Why haven’t corporations done a better job managing borrowing costs and service fees? Because in fee negotiations, the banks have been dealt face cards.

For starters, banks are immune from pricing pressures that are commonplace in other supplier relationships. Companies that tender their banking relationship are the exception, not the rule. Without the threat of nose-to-nose reviews, bankers are insulated from price competition. In banking, the lowest price is seldom the law.

Banks are also masters when it comes to bundling. They know that fees are rarely a deal breaker in credit negotiations. Fees and service charges are marketed as part of the cost of obtaining credit. Financial executives and their advisors – be they chartered accountants or lawyers – seldom call the banks on this practice. Bundling establishes ground rules that tilt the negotiating table in the banks’ favour.

If structure and process advantages weren’t enough, the banks have a third ace up their sleeve. They operate in an industry where switching costs are a real issue. At best, banking arrangements are inconvenient to unravel. Few companies believe that borrowing cost and bank fee cost savings justify the effort and aggravation of a banking change. This inertia favours the status quo and tilts the negotiating table even further.

Fourth, bankers are players. Borrowing costs and service fees are an important component in the banks’ profit model so they take renewal negotiations seriously. They know your company’s credit needs and limits. They know the competition – yours and theirs. They know the deals on the street. They’re masters at balancing returns over a broad range of products and services. Lots of companies have the knowledge to negotiate favourable terms in one area. Few are savvy enough to avoid paying the piper in another. When it comes time for the banks to negotiate their compensation package, bankers get it.

The final advantage hails from an unexpected source. The banks’ own customers. Simply put, managing banking costs is not a priority to most companies. Corporate banking concerns typically start and stop with credit availability. Who benefits from this myopia? You guessed it. In too many companies banking fees are an unmanaged cost. In too many negotiations, the banks prevail by default.