November 17, 2005

Small Businesses Are Paying More For Banking

Small businesses are paying more for their banking three years after the competition Commission sought to end the complex monopoly of the big four banks says a recent Moneyfacts report.

The Moneyfacts report findings says banking now cost about £10 more each month on average for a small business.

Barclays Bank has a £3 a month standing charge since 2002, but this still puts it below National Westminster Bank's £5.75 a month. Other charges are levied for paying in cheques and cash - HSBC, for example charges for these services but did not three years ago - or setting up standing orders and direct debits.

The Competition Commission concluded in 2002 that the big four were operating a "Complex monopoly" and should either pay interest on small business current accounts or offer free money transmission services.

The fact that charges have risen while the big four are thought to have retained most of the market is likely to increase pressure on banks when the Office Of Fair Trading reviews the issue early in the new year.

"It could be that the banks are back to their old tricks", said Stephen Alambritis, of the Federation of Small Businesses. "We would urge Government to have another look at bank charges."

He said many companies were discouraged from switching to a better deal by the hassle and possible stigma involved. "The Government must ensure that switching happens within five working days and that should be mandatory. Switching also sends the wrong message to investors, accountants and the Inland Revenue.

But Alison Hopkins, managing director of small business at Barclays, said that at he average of £248 a year, her bank charges were now about a third lower than in the early 1900s and there had been an increase in competition. "Over the last three or four years the market share of the big four players has been eroded", she said.

Ms Hopkins added that the OFT should lift the restrictions placed in banks in 2002 and not consider any other measures. "Given that they were imposed, we have absolutely thrown our arms around them. It would be nice if they concluded that we embraced them. I'm not sure if there needs to be any sort of pricing remedy. We feel the pinch of competition day in day out."

That competition has come mainly from the two "challenger" banks. abbey and Alliance & Leicester, but both say the competition Commission's remedy in 2002 has only served to remove their competitive advantage. Alliance and Leicester said: "in the past couple of years we have been successfully growing our small business banking. However, the pricing regime put in place three years ago has made that harder."

John Brooks at Abbey agreed with Mr. Alambritis that getting small businesses to consider switching was vital to reducing the dominance of the big four.

D Davis
Small Business Resource

Posted by David at 3:50 PM | Comments (0)