Be honest: are you happy with your bank? In recent years, many business owners would probably say ‘no’ because of banking providers’ refusal to lend SMEs money. But, a lot of small firms are also dissatisfied with their banks in terms of the basic service they provide.
Despite this, very few businesses vote with their feet, and actually change banks. Most believe it will be too time-consuming and disruptive to their enterprise – or they think that all the major players are as useless as each other. But, they’re missing a great chance to improve their banking experience – and even to improve the banking sector for SMEs overall.
Switching service makes change easy
A new system arrived just over a year ago that was designed to encourage more unhappy customers to change banks. In September 2013, the Payments Council introduced its Current Account Switching Service, a process that intends to take the hassle out of moving from one banking provider to another for both individuals and businesses. The swapping process covers basic bank accounts, and comes with a guarantee, which ensures the repayment of any interest lost or charges incurred if anything goes wrong during an account change-over. Under the new service:
- The time taken to switch a bank account has been reduced to seven working days once the account is open. This is down from the 18 to 30 days it took previously.
- Firms can elect a given date for the change to happen, therefore limiting disruption to cashflow and day-to-day business.
- Business owners have one point of contact throughout the process, with the switch being managed entirely by the new bank.
- Established payments, such as direct debits and standing orders, are redirected automatically, as are any cheques paid to the old account. This continues for 13 months after the opening of the new account.
- Whenever an electronic payment is forwarded to the new account, the organisation making the payment receives an electronic message alerting them to update their systems with the company’s new bank details.
What impact has the switching service had?
So, 12 months after the launch, what difference has this streamlined approach made? The Payments Council recently published a first year review of its service. And, on first glance, the switching figures look good:
- About 1.2 million customers switched banks in the 12 months after the launch of the Current Account Switching Service, up a fifth on the year before.
- Two-thirds of people say that they’ve heard of the switching service, and 62 per cent are confident it works.
But, in reality, just 20,000 of the 1.2 million switching customers were SMEs – a tiny 1.6 per cent. One problem is that a lot of the publicity around the new service appeared to be aimed at individual customers rather than business bank account holders. The truth is that many companies simply don’t realise they can get this help.
Yet, many businesses still complain that their provider is not working in their best interest. Between ten and 20 per cent of smaller companies rated the overall service they receive from their bank as poor in a recent study into SME banking by the Competition and Markets Authority (CMA) and Financial Conduct Authority (FCA). In particular:
- Businesses object that what the different banks offer is hard to compare, and service levels are impossible to measure before you become a customer.
- Bank account charges and the cost of loans are difficult to evaluate between different banks.
What most businesses really want is an efficient, reliable service, minimal charges on their account, and a halfway decent rate of interest on their balance when they’re in credit. Sadly, these things are all too lacking in much business bank account provision. One way that SMEs can get a clearer idea of banks’ behaviour is through the anonymised Business Banking Insight website, which we’ve mentioned on this blog before. It allows small businesses to detail how they’ve been treated by their banking providers, and gives SMEs the chance to research how institutions really perform before banking with them. It’s worth a look for those if you’re thinking of making a change.
What SMEs should look for in an account
If you are one of the ones who has decided it’s time to move accounts, there are certain things to consider:
- How do you use your bank account? What running costs are you likely to face, such as standing charges, and transaction expenses? What are the interest rates for overdraft borrowing, and when you’re in credit? Do you need internet and phone banking, or is a branch network important?
- Have you got all of the necessary information to switch accounts? You’ll need details for security checks, such as the name of your business, its trading address, plus possibly a Companies House registration number, and HMRC certificate. Recent utility bills or statements may also be required, as well as some personal details of directors.
- Make sure your old bank has the up-to-date information about your business, so that it passes on the correct information to the new provider. Also, think about whether you’ll need old bank statements in the future, and, if so, get copies before you close your old account.
- Use the new start as a chance to look over all of the payments going from the business’s account, and check whether they’re all still necessary and valid. Take the opportunity to do a spring clean, and update your finances.
Spreading the word that swapping isn’t hard
The CMA is currently analysing the impact of the switching service on SMEs as part of its review of business banking, which was announced earlier this year. But the most important thing is to get more businesses to use the swapping initiative, and inform them that changing banks needn’t be hard work. The more SMEs that start to change banks, the greater pressure is put on providers to give a better service, more competitive rates of interest, and an altogether more satisfactory experience for customers. So, it’s worth taking the time to think about what you want from your bank, and looking around to see who is best placed to provide it. The logistics of the account switch have never been easier. And, even if you decide to stick with your existing bank, knowing what the competition has to offer puts you in a better position to negotiate better terms with your current provider.
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