CMA unveils steps to open up banking for SMEs

Regulator announces work on business-focused comparison services that will help firms shop around for better deals

UK banks are not providing enough information about their services to SMEs, according to a new report from the Competition & Markets Authority (CMA).

In the regulator’s view, this is denying firms the chance to make informed decisions about whether or not to remain in their current banking relationships.

Published on 9 August, Making Banks Work Harder for You highlights flaws that the CMA has detected in the UK banking system’s current customer-service framework – outlining problems that affect both individuals and firms – and sets out measures that it says will spur improvements.

The CMA’s main concerns focus upon a shortfall of unbiased material and helpful notifications that would help SMEs to shop around for better deals. In its assessment:

1. Current accounts have complex charging structures, and customers generally know very little about the charges and service quality provided by other banks. As such, it is hard for customers to know whether they could obtain better value and service from another bank, or a different product with the same bank.
2. Account arrangements are open ended, and do not have regular ‘trigger points’ – in the vein of annual renewals for insurance policies, for example – that may prompt customers to decide whether or not they would be better off elsewhere.
3. Charging structures for overdrafts are particularly complex, making it even harder to compare providers. Customers fear that if they switch, they may not be able to get the same overdraft from their new bank. Furthermore, many customers underestimate their overdraft use.

“In many respects,” says the report, “small businesses face more deep-rooted problems with banking services than personal customers.” Not only has there been limited entry from new lenders, with most entry led by specialist lenders, there has been less innovation than in personal accounts.

The CMA notes that a new small business will typically receive a free current account service for a set period. However, when the charges kick in, very few of them actually shop around or switch.

“There are many reasons why small businesses do not shop around for their accounts or loans,” the report explains. “Like personal customers, many say they are satisfied and do not feel that they will gain from switching. In addition, many believe that staying loyal to their bank will be an advantage, as and when they need lending.”

The report points out that it can often be time consuming to open a bank account, and SMEs are “understandably concerned” that if they switch, payments could go astray.

Plus, when it comes to lending, “small businesses often need quick decisions. They do not want to spend time speaking to lots of different providers all asking for different information”.

Outlining its measures for improving the picture, the CMA says: “Small businesses need much better information about what different banks can offer them. While some useful services, such as the Business Banking Insights survey, are currently available, there is no existing comparison website providing a comprehensive service.

“We think that small businesses would be best served by the development of ‘one-stop shops’ that would enable them quickly and reliably to compare the price, quality of service and lending criteria offered by a wide range of providers.”

With that in mind, it says: “We are backing independent innovation charity NESTA’s launch of a ‘challenge prize’ to enable the development and delivery of comparison services that will be both innovative and commercially sustainable.”

To maximise the potential of those facilities, the regulator notes, it is requiring the banks most active in providing services to SMEs to commit “financial backing and technical support” to the project.

The CMA also anticipates that a set of new and open application programming interfaces will be built to underpin the technologies that NESTA develops. It will work to ensure that the two projects are properly coordinated.