Businesses should ‘shop around’ for banking services

Smaller businesses should look around for the best banking deals in the light of the Competition Commission’s provisional decision to lift the price controls imposed on the UK’s four largest banks for servicing SME accounts.

The advice comes from the Forum of Private Business (FPB).

The controls mean that the banks – Barclays, HSBC, Lloyds TSB and the Royal Bank of Scotland – have to offer all SME customers either interest on credit balances at a specified rate (2.5 per cent below the Bank of England base rate or higher), or free core money transmission services (such as direct debit payments and cash transfers).

But now the Competition Commission has said that the controls, which were temporary, are no longer necessary and should be removed.

Matt Hardman, the FPB's campaigns manager, said: “Our aim is to make competition work and encourage smaller businesses to negotiate with their banks, shop around for the best service, and change banks if they are not satisfied.”

Referring to a survey of the major banks commissioned by the FPB from Nottingham University, Mr Hardman commented: “The survey, released in the autumn last year, showed clear evidence of a general improvement in the banks' performances as experienced by smaller businesses. The performance index shows the highest level since 1998.

“While slightly more smaller businesses considered switching banks, the report suggested this was because of a change in attitude, due to measures taken by the Office of Fair Trading.”

Mr Hardman added: “We will continue to monitor the performances of the major banks through our biennial survey and our many contacts with our members. The big four are said to have a market share of 85%; it’s important that they do not abuse their dominant position.”

However, not all business groups are happy with the Competition Commission’s decision. The Federation of Small Businesses (FSB) said that a recent survey of 4,000 small businesses had revealed that seven out of ten firms were unaware of the controls and that over 50 per cent have not been provided with lower interest rates or free banking.

Mike Cherry, the FSB’s financial affairs chairman, commented: “We are utterly bewildered by the Competition Commission’s provisional decision in this case. Despite their promises to the contrary, there has been a worrying lack of transparency from the banks about the services they offer to small businesses.”