Today sees the publication of the Competition and Markets Authority’s report into the retail banking market. At its heart is a set of recommendations to make the ways in which small businesses engage with their banks more transparent, efficient and cost effective. However, critics say it doesn’t go far enough to address concerns of competition, convenience, cost and openness.
The issue of switching accounts is addressed in a package of measures designed to let SMEs shop around and move between banks. The CMA says it also wants to see more businesses being able to borrow more cheaply from banks other than those that run their current accounts.
Alasdair Smith, chair of the retail banking investigation, said: “For too long, banks have been able to sit back and not work hard enough for their personal and small business customers. We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks.”
In addition, the CMA outlined a set of remedies aimed at the SME market which include more transparency in the pricing of loan rates, better use of loan eligibility criteria, the introduction of better comparison tools for small businesses, standard business current account opening procedures, and banks being more equipped to share SME information via an open API banking standard which would allow business customers to safely share their transaction history with other banks, helping to provide greater choice and empowering SMEs to switch.
Other measures announced include
- the Financial Conduct Authority to review ideas for banks to publish their service records and collect the data twice a year. Willingness to recommend the account to a friend could be included
- innovation charity Nesta is to offer a challenge prize for financial technology companies to create ways for small businesses to move accounts – although this will not be completed until mid 2018 and the cost of the prize funded by the banks
- banks to provide standard rates for small business loans and overdrafts up to £25,000
‘A golden opportunity missed’
The reaction, so far at least, has been cool. Adam Marshall, acting director general of the British Chambers of Commerce, said: “The CMA remains in danger of passing up a golden opportunity to deliver more fundamental changes to the business finance market. There are deep-rooted problems in SME finance. Many will feel that the CMA’s overall package of remedies only incrementally shifts the status quo.”
Meanwhile, Mike Cherry, FSB National Chairman, said: “Today’s banking market does not work well for small business. Current levels of switching among small firms are far too low, with only 4 per cent of FSB members switching in the last year. Small business owners are still not confident that switching banking products or services will be a risk-free, seamless process, and as a result, many choose not switch. A new awareness campaign and measures to make switching transparent are promising steps.”
‘More transparency needed’
We agree with the CMA’s view that better transparency around prices, charges and availability of lending products will make it easier for small business customers to shop around. The proposals’ focus on a new online comparison tool should help businesses feel more confident when trying to find the bank that best suits their needs.
“The CMA has tackled some of the more opaque practices of the high street banks. With £1.2bn charged each year for unauthorised overdrafts, proposals for a maximum fee cap and to introduce prompts and alerts for overdrafts at the end of free banking periods will combat a particularly poor practice that small firms face. This should encourage small businesses to shop around and switch.”