The Competition and Markets Authority (CMA) has recommended the introduction of a new API tool which will allow SMEs to view a bespoke comparison of transaction charges they would have incurred over the past year.
The tool will enable SMEs to take their last years’ worth of transactions and throw them into a calculator to see what they would have been charged for transactions in that time at different banks. The SME can then see which bank provides a cheaper service for them, individually.
According to Bill Roberts from the CMA, the measure is “quite complicated to explain” and isn’t particularly exciting, but it is “probably the most important element” of the remedies package.
With most business current accounts, you get charged every time you pay cheques in or pay cash in - every transaction you perform through your current account will attract a charge.
The API measure will enable the SME to pick the last 12 month’s transactions and throw them in, and work out precisely what that would have cost them at different banks.
“So it stops being a kind of average and becomes a bespoke quote on the basis of actual transaction usage in the last 12 months,” says Roberts.
While there are similar methods already available, the new tool will offer added security. Roberts explains: “Now you can sort of do that at the moment through screen scraping, but in order to that the to get that kind of result the SME would have to hand over their online banking credentials to the third party, which they might be a bit nervous about doing.
“The beauty of the APIs is that you don’t have to that. You just instruct and electronically your bank to send to the third party your last 12 months of transactions and it will go through very securely and nobody else knows your credentials. You get a bespoke estimate for the cost of a current account at different banks.”
Roberts also claims that this tool would be advantageous to SMEs looking to raise finance as well. If an SME is looking for a loan or they want to raise finance, they can share with the finance platform their transaction history, which will enable potential lenders to assess the fallibility of the loan.
“Again, at the moment they could take along their last 12 months of bank statements or find some other way of sharing it, such as screen scraping, but if these finance platforms have access to transaction histories through APIs you can get a much better service for SMEs who are looking to borrow some money,” says Roberts.
“At the moment the SME’s own bank is in a very strong position because it alone knows how their money comes in is it seasonal etc.… The moment you give that knowledge to other lenders the whole model becomes a lot more fluid and a lot more competitive.”
Oaknorth bank’s CEO Rishi Khosla has claimed that the new tool does “make sense” as often small businesses receive charges in excess of what they are expecting and it can only be a good thing to educate them on costs.
At larger or less time-poor companies, a lot of time is put in to negotiating bank charges, whereas “a standard SME doesn’t even necessarily know bank charges are negotiable, so you’ve got different levels,” explains Khosla.
"The reality of banking is banks don’t charge for current accounts, so they need to make their money somewhere…it would almost be a better environment if banks did charge a flat rate for an account and then actually kept transaction charges to minimal… In the US market it’s much more about account charges, so I think they’re different models.
“I think educating the SME owner that their bank charges are either negotiable or there are alternatives does make sense.”
Some SMEs have voiced their doubts about the tool getting up and running, or how effective the tool would be to time poor businesses…
Irina Bragin of Made of Carpet says: “This is very useful too. But something tells me they won’t do it.”
Simon Schnieders of Blue Array says the idea might not appeal to “a small business that is as time poor as we are.”
But others have suggested that this could be beneficial, and would be more inclined to use the new, more secure tool:
“I would be nervous about giving banking data to third party. I would be more inclined to use the new tool,” says Gerry and Richard of Okappy.