‘Free’ banking accounts allowed to continue

The Competition and Markets Authority (CMA) recommendations to improve retail banking services for small businesses should have included scrapping ‘free’ accounts, according to APS Financial CEO and founder Rich Wagner.

In a recent blog for SME, Wagner claimed that a recent APS study found that the average business is paying £468 a year for its supposedly ‘free’ account, and a third believe their bank “actively seeks ways to sneak in fines and fees that they do not understand”. Around 60% of those questioned have avoided opening high street bank accounts altogether.

Wagner says: “The CMA should have taken this opportunity to end ‘free’ accounts once and for all, thus increasing competition amongst challenger financial services providers that are able to provide a better service to the smallest of the UKs businesses.

“Many FinTech providers have been operating transparent pricing models since their inception, meaning that SMEs have a clear view of the costs that they will incur, and are able to control any credit that they may want, or not want, to take on. For example, many alternative finance providers will not enforce an overdraft on a customer if they do not specifically request such a service.”

However, not everyone agrees that this should have been the CMA’s priority. Oaknorth bank’s CEO and co-founder Rishi Khosla says that he “doesn’t know how relevant the average is, because like we know if you look at SMEs there’s a whole trail of fundamentally sole traders…so it sort of depends on how you define that…if you define that as trading businesses with at least a few employees I would expect it to be meaningfully higher.

“I think that therefore without knowing those numbers I don’t know what conclusion I’d reach. If I was to take that average for real operating SMEs I’d say it was a great deal, a phenomenal deal…I just don’t know if that’s the right number to be looking at.

“I think anyone who’s smart enough to be in business should realise there’s no free lunch.”

Bill Roberts from the CMA claims that the move to scrap so-called ‘free’ banking services was considered, and that a lot of people suggested it – but in the end it was decided that it was not really relevant for SMEs.

“We didn’t think there was any evidence that if we outlawed free from credit banking that people would be better off because for most people it’s actually quite a good deal,” says Roberts.

“I think people are reasonably smart and just changing the name….we saw no evidence that it was misleading people and for most people it’s a pretty good arrangement.”