Complicated tariffs and fees deter businesses from switching banks

A damning new report commissioned by Alliance & Leicester Commercial Bank into the UK business banking market has found that businesses are being put off switching banks because it takes three days’ work to wade through the complicated myriad of fees and tariff structures.

Research found that even though the time consuming task of comparing all the business banking offers on the market would cost businesses the equivalent of £1,000, the potential savings are well worth the effort.

The report, How Transparent is the UK Business Banking Market?, compiled by Francis Chittenden, Professor of Small Business Finance at Manchester Business School, found that small and medium sized businesses could save between £3,500 and £41,000 a year each by switching to the right bank*.

It also found that the transparency of the UK business banking market has deteriorated dramatically over the last two years.

Professor Chittenden comments: “Checking the terms of banking arrangements is an impossible exercise unless business owners are prepared to take advice from experts, such as accountants, or to meet with a range of banks to collect information.

"It is also apparent that many bank call centre staff also find the complexity difficult to cope with. It appears that in many cases bank charging structures are too complex even for their own staff.”

“A major stumbling block that will deter businesses from switching accounts is the difficulty that we experienced in collecting accurate data on interest and charges. Few business owners would have the time to commit to this exercise unless they were assured of a positive outcome.”

Professor Chittenden concludes that Donald Cruickshank’s report in March 2000 and the Competition Commission report in March 2003 are “yet to deliver the benefits intended”.

Alliance & Leicester Commercial Bank commissioned the report to find out how much information is readily available to UK business owners who want to switch banks.

Steve Jennings, Director of Business Banking at Alliance & Leicester Commercial Bank, said: “It is clear that many banks are making it far from easy for businesses to get hold of the information they need to make an informed decision about whether to switch banks. The report reveals that while shopping around for a new bank account can be time consuming, the benefits of switching can make a real difference to the bottom line.

Alliance & Leicester Commercial Bank has developed a business banking fee calculator to help businesses overcome the difficulties of calculating how much they could save by switching banks.

* Professor Chittenden used three case studies as the basis for his analysis:

• An established retailer of home furnishing products that also provides an interior design service with an annual turnover of approximately £600,000;
• An engineering consultancy with gross fees of around £5 million a year and some substantial overseas contracts;
• A manufacturer and installer of double glazing units with total sales of £10 million a year.