Small Talk: Forget the regulator, it’s down to the customers to force better competition in business banking

 

Small businesses pleased that the Competition and Markets Authority’ has decided to refer the banking sector for a full competition inquiry should not get too excited. The truth is that if small and medium-sized enterprises (SMEs), which the CMA agrees suffer at the hands of a lack of competition in the banking sector, really do want a better deal, they are going to have to fight for it.

In many ways, the most shocking parts of the CMA’s report into SME banking are not those that focus on the lack of competition – we knew all about that from the three almost identical reports published by similar authorities over the past 12 years – but the findings concerning the apathy of SMEs themselves.

To put it bluntly, one of the reasons new entrants offering better products and services struggle to make an impact in SME banking is that SMEs can’t be bothered to switch to them. Although large numbers of small businesses routinely complain about their dissatisfaction with their existing banks, only a handful ever do anything about it.

So, for example, SMEs collectively hold 3.5 million business current accounts, the vast majority of which are covered by the new seven-day current account switching regime that came into effect last year. Yet over the six months to the end of March, just 7,330 SMEs took advantage of the service.

Similarly, while the past five years has been dominated by accusations that the banks won’t lend to smaller businesses, the CMA’s data reveals that seven in 10 SMEs approach only one provider when looking for a loan, while 90 per cent take out the loan from their current account provider.

Why are smaller businesses so reluctant to shop around or switch bank? Well, one explanation, the CMA concludes, is the prevalence of the attitude that “all banks are the same”, which feels like a lazy, ill-informed reason for sitting on your hands. Another problem, the CMA suspects, is that SMEs tend to prioritise good service over competitive pricing in their banking relationships – this is a difficult issue for customers to research in the market.

Whatever the explanation, there is simply no point in encouraging new banks to enter the SME marketplace, or even embracing more radical solutions such as breaking up existing players into smaller entities, unless smaller businesses are prepared to take advantage.

Healthy competition doesn’t occur simply because there are lots of competitors in a particular market – it also requires each of those competitors to feel the pressure of knowing that their customers could take their business elsewhere at any given moment. That competitive tension does not currently exist in the SME banking sector – even switching rates in the notoriously uncompetitive energy industry are higher.

There is a chicken-and-egg element to this problem. Small businesses don’t shop around because they think they won’t be better off by changing banks. In turn, banks don’t bother to compete for customers because they don’t expect them to come. However, there are ways to break this logjam. We do now have new entrants to SME banking – the likes of Metro Bank, Aldermore, Shawbrook and others – that should be less affected by the ‘all-banks-are-the-same” mentality. Equally, new players from outside the banking industry are also potentially disruptive – the crowdfunding platforms, for example. These innovators have even less reason to be tarred with the same brush as traditional banks.

The bottom line, however, is that small businesses unhappy with their current provision must seek out these new entrants – both to take advantage of what they are offering and to put greater pressure on the established banks.

The CMA talks a good game and the banks will no doubt be irritated by yet another inquiry into the sector. In the end, however, only customers can be the driving force behind better competition in SME banking, not a regulator. And with the experience of so many previous investigations to draw on, both the CMA and the banking sector know that very well.

China’s booming outdoor market aids Fraspens

China’s outdoor clothing and accessories market grew by 28 per cent last year according to research consultant Euromonitor, and is now large enough to support international retailers such as North Face and Jack Wolfskin, as well as a number of local operators. The third largest company in the latter category, Fraspens Outdoor Group, will today announce its intention to float on the Alternative Investment Market later this month in an IPO that will raise £4m and value the business at around £40m.

Fraspens sells its products to 16 independent regional distributors across China at two sales fairs in spring and autumn. Products are then made to order and sold by the distributors in several hundred Fraspens-branded retail outlets across China. The advantages of operating in this way include better visibility over orders and less anxiety about unsold stock.

In a fast-growing market, Fraspens is perfoming well. Sales last year came in at around £39m, generating profits after tax of £6.6m. Managed out of China, the company’s non-executive directors include Nigel Payne, who UK investors may recall as the former chief executive of Sportingbet.

GTS Chemicals set for £35m listing

GTS Chemicals, China’s largest manufacturer of ammonium sulphite, is to list on the Alternative Investment Market, the company will say today. GTS has a fundraising target of £3m and is expected to be valued at a little over £35m.

The company may be unknown in the UK but has a reputation as an environmental champion in China, where its ammonium sulphite is used to manufacture straw-based paper out of waste materials. China wants to manage the environmental impact of the disposal of 700 million tons of straw annually.

The business has strong relationships with paper manufacturers, but has also expanded into new markets in recent years, capitalising on China’s growing determination to recycle. GTS has been growing sales at a rate of 66 per cent a year since 2011, with pre-tax profits last year coming in at around £10m on sales of roughly £45m.

Small business person of the week: Richard Fraser, Chief Executive, Frenkel Topping

“We’re a financial adviser, but a different type of firm to most other financial advisers – we specialise in helping people manage settlements they receive from claims such as clinical negligence and personal injury. It is crucial work – people in this situation are often incredibly vulnerable and need expert help to make the best of their finances, with the settlement they receive often required to last for the rest of their lives.

“Part of the reason I joined the business was personal – my brother fell from a window at 18 and suffered a spinal injury that left him in a wheelchair. Historically, victims who received a settlement didn’t get any real financial advice – they were just left to get on with it.

“The business in its current form really got going in the mid-80s, when the idea of structured settlements came to the UK from the US, particularly in connection with the thalidomide cases. Rather than getting one upfront lump sum, people receive a smaller sum at first and then regular payments for as long as they need them – our job is to help ensure these settlements are set up and managed in the best way.

“Often we acquire new clients through referrals from solicitors and barristers and end up managing all their assets on an ongoing basis. They’re typically in need of low-risk returns to maintain their standard of living by staying ahead of inflation.

“We’re now listed on the Alternative Investment Market and last year our revenues were up by almost 15 per cent to £5.5m.”

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
i100
News
people
ebooks
ebooksA special investigation by Andy McSmith
Sport
Chelsea manager Jose Mourinho
footballThe more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
News
i100
News
business
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee