SMEs swayed by banks’ prices, not service: Report
Thursday, July 21, 2011/
More than 60% of SMEs would consider switching banks if offered the opportunity, particularly if the price is right, a new report reveals.
Financial services firm JP Morgan, in conjunction with Fujitsu Australia, conducted a survey of 25,000 SMEs about their relationships with their banks.
The survey reveals 63% of the SMEs surveyed would consider switching banks if offered the opportunity, up from 57% in 2009.
One reason for the level of dissatisfaction could be the rate at which banks are writing off bad loans to SMEs at above-average levels; a trend expected to escalate.
According to the survey, SME loan write-offs are on the rise, with 2.6% of secured lines of credit, and 2.34% of commercial loans, written off in the past year.
The write-offs have risen each year since 2005 and are up about 0.2% of a percentage point across each category since the previous survey.
The survey identifies price as the most important factor SMEs consider when weighing up borrowing from banks.
Martin North, executive director of Fujitsu Australia, says SMEs are prepared to switch banks if they can find a cheaper deal elsewhere.
“If you go back three or four years, service was very a significant driver. It’s very much about price now,” North says.
“As a result, things like product range, and other bits and pieces, are less relevant than they used to be.”
Some 31% of SMEs list price as their primary cause of discontent, followed by a lack of finance availability (8.2%), and the higher compliance burden (1%), which includes having to provide more information to lenders more often.
North says while price is paramount, there is a clear opportunity for the banks to differentiate themselves from other lenders.
“Lenders have a significant opportunity to increase their differentiation to SMEs by using business intelligence tools to drive segmented offerings…. One size does not fit all,” he says.
North’s views are in line with those held by Dhruba Gupta, managing director of DBM Consultants, who says the major banks need to improve their offerings if they are to compete.
“With mounting evidence that more businesses are returning to the market for credit, the banks are likely to step up the level of competition,” Gupta told StartupSmart.
“Businesses can therefore be reasonably demanding in terms of what they expect from their bank with regard to the bank’s competitive proposals … they should expect that the banks will want to give them the best prices.”