04-087 Wells Fargo Bank for City Services NO
AGREEMENT
IN
FILE
CITY OF
CUPEI~TINO
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City Hall
10300 Torre Avenue
Cupertino, CA 95014-3255
Telephone: (408) 777-3220
FAX: (408) 777-3109
OFFICE OF ADMINISTRATIVE SERVICES
SUMN[ARY
Agenda Item No.'
SUBJECT AND ISSUE
Agenda Date: August 16, 2004
Accept report regarding selection of Wells F~Irgo Bank as the City's provider of Banking
Services, and authorize the City Manager to execute the contract.
BACKGROUND
In March of this year, the Finance Department prepared and issued an RFP for Banking
Services. Nine banks responded by the proposal due date of April 15`h. An initial review
of the proposals by the selection team elimi~iated four of the banks by the end of May,
and the remaining banks presented their proposals to the team during the second week of
June. The presentations and analysis emphasized three specific areas of interest to City
operations: fees for services; quality of and access to on-line account information and
transactions; and merchant card fees and systt:ms. After careful analysis and comparison
of the alternative banks, including extensive reference checks, Wells Fargo was chosen to
be the City's new banking services provider.
Request for Proposals and Analysis of Responses
Prior to 2004, the City typically paid for its municipal banking services in an arrangement
referred to as "compensating balances." Compensated balances are collected balances
maintained in non-interest bearing accounts, as with the City's checking account. The
bank establishes an "average balance" requirement, which, if maintained, will offset the
fees associated with the volume of transactions processed and services utilized. Due to
significantly decreased interest rates in recent years and the use of more advanced
banking services (such as Positive Pay), the City's required average balance at Cupertino
National Bank underwent several increases. The large amount of cash balances left on
account with the bank began to noticeably affect the City's investment holdings and
associated earnings. Staff realized that downward pressure on investment earnings were
in fact increases in costs, and should be recognized as such. Working with Cupertino
National Bank, the City switched to a "fee for service" compensation arrangement, and
looked for ways to reduce the cost of banking services. While the 2004-OS budget
process was gearing up, Finance staff began to research the cost of banking services at
other municipalities. Finally, an RFP to solicit competitive pricing packages was drafted.
Printed on Recycled Paper
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The RFP was prepared to reflect the unique requirements, expectations and concerns of
the City, based on prior average volumes of services: deposits, payments, wire transfers,
armored car services, etc. Nine area banks responded by the deadline, and all met the
qualifications for consideration. The selection team, chosen to evaluate and rank the
proposals, consisted of three Finance and one IT staff members. Although competitive
pricing was essential, the Finance staff was ~iccustomed to (and looking to retain) a high
level of customer service and on-line accessibility to advanced banking services. In
addition, some banking services impacted departmental operations. The ability to drop
mixed deposits (cash and checks) into a local depository was assumed, and same-day
credit for merchant card payments was also •very important. IT staff would be involved
in any changes to the complex networks through which credit card payments are verified,
approved and credited to the City's account. Because of the various qualitative factors
involved, pricing information was reviewed simultaneously with service- related
responses.
In reviewing the nine proposals, several of th.e smaller, community-based banks were not
able to provide a high level of service in the areas stipulated in the RFP. Others had just
recently added certain on-line services. A comparison of these with the proven technical
products and services available from mid-sized to larger banks allowed the selection
committee to eliminate four of the proposals rom further consideration.
The remaining five banks were asked to m;~ke a presentation of their proposals to the
City's selection team. As the proposals foll~~wed the RFP response format, information
on standard banking services and fees, which were competitive, had already been
evaluated. (See attached matrix of typical banking fees in Exhibit A.) Bank
representatives were notified that their pre:~entations should emphasize the following
areas: on-line account accessibility, merchant card services, and minimizing banking fees.
All of the banks were able to demonstrate their on-line products that allow access to the
cash management services currently utilized by finance staff.
Merchant Bank Card Services
Each bank brought a team of experts to represent their bank's services and capabilities,
and to answer staffs questions in detail. Tlie most difficult area to analyze was that of
merchant card services. In recent years, the City has paid $80,000 - $100,000 for credit
card transaction authorization and processing fees. Most of the fees do not stay with the
bank, but are passed directly to the bankcard associations as interchange fees.
Interchange fees vary by processing environment (in person, Internet transaction, phone
order), card type, and qualification level (v~~ries with processing environment and card
types, but includes zip code entry, photo icl's, and other available security measures.)
Because of the convenience of registering and paying on-line or by phone, and due to
increasing use of credit cards in general, there fees hit the City's Enterprise Funds most
severely.
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Wells Fargo Merchant Services has a Master Service agreement with the State of
California for electronic payment processing, and agreed to extend the State's favorable
pricing, terms and conditions to the City of Cupertino. This extension allows the City to
take full advantage of the favorable interch~inge rates for the Public Sector and offline
debit transactions. In addition, Wells Fargo responded most effectively to the RFP query
for recommendations to minimize interchange fees. Their Public Sector management
team is well-versed on establishing mer~~hant card accounts and processes with
appropriate supporting hardware and softwarE;, and intends to monitor and advise the City
on processing efficiently to minimize interch~mge fees at all sites.
Transition Process
The transition to a new bank is never an ea:;y task administratively. Finance personnel
will work with Well Fargo implementation specialists to minimize impact to the line
departments. Cupertino National Bank has ~~ssured us of on-going customer service and
support in the gradual closing of the City's accounts, handling outstanding items and
archiving our account transaction history for future access. Wells Fargo is committed to
coordinating efforts with the City in ordering; checks and supplies, providing notification
to electronic payers of the new payment in:;tructions and contracting with third parties
such as armored car service providers. They will provide to City personnel training for
all banking services as needed, including rr~erchant card and deposit processing at the
various sites. A $2,000 conversion allowance from Wells Fargo should make the
transition cost-neutral to the City. The initial implementation meeting, finalizing the
responsible party and target completion dates., is scheduled for August 25`h
Cost Savings
The City has been banking with Cupertino National Bank for the past 10 years, and
although the service level has been more than adequate, the current fee structure cannot
allow for the cost savings that will be experienced under a Wells Fargo contract.
Regular banking services (deposits, payment clearing, wire transfers, direct deposit of
payroll, on-line access, etc.) currently cost the City approximately $20,000 annually, this
should be reduced to less than $16,000 annually. An even greater savings will result in
the City's merchant card fees (fees incurred. through the acceptance of credit cards in
payment of services) under the extension of Wells Fargo's Master Service agreement
with the State. These fees cost the City between $80-100,000 annually; the contract with
Wells Fargo should save us $23-29,000 a year. Additionally, the City will also save close
to $5,000 a year on custodial services (safeke~:ping of our investments.)
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Exhibit A.
Cost of Banking Service: -Comparison
Summary Costs per Proposals
Checks Paid
Deposits
Deposit Adjustments
Wire in
On-Us
Transit
12th District
Charges for Deposited Cash
FDIC Assessment
Monthly Maintenance
ZBA Maint.
NSF/UCF Check Fee
Deposit Returned
Stop Payment (Phone)
Corporate Online Fee
EBS Transaction Details
Armored Care Service
ACH Services
Direct Deposit of Payroll
Direct Deposit /Payroll item
Wire and Other Funds Transfer Services
Monthly Maintenance
Outgoing Wire
Transfers
Stop Payment (On-Line)
Monthly Maintenance
Per Stop
Positive Pay w/ full recon.
Positive Pay -input
Positive Pay -output
Positive Pay Per Item
Image Checks
Subtotal
Sweep Account
Investments Maintenance
Purchase/maturity/call transactions
Total
ECR for month of February 2004
Conversion allowance
Online Image of checks
Volume Bank
A Bank
B Bank
C Bank
D Wells
Fargo
787 94.440 62.960 70.830 82.635 55.090
127 165.100 171.450 101.600 139.700 139.700
1 3.000 3.000 0.000 5.000 5.000
7 63.000 84.000 28.000 42.000 38.500
31 2.170 2.325 1.550 1.240 1.550
125 12.500 13.750 8.750 5.625 11.250
1,152 103.680 115.200 69.120 74.880 86.400
41,675 50.010 0.000 54.178 50.010 33.340
822,575.47 8.244 15.629 7.403 10.479 8.226
2 28.000 34.000 20.000 20.000 20.000
1 14.000 25.000 20.000 20.000 15.000
1 18.000 20.000 25.000 0.000 0.000
5 25.000 25.000 15.000 25.000 15.000
2 24.000 40.000 58.000 40.000 50.000
1 75.000 30.000 25.000 45.000 50.000
1,728 172.800 259.200 69.120 172.800 86.400
1 395.000 395.000 395.000 440.000 395.000
1 50.000 65.000 25.000 50.000 50.000
2 4.000 50.000 10.000 10.000 10.000
431 107.750 43.100 17.240 49.650 17.240
0.000 0.000 0.000 0.000 0.000
1 50.000 25.000 10.000 25.000 0.000
3 27.000 24.000 12.000 25.500 19.500
3 0.000 3.000 3.000 15.000 16.500
0.000 0.000 0.000 0.000 0.000
1 0.000 0.000 7.500 0.000 0.000
2 20.000 16.000 10.000 16.000 12.000
1 75.000 50.000 50.000 85.000 50.000
4 0.000 100.000 20.000 40.000 0.000
1 0.000 0.000 5.000 0.000 10.000
787 62.960 62.960 31.480 47.220 39.350
1,650.65 1,735.57 1,169.77 1,537.74 1,235.05
1 0.00 75.00 150.00 250.00 250.00
1 583.33 0.00 67.00 291.67 250.00
5 125.00 375.00 200.00 75.00 50.00
2,358.99 2,185.57 1,586.77 2,154.41 1,785.05
0.75% 0.77% 0.75% 0.91 % 0.89%
N/A 1,000.00 2,000.00 1,000.00 2,000.00
0.04 4.00 0.50 1.50
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