Title
Report regarding resolution authorizing the City Manager to execute a banking services agreement and a Select Government Merchant Payment Card Processing Agreement with J.P. Morgan Chase Bank N.A. for a five (5) year period ending on September 1, 2029, with an option to extend for an additional two (2) five-year extensions. (Karen Chang, Director of Finance)
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RECOMMENDATION
Recommendation
Staff recommends the City of South San Francisco to approve a five-year banking services agreement and a Select Government Merchant Payment Card Processing Agreement with J.P. Morgan Chase Bank N.A., with an option to renew for two five-year extensions and to authorize the City Manager to execute the agreements.
Body
BACKGROUND/DISCUSSION
J.P. Morgan Chase Bank N.A. has provided the City of South San Francisco with commercial banking and merchant services since 2017. Government Finance Officers Association (GFOA) Best Practices recommend a full-scale competitive process at the end of the term. According to the City’s Purchasing Policy, when City desires to procure consultant or professional services, the expertise and professional skills of the consultant will be important considerations and the City may desire to use an RFP so that it is able to negotiate based on values other than price.
To ensure that the City receives high quality services at a competitive rate, the City published a Request for Proposals (RFP) on September 21, 2023. The RFP was posted on the City’s website. The City sent direct solicitations to, and received three qualified proposals from the following banking institutions:
• BMO Bank (formerly Bank of the West);
• J.P. Morgan Chase; and
• Wells Fargo Bank
The City invited all three banks for interviews the week of December 11, 2023. The evaluation panel included the following City staff members:
• Karen Chang, Finance Director;
• Jason Wong, Deputy Finance Director;
• Jennifer Clemente, Financial Services Manager; and
• Steven Lew, Acting Accounting Supervisor
Panel members evaluated each prospective banks according to the criteria listed below and weighed each value accordingly:
• Qualifications and Experience 35%
• Customer Service 25%
• Technology / Security 25%
• Pricing / Value 15%
J.P. Morgan Chase Bank N.A. was selected based on the result of the scores as follows:
|
Selection Criteria |
Possible Points |
BMO |
JP Morgan Chase |
Wells Fargo |
|
Qualifications and Experience |
35 |
33.0 |
34.5 |
33.8 |
|
Customer Service |
25 |
22.0 |
23.0 |
24.0 |
|
Technology / Security |
25 |
22.0 |
23.3 |
22.8 |
|
Pricing / Value |
15 |
12.3 |
14.8 |
13.0 |
|
Total (Out of 100) |
100 |
89.3 |
95.5 |
93.5 |
J.P. Morgan Chase is one of the largest and strongest banks in the United States. They provide financial solutions to all types of governments-states, counties, cities, school districts, and special districts. In October 2022, J.P. Morgan Chase became the first bank qualified to accept government deposits in all 50 states and Washington, D.C., a testament to their dedication to the government sector. They have more than 1,900 state and local government clients managed by a dedicated team of over 230 professionals across the U.S. They have 4,100 Bay Area based employees and 180+ branches. They are dedicated to investing $22 million to develop and preserve affordable housing as part of their $75 million, five-year commitment to the Bay Area.
The Government Banking team provides the industry with innovative financial solutions and personalized client service. They have first-hand knowledge and understanding of today’s challenges, which comes from supporting government agencies and authorities with critical activities including planning and development, tax processing, utilities, finance, procurement, public safety, and disaster relief. They stay up to date through regular relationship reviews, training opportunities, and client discussions via local coverage.
Financial services technology continues to evolve at a rapid pace, and J.P. Morgan Chase is driving that evolution by investing over $15 billion annually in technology, which includes investments in cybersecurity. Between new payment rails, enhanced receivables solutions, and major strides in Application Programming Interfaces (APIs) and open banking, much has changed in the last five years.
While the monthly bank service fees may vary each month, based on the service fees outlined in Exhibit B of the professional services agreement which is attached to the accompanying resolution, the banking fees for an average month are estimated to be $2,557. These fees are offset by the interest that the City would earn on its average monthly balance, estimated to be $23,068 per month, which would result in a net cost of $0 per month in banking fees. The bank offered Hybrid Demand Deposit Account (DDA) with earnings credit rate of 3.30% to offset fees and Hybrid DDA with hard dollar interest of 3.20% on excess balances in our demand deposit account. Merchant service fees, which largely reflect the Interchange Rate paid for credit card transactions, will also vary from month to month, as they depend on the transaction volume and average transaction amount.
FISCAL IMPACT
Banking and merchant service fees are combined with interest earnings for allocation purposes. Each fund is allocated interest earnings/bank fees each quarter and is reflected in the revenue estimates for FY 2023-24. No additional funding is needed to account for the cost of the agreement.
RELATIONSHIP TO STRATEGIC PLAN
Approval of this action contributes to the City’s strategic initiative (Priority Area 3) of ensuring fiscal stability.
CONCLUSION
Commercial banking and merchant services play a critical role in the City’s business processes. Staff issued a Request for Proposals to ensure that the City continues to receive high quality services at a competitive rate and comply with industry best practices. J.P. Morgan Chase Bank was rated the highest among the three banking institutions that were interviewed and offers industry-leading technology and excellent customer service.