Have you looked at an alternative bank account?

The CMA (Competition and Markets Authority) has decided that banks do not have to work hard to compete for customers.

The investigation has identified a number of competition problems in the SME banking market. Low levels of customer switching mean that banks are not put under enough competitive pressure, which is in the interests of the bigger high street names and keeps new customers away from new products and new banks do not attract customers quickly enough.

The thinking here matches the FCA’s stance, aiming to tilt the scales towards smaller companies (and, for that matter, individual consumers).

What happens with many SMEs, especially the ones that are more S than M,  is that they open their business current accounts (BCA) at the same bank where they have their personal current account (PCA). They do this because in the short term this saves them time and effort, and the benefits of investing time into research would only become apparent after that time had already been spent, which is a bit like having a tooth extracted in case you find a cavity in it once it’s out. It’s a similar reason to why we don’t all retrain to become dentists and solicitors – the move might pay off twenty years down the line but at what cost in time and discomfort? Hence the easy option.

If you’re determined to stick with your personal bank for your business loans, you’re not even going to look for bank comparisons. And when you do go to look, they’re not easy to find. The Current Account Switch Service (CASS) exists, but recognition and awareness are reportedly low. Only 3% of customers switched their PCA in 2014 and, more indefinably, just 16% “looked at” alternative accounts. (I have no idea what this really means, but the point is, the figure is a small one, presumably based on honest self-reporting).

Research shows that 57% of consumers have been with their PCA provider for more than 10 years, and 37% for more than 20 years. The investigation also discovered that accounts which are more expensive and below average quality are not losing customers to cheaper and better alternatives at the rate that would be expected in a well-functioning market.

The lack of competitive pressure in SME banking is highlighted by the fact that more than half of start-ups choose an SME account at the bank with which they have a personal current account, more than ninety per cent stay with their BCA when the initial free banking period comes to an end, and around ninety per cent go to their BCA provider when they are looking for business loans.

This is why the CMA feels it has to act. There is a nationwide interest at stake if growth is being stifled by absence of effective competition. Smaller banks find it hard to gain a foothold. That’s not what they will tell you, because they’re looking to send out the positive message that they’re expanding fast – and they are, but the total values involved are still small in comparison with the established banks.

The CMA published an initial list of remedies last November, and since then the NACFB has been involved in consultations. Our message has been an even-handed one, as we work with both high street banks and challenger banks

One possible remedy would be to relaunch Midata, which is an industry online tool allowing consumers to access their banking data from their bank and input it directly into a price comparison website which can then analyse their transactions, and. When revised, this website could have a big impact on consumer choice in retail banking markets by alerting them to available bank accounts which suit their needs better.

The FCA rejected radical solutions such as the break-up of larger banks, saying “the problems in the market are unlikely to be resolved by creating more, smaller banks; it is the underlying issue of lack of switching which has to be addressed.”

Deep down, this is an argument about whether SMEs truly are in charge of their banking. The NACFB’s view is that they are, but that they’re underinformed. A market of clear choices has to be the aim, and evidence suggests we’re not there yet.

The CMA is currently in a process of consulting and holding detailed discussions with all interested parties, including the NACFB. It aims to publish its final report in May 2016. I’ll report back when we know the outcome.