UK.gov’s continuing investigation of banking services for consumers and SMEs started back in 2013. It focuses on transparency of bank charges and service quality, or in layman’s terms, how much people pay and what they get for their money. And we can’t help wondering why something similar isn’t underway for corporate banking customers.
The accompanying press release from three years ago didn’t pull any punches. “Essential parts of the UK retail banking sector lack effective competition and do not meet the needs of personal consumers,” it stated.
An initial report released at the time, suggested such “competition concerns” were driven by “difficulties in comparability of price, terms and service”, and were leading to perceived barriers to switching for consumers. Recent updates to this initiative include its provisional findings at the end of last year (which mention “information asymmetries and incumbency advantages”) and potential remedies in March.
But what of business banking customers? This area suffers from many of the same issues, across all account types and many other financial services, and is resulting in UK businesses paying far more than they need to conduct their financial affairs. Just because these are large entity organisations, as opposed to individual consumers, doesn’t make the challenges any easier — or less costly.
This isn’t just about currency exchange — where even ’no fee’ arrangements conceal fees within the spread. Current accounts, international money transfers, credit and payment cards and the all-important unauthorised overdraft attract a bamboozling array of costs.
Meanwhile, frequent changes to terms and conditions – however well written in ‘plain English’ – can mean what was once a cost-effective mechanism (for example, due to higher interest on the account) is no longer anything of the sort.
It’s not as if businesses have the luxury of deciding to modify their financial processes on a whim, and even if it were straightforward to switch, it is very difficult to compare like for like. Decision makers are left scratching their heads about what represents value for money, with the inevitable (and potentially costly) consequence of sticking with the status quo.
The lack of transparency on charges can even make it hard for banking customers to recognise the existence of a problem to be solved, or indeed, to allocate resources to investigate further. And as transparency clearly isn’t in a bank’s economic interests, it makes sense that they will not rush to make things any different.
“Transparency is unprofitable, because as soon as people know the charges they see how to avoid them,” says Mark Mullen, former chief executive of First Direct. If anyone should know, it should be him. It may not be seasonal to say so, but the notion of turkeys voting for Christmas springs to mind.
We believe it would be a good thing to instigate another investigation, this time into corporate banking — but time is not on anyone’s side but the banks. Even when the consumer review reaches its conclusion in August, it will likely be years before any remedies are enacted.
Business banking customers simply cannot afford to wait, nor do they have the time or resources to conduct their own investigations and draw their own conclusions.
As we have seen with emerging P2P models, alternative approaches do exist however. These technology-enabled countermeasures to financial industry inertia offer greater transparency and flexibility to the businesses that adopt them.