The CMA’s calls for a banking services price comparison website has been dismissed as “totally wrong” by Oaknorth bank’s CEO Rishi Khosla, who believes it will create essentially a race to the bottom that will harm the market in the long term.
Currently, over 90% of SMEs get their business loans from their current account provider. The CMA recommended a price comparison website in a bid to make prices and availability of lending products more transparent, so that the majority of SMEs need not turn directly to their existing bank for finance without considering other offers.
“The price comparison website was half right and half totally wrong,” says Khosla. “The half right was that it would be a place to be able to learn who the other providers were.
“The half where I think it’s totally wrong is a price comparison route pushes you down the route of saying ‘for a standardised loan which looks like this who is the cheapest provider?’ whereas I don’t think what we’re seeing in the market is that pricing is an issue.
“What we’re seeing in the market is that supply and knowledge of suppliers is the issue.”
Valentina Kristensen of Oaknorth agrees, saying “When they first came out with this idea of doing a price comparison website, we were of the view that this was not a good idea because you have to take such a bespoke approach.
“Every time a business comes [to Oaknorth] after the initial process they meet the credit committee, they meet face-to-face, and they have a very in-depth conversation about the market and the opportunity and what the growth plans are…you can’t possibly do that on a price comparison website.”
Khosla also expressed concerns about what this price comparison could do to the market, suggesting that a race to offer the cheapest prices could harm competition in the market in the longer term.
“Let’s play this out. Let’s say that there weren’t enough rug producers, and let’s say the solution to getting more rug producers to sell more rugs was to help you compare the prices from different rug producers.
What’s going to happen to the market? It’s going to reduce price, it’s going to reduce margin, and therefore reduce rug producers who are keen to produce rugs. So how does that help produce more rugs? I just think it’s so far off left field.”
Lower prices for SMEs
CMA assistant director of remedies, business and financial analysis Bill Roberts has defended the recommendation of a price comparison website, claiming that it will increase transparency in the banking sector.
He says: “People can compare the charges in particular between two different banks, but also facts like service quality between the banks and how other SMEs rated them.”
For many SMEs, lower prices would certainly be attractive. Suzanne Noble from Frugl says: “I actually bank with both Santander and Barclays for my business. I must admit I was attracted to both, initially, because they offered the first year free of charges. So, price is definitely an issue, especially when starting out in business, and I think competition in the market is healthy.”
However, for many others price comparison does not deal with the initial hurdle of being considered for a loan in the first place. Shelley Douglas says: “I find it difficult to obtain any funding, overdraft or even have a bank manager as an SME.
“My bank the Nat West has no dedicated bank manager for support anymore and I find this obstructive to growth and support to my business. A bank loan would be brilliant as I have two or three products which would be great for me but I need funding.”
The CMA's final report will be published before the 12 August.