Finance · 8 March 2016

Competition authority calls for “one-stop shop” for small business banking

small business banking
Nine in ten small business owners turn to their personal bank for business loans

The Competition & Markets Authority (CMA) has concluded its investigation into small business banking by recommending the creation of a digital platform to help small business owners compare product offerings.

The body’s latest working paper calls for a website providing information on business banking costs and eligibility requirements across providers – and argues that a Nesta-backed competition for innovative platforms could be the best way to deliver such a solution.

Rishi Khosla, co-founder of OakNorth Bank, welcomed the proposals. “A simple price comparison website would not work as lending needs to be tailored very closely to the characteristics of the business at hand. Price comparison websites tend to ‘commoditise’ the products they compare and encourage market participants to compete on price, ultimately leading to a computer-says-no approach,” he said.

“The best option therefore is to use Nesta to deliver a way to address poor competition in banking for SMEs and overcome the inertia that currently exists amongst them,” he added.

The CMA review was launched in 2014 to assess the level of competition in the market for SME business banking services – and members concluded in November 2015 that this was insufficient.

The provisional findings of the investigation revealed that more than 50 per cent of startup founders looking for small business banking currently choose the provider with which they have their personal current account – and nine in ten owners turn to this bank for a business loan.

Alisdair Smith, chairman of the retail banking investigation, said: “Despite some encouraging developments, particularly in the shape of challengers that have entered the market in recent years, for too long banks have been able to sit back and take their existing customers for granted.

“We don’t think that customers will truly benefit from a more competitive marketplace until they can compare accounts more easily and feel confident that they can switch without risk.”

Additional research carried out by Bacs payment schemes in February 2015 found that UK SMEs hold over £160bn of deposits in low interest bank accounts – while less than three per cent of people who used the firm’s Current Account Switch Service were business owners.

Find out which business banking providers are most favoured by micro companies.

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ABOUT THE EXPERT

Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.

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