It’s not just at the Rio Olympics that Great Britain is leading Australia
Wednesday, August 17, 2016/
Australians love sporting analogies and here’s another one to consider. Great Britain is not only blowing Australia away in the medal tally at the Rio Olympics, they are also streets ahead of us when it comes to regulating for increased competition in the SME banking sector.
Earlier this month the UK’s Competitions and Markets Authority (CMA) published a report “Making banks work harder for you“. The 766 page report which has been two-years in the making concludes that older and larger banks do not have to compete hard enough for customers’ business and smaller and newer banks find it difficult to grow. This means that many people are paying more than they should and are not benefiting from new services.
To tackle these problems, the CMA is implementing a number of measures to ensure that customers benefit from technological advances and that new entrants and smaller providers are able to compete more fairly. The key measures include:
- Requiring banks to implement Open Banking by early 2018. Open Banking will enable small businesses customers to share their data securely with other banks and with third parties, allowing them to manage their accounts with multiple providers through a single digital ‘app’ to take more control of their funds and to compare products on the basis of their own requirements.
- Requiring banks to publish trustworthy and objective information on quality of service on their websites so that customers can see how their own bank shapes up.
- Requiring banks to offer a tool on their websites to enable SMEs to obtain an indicative price quote and indication of their eligibility.
- Requiring banks to send out suitable periodic and event-based ‘prompts’ such as an increase in charges to remind customers to review whether they are getting the best value and switch banks if not.
- Making it easier for customers to switch banks.
- Introducing specific measures to benefit un-arranged overdraft users who make up around 25% small business customers.
- Launching a ‘challenge prize’ to be funded by the banks to enable the development and delivery of an independent bank comparison site.
A movement called #APR4SMEs has been lobbying for mandatory disclosure of Annualised Percentage Rates that would help SMEs make comparisons on the total cost of credit. One of the major players behind this campaign is James Sherwin-Smith, who is the chief executive of Growth Street, a London based fintech lender. He applauded the CMA’s decision to require banks that offer SMEs unsecured loans of up to £25,000 ($42,000) to display an APR and an Effective Annual Rate (EAR) for overdrafts up to the same value. He said this “brings much needed transparency to the commercial finance market where fees are opaque and tariffs are complex”.
In it for the long haul
Like Australians, the Brits are a competitive lot who love their sport. A decade or so ago they realised that winning gold medals doesn’t happen overnight and so developed and implemented a long term plan to ensure sustained success of their athletes across many sports. Administrators, coaches and athletes have worked collaboratively over a lengthy period to achieve sporting success at the Olympics in London in 2012 and this has been sustained at Rio.
A similar approach appears to be in place to ensure the UK’s SME sector also performs to its very best over the journey. The CMA report will build on the success achieved to date by the British Business Bank (BBB), a state-owned economic development bank established in 2013. Its aim is to increase the supply of credit to SMEs as well as providing business advice services. The BBB does not lend or invest directly, instead it works with over 80 partners such as banks, leasing companies, venture capital funds and web-based platforms.
The US, which always performs well at the Olympics, has a similar government-owned vehicle that helps establish and grow small businesses, called the Small Business Administration (SBA), which is part of the fabric of American society. It has been around since 1953 and like the British Business Bank it provides tangible support to enable lenders to finance US small businesses. The SBA serves as the voice of small business in America and it also makes a profit for the taxpayers.
Meanwhile Australian SMEs are not receiving the support and attention afforded to their UK and US counterparts. One explanation for this is the lack of consistent and strong leadership from the top. Despite the talk from politicians of both persuasions, Australia’s 2 million small businesses that employ 4.7 million people still get the rough end of the pineapple. Of the nine small business ministers we have had since 2010 only one has been regarded as a “champion” for small business.
Contrast this to the US where the SBA enjoys support from both major political parties. The US President appoints the administrator of the SBA and the Senate confirms each appointment to ensure bipartisanship. The SBA has had 24 Administrators under 11 presidencies in its 63-year history.
The US and Great Britain are currently the top two nations on the Rio Olympics medal tally. They also lead the world in championing the rights of SMEs. Perhaps there is a correlation between the two.
Neil Slonim is the founder of theBankDoctor.org, a not-for-profit online source of free, independent banking advice for SMEs.