New measures to tackle banking services’ opacity are not enough to improve SMEs’ understanding of their full range of finance options.
The Competition and Markets Authority (CMA) outlined this week a wide-ranging package of proposals to tackle the issues hindering competition in personal current accounts (PCA) and in banking services for SMEs, but as many small business owners are rejected from traditional finance routes, it looks as though more must be done.
The CMA measures include:
- Transparency: banks must be made to provide customers with the right information
- Pushing the development of new online comparison tools
- Improving the current account switch service (CASS) to make switching banks more straightforward
- Requiring banks to set a monthly maximum charge for unarranged overdrafts on personal current accounts. Currently, customers may not even be aware of when they go into unarranged overdraft or realise the costs they are incurring
- Requiring banks to move swiftly to introduce an Open API (application programming interface) banking standard. This standard will enable personal and SME customers to safely and securely share their unique transaction history with other banks and trusted third parties
- Enforcing banks to regularly prompt their customers to check that they are getting good value from their banking provider. When these prompts direct customers to digital comparison services which give tailored price-comparison and service quality advice, the foundation has been laid for a major change in the retail banking sector.
The measures should go some way to helping SMEs understand their banking options, but IGF Invoice Finance managing director Tracy Ewen claims that 29% of small business owners seek alternative finance for their credit solutions, a higher figure than those seeking credit solutions through a bank loan.
Ewen said: “Fewer SMEs are electing to go down the route of traditional banking options, owing to the wealth of bureaucracy and are instead seeking more targeted solutions for financial support. Businesses must be fully aware of the different credit sources available, and continue to seek high quality, tailored advice on the best alternative finance options for their business.”