs upon request.

Maximizing Cash Yield: Evaluating Earnings Credit Allowances vs. Hard Interest

Payroll processors have a seasonality to their cash balances that coincides with the local jurisdictions’ timeline for tax payments. Most processors utilize these cash balances in an eligible yield earning account, such as Earnings Credit Allowance and/or Hard Interest.

Earnings Credit Allowances (ECA) are often utilized not only in seasonal accounts as mentioned above but also in operating accounts or other special use accounts that hold cash balances. The bank will offer an Earnings Credit Rate (ECR) and will work with processors on identifying the accounts that qualify for eligible cash balances. Eligible cash balances are balances for applicable accounts receiving the ECR less any required balance reserves or any restricted balances. The ECA is then calculated monthly and is used to offset the reporting month’s bank fees. One of the advantages of utilizing ECA is that it’s not considered revenue, which means it is non-taxable and payroll processors will not be subject to the business income tax at year end on the allowance given. The downside of an ECA is the allowance given may only be used in the month it is accrued and any excess will not carry over.

Payroll processors have utilized Hard Interest-bearing accounts to maximize revenue in the recent high-interest rate environment. This allowed interest revenue to be generated on cash balances and increased the top line revenue for payroll processors. The rates offered by the banks are factored on the type of balances (operational or non-operational), the current Fed Fund Rate, inflation, and other futures. Hard Interest revenue is subject to the processor’s business income tax rate. The interest revenue can be paid directly by the bank to the processor or netted against the assessed bank fees monthly and then the net amount is paid to the processor. This setup could be beneficial during a high-rate environment as the revenues generated far exceed the liabilities associated, making the Treasury departments a profit center versus a cost center.

Minimizing Costs and Maximizing Efficiency in Payroll Cash Management

Understanding the cost of services associated with daily activities executed with the banks allows payroll processors to minimize costs and remain as efficient as possible. Redbridge can aid payroll processors in their cash management departments and assist in efforts to educate and consult on areas of opportunity for improvement.

The Current Banking Environment: Beyond the Regional Crisis

The regional banking crisis that erupted last year has largely stabilized, but it left a lasting impact on the industry. High-profile incidents, such as the seizure of Republic First Bank and the rescue of Independent Bank, were symptomatic of a broader crisis that challenged smaller and mid-sized banks’ operational stability. Though the immediate wave of failures seems to have subsided, the underlying issues remain. Industry experts, including Howard Lutnick from Newmark Group, warn that the financial system is still under strain, with the potential for additional bank failures in the near term.

This situation stems from a variety of complex issues:

• Market Disruption and Reduced Lending Capacity: Regional banks have traditionally handled more speculative and higher-risk deals. With the recent instability, these deals are either not materializing or shifting to more expensive private lending markets or equity. This shift is compelling businesses to reassess their financial strategies, as the dynamics of the banking economy continue to evolve.
• Deposits and Liquidity Challenges: Mid-sized and regional banks experienced a significant loss of deposits in early 2023, as they were perceived to be riskier than their larger counterparts. Even though the situation has stabilized, the pressure remains. Larger banks are also feeling the strain as depositors seek better yields elsewhere, driving up the marginal cost of funds and challenging banks’ ability to retain and attract capital.
• Commercial Real Estate Vulnerabilities: A significant portion of U.S. bank loans to commercial real estate firms is held by small and medium-sized regional banks. With office vacancies still high and higher interest rates squeezing property owners’ cash flows, these banks remain vulnerable. The lower equity requirements imposed by banks in recent years leaves them particularly exposed to financial distress.
• Regulatory Pressures: The failures of 2023 have led to heightened scrutiny across the banking sector, with a focus on both regional and larger institutions. Increased capital requirements, particularly under the Basel III endgame, are pressuring banks to bolster their resilience. Regulatory bodies are also enforcing stricter loan-to-value ratios for commercial real estate loans, aiming to prevent the crises of the past such as the S&LL crisis or the financial crisis in 2008 and beyond. Recent election results may be positive for the banks from a regulatory perspective, but uncertainty remains.

Strategic Financial Planning Is Essential

For businesses that rely on loans or operational funding from regional and even larger banks, strategic financial planning has become imperative. Though the worst of the crisis has passed, the landscape remains unpredictable. Identifying stable banking partners and developing comprehensive financial strategies are critical steps to safeguard against ongoing instability and the broader shifts within the banking sector. Companies must remain vigilant, ensuring their financial health is resilient enough to weather any future disruptions.

Proactive Measures and Alternatives

• Diversifying Banking Relationships: To mitigate the risks associated with banking instability, businesses should diversify their banking relationships. Engaging multiple financial institutions for different needs or implementing syndicated credit facilities can reduce the risk of being overly dependent on any single institution. Understanding how your banks evaluate and prioritize relationships is critical. This strategy not only spreads risk but also offers the potential for more competitive terms as banks vie for business.
• Adopting a Forward Looking Financing Plan: companies should use their strategic plan to model alternative future cash flows to identify future financing needs:
  • Timing: if the debt will be outstanding for a longer period of time, a fixed rate might be attractive, but prepayment penalties/call premiums should be avoided if the debt will likely be prepaid early
  • Ratings/Credit Profile: if the company is on on upward trajectory, it may be possible to refinance early or tap alternative financing sources in the future
  • “Black Swan” Scenarios: make sure the capital structure is sufficiently flexible to withstand future economic, market, business and geopolitical disruptions
• Exploring Alternative Funding Sources: As traditional banks tighten lending criteria, businesses should explore alternative funding sources:
  • Institutional Debt: Larger companies might consider issuing corporate bonds or private placements, which can offer longer term fixed-rate financing on an unsecured basis, or Institutional Term Loan B’s, which are typically floating rate, prepayable secured debt with low amortization.
  • Direct Lending: Non-bank institutions like private equity firms or credit funds can provide more flexible albeit typically more expensive financing options during times of banking instability and due to a lower regulatory burden.
  • Receivables Factoring : These modern financing methods connect businesses directly with investors and lenders, bypassing traditional banking channels altogether.
  • Leasing and Asset-Based Financing: Companies with significant physical assets might find these options provide liquidity without the need for traditional bank loans.

By adopting these proactive measures, businesses can safeguard their operations against ongoing risks in the banking sector while positioning themselves to seize opportunities as the financial landscape evolves. These strategies underscore the importance of adaptability and forward-thinking in today’s dynamic economic environment.

Regulatory Considerations and Future Outlook

The banking failures of 2023 have led to heightened regulatory scrutiny, particularly concerning commercial real estate loans and capital requirements. Navigating this evolving regulatory landscape is vital for maintaining financial stability and compliance. Businesses must stay informed about these changes and adapt their strategies accordingly to remain on solid financial ground. complications.

Summary and Next Steps

The banking sector may have stabilized, but businesses must remain vigilant. With proactive financial management, they can navigate ongoing challenges effectively. At Redbridge Debt & Treasury Advisory, we offer expert advice and strategic insights to help your business thrive in this complex environment.

Schedule a consultation with Redbridge to safeguard your business against future banking shifts.