Abbey National, the mortgage bank, will today launch a push into small business banking services in a bid to loosen the grip on a market controlled by the UK's four biggest banks. The move comes ahead of the forthcoming publication of the Government's response to a Competition Commission investigation into the sector.
Abbey is to pay small businesses interest of 3 per cent to on their credit balances, the same level of its new current account for retail customers.
Businesses will be permitted to draw money against unpaid invoices, and will be offered a flexible mortgage that can be paid off according to the ebb and flow of their cash position. An overdraft charged at 9.4 per cent is also on offer. But significantly, businesses will be unable to pay in coins at bank branches because Abbey, a relative newcomer to the market, does not have the infrastructure to offer such a service.
Customers will be able to pay in only cheques and notes via machines in branches. Their contact with branch staff will be limited to having a "relationship manager".
A spokesman for Abbey claimed that there were a "huge number" of businesses that paid in only notes and cheques. Abbey has just 1 per cent of the market for small business banking services – 53,000 customers – and is aiming for a share of 5 per cent by 2005.
Some 83 per cent of the small business banking market is controlled by the so-called Big Four banks, Lloyds TSB, HSBC, Royal Bank of Scotland and Barclays. They were unfazed by Abbey's move.
A spokesman for Lloyds said: "Interest on credit balances is only part of the product. It's not the biggest thing worrying small businesses."
RBS, which owns NatWest, said: "We have always contended that this is [a] highly competitive marketplace. Business customers value the relationship side of their account handling."
One banking source among the Big Four said: "What's the use of a business account when you can't pay in coins?"
Tim Ingram, managing director of Abbey National's business-to-business division, said the cost of Abbey's initiatives would be negligible because its existing customer base was tiny.
The bank sees revenues coming from the cross-sale of retail financial products to its business customers. "Our research shows that almost half of small businesses would switch to another account if they could get a better deal," he said.
HBOS, owner of Bank of Scotland and Halifax, last month committed to pay base rate minus 2 percentage points on business current accounts.
Abbey has not produced a pricing formula and is making no pricing commitments beyond the end of the year.
HBOS said it welcomed Abbey's move and called for the industry to publicise the ease with which small businesses could change accounts using the automated switching system designed for retail accounts.
The Department of Trade and Industry has yet to respond to the Competition Commission's report on the small business banking market, which followed an 18-month investigation that ended in October. The report is believed to recommend that banks develop a voluntary code of conduct for the marketplace, focusing on measures to make charges more transparent.Reuse content