Even before the EU referendum, our Federation of Small Businesses members were reporting tough business conditions across the country, with small business confidence at a four-year low. Firms were less optimistic, cutting headcount and curbing investment intentions.
To head this off we now need to do everything we can to support small firms to grow, create jobs and weather any harsh economic headwinds ahead. This includes ensuring more is done to support the development of stable and resilient UK finance markets. Being able to access finance not only provides firms with greater certainty to invest and employ more people, it also helps to support the UK economy’s long-term growth.
One of the key obstacles to achieving this is the overly concentrated nature of banking provision. Unfortunately, the combined market shares of the four largest providers of business current accounts (BCAs) have declined by only a couple of per cent since 2012. As well as posing risks to financial stability, the high level of concentration restricts competition and choice.
The news that RBS and Natwest has written to 1.3 million businesses warning they may face charges on deposits as a result of low interest rates is deeply concerning. It sends an unsettling message to firms whose investment and growth aspirations are already being tested by current conditions.
Yet in spite of this there are some encouraging signs. Credit is cheaper and more readily available, with FSB’s Voice of Small Business Index showing that 71% of credit applications were accepted in the previous quarter. Much of this reflects the increased availability of alternative forms of finance, which small business owners are increasingly making use of.
To be fair to RBS and NatWest, their interest rates warning to business customers was part of a broader message that the number of tariffs and charges were being simplified. We know BCA charges have been extremely complex, making it difficult for small businesses to identify the cost of their BCA, let alone find out if they’re getting the best deal.
Until now, not enough small business have been switching. From startups to firms whose free banking period has finished, small firms tend not to search – let alone switch. Research in 2015 from the Competition and Markets Authority, an independent regulator currently running an inquiry into the retail banking market, found that 35% of small and medium sized businesses dissatisfied with their bank still did not consider switching.
The clear message to small businesses is that they should shop around regularly to see where they can deposit funds more cheaply. The current account switch service is a quick, easy and free way to move your BCA.
And there are more resources out there to help. Business Banking Insight is an independent website designed to share micro, small and medium businesses’ banking experiences online to provide information about the best banking institutions, products and services across the UK. I would encourage small firms to consider whether it’s worth switching to a more competitive BCA.
Equally, all finance providers holding deposits from small businesses have a responsibility to update customers concerned about any changes to their BCA. This includes providing them with all the options they need to find a better deal elsewhere.
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