CMA calls for more competition in small business banking

More than 50% of UK start-ups choose a business account with the bank with which they have a personal current account

The Competition and Markets Authority (CMA) has today called on banks to provide better deals for their customers and to address “long-term problems” with small and medium business banking.

In the provisional findings of its investigation into the banking space, the CMA reports that there is a “particular problem”  where many small firms in the UK open their business current accounts (BCA) at the same bank where they have their personal current account (PCA), and then stick with that bank for their business loans.

Over 50% of start-ups looking for a business account choose the bank with which they have a personal current account, and around 90% then go to their BCA provider when they are looking for business loans.

As a result of too few customers switching, the CMA said banks do not have strong enough incentives to work hard to compete for customers through better products or cheaper prices, while smaller or better banks find it hard to gain a foothold leaving the big banks to dominate.

In addition, the CMA said that small business banking charging structures are “complex and difficult to compare”, have no service quality measures to aid comparison and pointed out that there are limited effective price comparison tools for small and medium-sized enterprises.

Despite discouraging findings for small business banking, the investigation did point to positive developments such as new companies entering the small business banking industry and more innovative products becoming available for online and mobile banking.

To remedy the situation, the CMA has recommended that the government creates a new banking price comparison website for small and medium enterprises and has called for better sharing of information with credit reference agencies, banks and financial advisers to make it easier for small firms to shop around for loans.

Discussing the CMA’s findings, James Sherwin-Smith, CEO of new lending platform Growth Street, said:

“Today’s release from the CMA confirms that the high street banks have a stranglehold on the business current account (BCA) and overdraft market and action is needed to stimulate competition.

“We are encouraged to see several remedies put forward by the CMA to address these key issues. However, we are concerned that the possible remedies do not go far enough to help small and medium enterprise change providers and increase competition.

“Enabling switching between banks is only one way to improve competition in small and medium enterprise banking. More should be done to increase referrals outside of the traditional banking sector to alternative providers that can provide more innovative, better value and higher quality products and services.”.

Comments

(will not be published)