Friday, 24 August 2012

Growing Pains for UK Businesses

Summer 2012 is not a time banks will look back upon with any fondness.  Following the Natwest shutdown and LIBOR scandal, the latest rallying cry is “free banking for all” and an ever more forensic examination into the charges banks levy.   For anyone interested, there has been an explosion of self-help guidelines explaining these charges, although how sneaky some of these charges truly are is debatable.
However, one article that did shock me appeared in British SME magazine.  This highlighted how international bank transfer fees are worth £2bn to British banks every year...that’s £2bn that comes straight out of the pocket of British businesses.   From a quick bit of research on the big banks’ websites, charges vary between £20 - £40 per transfer, not to mention dubious exchange rates.  It doesn’t take a particularly adept mathematician to calculate what that could balloon to for businesses with a growing overseas presence.


Back in 2011, the Payments Innovation Global Jury noted that one of the largest missed revenue opportunity in payments is the tremendous opportunity to make cross-border B2B payments flexible, lower cost and faster.  Customers would love it.”  Great theory but even now half of all businesses are willing to accept the charges associated with transferring from a business bank account and were willing to reject other methods (e.g. foreign transfer specialists) on the grounds of time and hassle.
As an outsider it is easy to treat this with incredulity but equally, I don’t run a small business and have to deal with the raft of daily challenges.  The true cost of saving a few pounds per transfer could well be outweighed by the time and hassle of setting up accounts with multiple providers for different functions.  That’s before we even consider managing these accounts and trying to get them to reconcile.
The ideal solution would be for a provider of business bank accounts to be able to provide the global transfer coverage needed by an increasing number of SMEs but not at a cost that is scandalously high.  A single account for all incoming and outgoing payments would also enable a business to simplify their financial management, achieve substantial savings and – most importantly – get on with the far more critical task of running their business.
One account for everything.   Customers would love it.

Wednesday, 15 August 2012

Improving customer loyalty - let's get back to business

Earlier this month, the Bank of England launched the Funding for Lending scheme, to lend money at below market rates to financial institutions. It is designed to prompt banks and lenders to make more money available to homeowners and businesses.

This renewed focus on bank lending to British businesses has intensified since Project Merlin, the attempt by the Bank of England to force banks to increase lending to British small businesses.  Barclays, HSBC, Lloyds Banking Group, RBS and Santander UK were tasked with making it easier for smaller firms to access credit. Yet in reality total net lending from the five main UK banks' fell in every quarter of 2011, with £74.9 billion lent to smaller firms, as opposed to the £76 billion target.

Compare this £1.1 billion shortfall with the YouGov figures released last month which revealed that British small businesses pay over £2.3 billion to banks in fees every year. The research showed that 24 per cent of small businesses pay an average of £1,792 on business banking services every year.

When we consider the recent GDP figures which revealed that the UK is in the deepest recession of more than 50 years, this flagrant disregard for the needs of small business owners by banks is unsettling.
The truth is that public trust in banks is at an all time low and the customer loyalty banks have enjoyed in the past simply does not exist anymore – in the same survey, 52 per cent of those asked said they would move their business current account to another provider in order to receive lower cost business banking services.
There is plenty that our banks could do to improve their own image - supporting the British small business economy is just one example. 

This research suggests that banks should start by lowering business banking charges, but there is also scope for banks to start thinking outside the box –what about offering a payment of a base rate interest on business accounts? Our research showed that this could contribute £330 million to the UK economy – no small sum in the current climate.

Business secretary, Vince Cable, said last month that Britain’s banks are ‘throttling’ the economic recovery because of an anti-business culture. Evidently banks and financial providers have a long way to go in convincing the public and business community of their merits. Given the strong impact it would have on both public relations and the wider economy, it seems to me that banks need to get back to business.