“Maybe I’m missing a point somewhere, but the more I think about it, the more I feel that banks are highly overrated. Aristotle wrote: “it is the mark of an educated mind to be able to entertain a thought without accepting it”. So allow yourself to entertain this thought for a while.
“Thomas Jefferson wrote “I believe that banks are more dangerous to our civil liberties than standing armies”. Suddenly my statement that they are overrated doesn’t seem quite so extreme. I am not alone in this conviction. So before we consider whether they are more dangerous than standing armies, let’s consider for the moment why I believe they are overrated.
“During my twenties I became in awe of the banks. In all the organisations I worked for and with, ‘The Bank’ was held in high esteem, this all-powerful, almighty institution without which the company would “sicken and so die”. That’s why, when approaching the end of my twenties, I thought I should go and work for a bank. Ten years and three banks later, as I approach the end of my thirties, I have come to realise that there is “much ado about nothing” when it comes to the banks.
“That they are strategic to a company is without question, but they are certainly not all-powerful and almighty. I feel like ranting-on like an Evangelical Preacher, crying something like “I have travelled into the heart of the beast, and found him wanting!” Where banks are not wanting, however, is in their ability to avoid competition, without being declared a monopoly. The recent Jali Commission of Enquiry into bank charges found that “SA banks operate as a tightly knit oligopoly that maximise profit by avoiding outright price competition”.
“They are aided in this endeavor by their customers, especially their corporate customers, who are reluctant to take them on, most probably being in awe of them, as I was. However, the reality is that a company’s banking partner should be dealt with like any strategic supplier.
“It is important in the first instance to remember that a bank has products it must sell, just like any supplier. Furthermore, it is important to remember that the Relationship Manager from the bank has sales targets just like any salesman from any of your suppliers, which gives you leverage. Furthermore, it is not as if his products differ significantly from his competitors’. Should you not take that loan, structured finance deal, overdraft or credit card from him, he will not meet his targets and will not receive his sizeable bonus. My point is that he is personally motivated to do business with you, regardless of the cold and impersonal nature of the organisation he works for. So the first thing you, the buyer, needs to dispatch is your fear that somehow you will bring the company to its knees should you upset the bank. They need YOU!
“Once freed from this fear, you should exercise control over this buying decision like you have over all the other categories of spend you have fought so hard to gain control over. Choosing a financial service partner is no more complicated than choosing a partner to supply that important component of your manufacturing process. I am certain that the procurement department at a cell-phone manufacturer is instrumental in sourcing the highly complex electronic chips that make their products work. Therefore, why not then get involved in choosing the financial service partner that will assist in making the payment to the supplier possible? After all, the electronic chips are without a doubt more relevant to the strategic competitive advantage of the company than is the bank.
“More than the selection process, it is crucial that, having selected a financial services partner, that partner is required to sign a Service Level Agreement. However, I can state with absolute certainty that not a single reader of this article works for a company that has a signed SLA in place with its bank, which is not surprising.
“I recently tried to implement an SLA for one of my customers for their Corporate Card program. Being the respectful chap that I am, I sent the bank a draft of the agreement for their perusal and comment, which included their logo, my company’s logo and the client’s logo. It was, after all, a tri-party SLA. At first the bank in question just ignored me. Then they sent me legal papers accusing me of breaching their copy-write by including their logo. So I removed their logo and resubmitted the agreement. They carried on ignoring it, and even refused to talk to the client if I was present. I have heard that there are only two types of emotion, fear and love, and every other emotion is just a derivative of those. Well, I’m not “feeling the love”, so the question is “what do they fear”, from either the SLA, or me? I can guarantee that any procurement professional out there would not hesitate to bind any strategic supplier to an SLA, so why not the bank?
“A procurement professional knows that even when you lack bargaining power (which, incidentally, you DO NOT lack when dealing with a bank), you are still the customer and therefore may still demand certain things: a commitment to service is not unreasonable. Ironically, it was a bank president, B.F. Harris, who stated: “show me a businessman or institution not guided by sentiment and service, by the idea that he profits most who serves best, and I will show you a man or an outfit that is dead or dying.”
“So, why then do procurement professionals not become engaged in this decision? Perhaps it is linked to what John Adams wrote to Thomas Jefferson in 1787: “All the perplexities, confusion, and distress in America arise, not from defects of the Constitution, not from want of honor [sic] or virtue, so much as from downright ignorance of the nature of coin, credit and circulation”. Sadly, 222 years later, there is still much “ignorance of the nature of coin, credit and circulation”.
“However, as procurement professionals you will know that you don’t need to be an expert on the item you are procuring to procure it effectively. That’s what Sourcing Teams are for. Why not convene a Financial Services Sourcing Team comprising the Finance Director, a Financial Manager and a Procurement Specialist? How is this different to sourcing complex electronic chips, the sourcing team of which would include the Operations Director, an engineer and a Procurement Specialist?
“Greater minds than mine have pondered the position and relevance of banks to society, and none less so than Thomas Jefferson, who also stated that “If the American people ever allow the private banks to control the issue of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them [the banks], will deprive the people of all property until their children wake up homeless on the continent their fathers conquered”.
“Ultimately, it is the responsibility of procurement professionals to ensure that they have created the best possible means for the supply of goods and materials into an organisation. This includes following the best practices of sourcing, buying and service level management. If your organisation doesn’t follow this in sourcing its financial services partner then it cannot be deemed world-class.
You can reach Julian Curtiss on 011 269 4307 or via email: firstname.lastname@example.org