Banks have a reputation for being greedy and faceless – they even charge you to put money into your own account.
Sentiment against them and their practices has been running high in recent years and not merely because of old-fashioned tight-fistedness. Bank charges, access to the manager and onerous terms and conditions are the mainstay of complaints.
Now the Big Four banks – NatWest, HSBC, Barclays and Lloyds TSB – want to be seen to be cleaning up their act, making charges more transparent and the process of moving accounts much easier.
It has been a long time coming, according to business customers. Many owner-managers are among the 50,000 people who lose their homes to the bank every year and anecdotal evidence suggests small businesses are lucky if they pay less than £1,500 a year for banking, excluding interest.
Little wonder that about one-quarter of all SMEs do not have a business account and manage their money through personal accounts and loans.
In 1998 more than one-third of small businesses had complained to their bank during the preceding 12 months, frequently about unsatisfactory service.
Survey findings
A major survey by the Federation of Small Businesses (FSB), Barriers to survival and growth, found that finance and banking was one of the three most important external influences on the health of an SME, along with business advice and legislation.
The response to the FSB survey found a great deal of dissatisfaction. It was also apparent that small businesses were at odds with the policies of bank head offices rather than their regular dealings with local bank staff.
Less than half said they were satisfied with bank support for their firm and 52% said they were dissatisfied with the cost of overdraft finance. An overwhelming 73% said they were dissatisfied with bank charges.
Answering criticisms
The banking industry is currently before the Competition Commission to answer a swathe of accusations that customers are not getting a fair deal. This follows the independent Cruickshank Report into banking published last March in which it was estimated that banks were overcharging by between £3-5bn a year.
One company that specialises in scrutinising company bank records says in 75% of cases it finds overcharging of at least £7,500.
Anglia Business Associates (ABA) checks statements and correspondence – sometimes as far back as the 1970s. In one case it discovered £10,000 in excess charges and was only halfway through the audit.
The cost of the service is about £600 up front, plus about 35% of any savings identified. ABA says it almost always pays for itself as banks normally admit their errors and refund customers swiftly.
ABA managing director Ian Foyster says business customers should use banks like any other supplier, comparing two or three before deciding which to use and check bank statements as you would look at an invoice. He said: ‘Most of our customers say all the banks are just as bad as each other.’
Criticisms like these and increasingly hostile reports into banks’ activities have been followed by harsher regulatory decisions, such as the block on the £19bn bid by Lloyds TSB to take over Abbey National. They fear greater regulation – even windfall taxes – and have started to act.
There are deals, such as those illustrated in lavish television advertisements for NatWest this summer, but you have to be patient enough to look for them and banks can still be less than transparent about charges once any special offer period is over.
Joint venture
The British Bankers Association (BBA), in a joint venture with the Moneyfacts Group, a commercial depository of comparable financial information, has launched a Business Account Finder.
Through the BBA website a business can compare 44 accounts offered by 29 banks. Businesses can view account comparison tables and a full breakdown of the features of any account listed, including the latest details of charges and interest. There is also a breakdown of all business accounts that provide introductory offers.
Donald Martin, FSB policy chairman, said: ‘The FSB has been lobbying for some time to have a simple comparison approach to all bank charges, which would be user friendly for the small business.
‘We are delighted with this initiative. It is of course, still open to the business owner to enter negotiations for further favourable terms beyond those in the comparison tables.’
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“The FSB has been lobbying for some time to have a simple comparison approach to all bank charges, which would be user friendly for the small business. It is, of course, still open to the business owner to enter negotiations for further favourable terms” |
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Donald Martin, FSB policy chairman |
Horror stories
Banks are also making it easier to move accounts. Horror stories about lost interest, double payments and charges – and 12 weeks’ waiting – deter many businesses from considering a change. Businesses tend to stay put, sometimes for decades.
A recent report sponsored by the Treasury found reluctance among the Big Four to exchange details. It recommended that banks should deal with initial requests within five working days and complete the transfer within five to ten weeks.
The banks have said they are eager to co-operate and have agreed to join an industry development beginning in November that will automate account transfers.
Although the Big Four have a stranglehold on banking – they have seven out of ten accounts – there are alternatives. Some banks are trying to blur the distinction between personal and business banking.
Standard Life telephone bank allows businesses to set up as many personal-style savings accounts as they wish, each one to bankroll some aspect of their business, such as payroll, PAYE and NIC, VAT, even staff bonuses.
They can then set up automatic transfers to and from those accounts, while all are pooled to get the best rate of interest in a tiered system. This gives them money market management that large businesses take for granted.
Many SMEs want a banking relationship, which the Big Four provide, and this is much of the cost of small business banking. Because most SMEs in manufacturing need to run an overdraft, they feel vulnerable to unexpected demands for urgent repayment and want to have personal contact. But the person who decides life or death for a business is now more likely to be in a call centre on the Internet.
Handing over control
Many of those people give their house as security against an overdraft and, according to Eddie Weatherall, chief executive of the Independent Banking Advisory Service, effectively hand over full control of their business.
He said: ‘Banks are not caring organisations. When placed in a position of seeing an asset that they can get hold of and a debt they can clear, they will try their hardest to get an asset.’
Choosing a bank is a minefield of deals, discounts and apple-and-pear comparisons about arrangement fees, charges and rates.
The basics of business accounts are:
Charges apply if less than £1m goes out of your account during that time. Switchers are also offered a refund of twice their charges in the first six months if they are dissatisfied.
Free banking means banking free of the account charges for paying amounts into and out of your account; and running your account. Interest and fees apply if you go overdrawn.
After the honeymoon, charges are 67p per cheque and 40p per standing order or direct debit. For payments into an account, each cash deposit costs 67p, plus a further 49p per £100, a cheque 28p and an automated payment 22p. Withdrawing cash costs 57p per £100.
Saving money
There are ways to save money. NatWest Direct Business Banking does not charge the bank’s standard Account Maintenance Charge, which could save up to £69 a year, and there is a 20% discount off its standard business lending arrangement fees.
After the honeymoon, there are quarterly fees of £7.50 a month, 64p for cash and cheque deposits and 45p for electronic deposits.
