The Competition and Markets Authority could force banks to make it easier for small firms to jump ship if they are unhappy with their service or can get a better deal elsewhere.
The small business banking market could see the biggest shake up in this week’s Competition and Markets Authority (CMA) report into the finance sector, bankers predict, as the industry is noticeably less competitive than the rest of the banking market.
While individuals can switch their current accounts to a new bank in seven days, taking their direct debits and inbound payments with them, small businesses find it harder to use the service.
“We are expecting something on SME switching,” said one bank source. “It could include sharing more information on business customers and their credit scores.”
There are serious practical hurdles, however, which make it difficult for the CMA to simply order a change in the way banks behave.
“The legal barriers to switching are much greater than in the personal current account market,” said one bank source.
“There are lots of mandates attached to accounts, there might be charges on properties, some asset finance arrangements, an overdraft on a cash account… it is much much harder to sign that all away.”
Another said that banks do not want to offer huge amounts of credit to small businesses by accident.
“If an SME has an account with an overdraft, then goes to a new bank to open another account but does not close the first account, it could end up with double the overdraft facility,” the insider said.
While this may not be a worry for the business itself, which has managed to double its credit lines, each bank may be concerned that it does not know the full extent to which its customer is indebted.
As a result these legal difficulties mean the CMA may be more likely to tell banks to work harder to cut barriers to switching, or the agency could use the rest of its time investigating the market to come up with a more comprehensive arrangement.
The CMA is expected to tell banks to make charges on personal current accounts clearer to customers, as the products which give the impression of being “free” to consumers often charge fees, from overdraft costs to interest payments foregone.
However, despite concerns than just 2pc of Britons switch their account each year and the widespread perception that the industry takes its customers for granted, a study from the Institute of Consumer Service indicates banks are improving their offerings rapidly.
Its surveys have found banking is the only industry where satisfaction ratings have consistently improved over the past three years, with customers now giving the industry a score of 78.6 out of 100. As a result, banking has climbed from the seventh most popular industry in the UK to the fourth most popular, out of the 13 sectors studied.
The ICS’ chief executive says this is evidence that competition is starting to work in the industry.
“Now that customers can switch bank accounts within seven days, they are more aware of the options and more likely to consider changing,” said Jo Causon.
“There is no longer apathy brought about by uncertainty meaning that strong customer service is now a key competitive advantage in the marketplace. In what is becoming a relationship driven economy, if customers are not happy they will vote with their feet and move to the competition.”
