Belfast Briefing: Big variations in bank charges for SME accounts

It will come as no surprise that small businesses in the North say two of their biggest headaches are the related issues of cash-flow and getting paid.

These are, of course, the universal problems for small firms everywhere regardless of whether you are in Ballymena or Ballyshannon.

But according to the Federation of Small Businesses (FSB) in Northern Ireland these everyday challenges are currently compounded in the North by the “unstable political situation” and a lack of support in key areas.

A 2015 study by the FSB and the Ulster Business School shows that small to medium-sized businesses currently account for 75 per cent of turnover and employment in the local private sector. This is significantly higher than for the UK as a whole, where the share of SME turnover in the private sector is less than 50 per cent.

According to Prof Marie McHugh, dean of the Ulster University Business School, Northern Ireland also stands out for the wrong reasons when it comes to business birth and deaths rates. These are roughly equal which, according to experts, is never a good thing.

McHugh highlights that there has been a sharp decline in five-year survival rates for new businesses in the North in general over the last five years, especially in Belfast and Castlereagh where 70 per cent of firms born in 2008 did not survive to 2013.

Problems

But she also says that the latest research shows that the majority of local SMEs plan to grow their businesses over the next two years – if, of course, they can access and secure the right kind of finance and that, in the North, involves dealing with a whole new set of problems.

Britain’s Competition and Markets Authority (CMA) has just published the provisional findings of its indepth investigation into the £16 billion current account and business banking sectors in the UK.

It identified a number of competition problems in both the personal and current accent and business banking sectors.

The authority said in particular there is a major issue in SME banking where many SMEs open their business accounts at the same bank where they have their personal accounts – and then also get their business loans at that bank.

According to its investigation the four largest local banks – Ulster, Danske, Bank of Ireland and AIB – had more than 80 per cent of all active business current accounts in the North last year.

Credit cards

The same four also operated 75 per cent of all business credit cards in Northern Ireland during 2014.

The CMA says business current accounts are an indispensable service for SMEs and are an important source of finance for businesses who want to expand or who may need short-term financial help to manage cash flow.

But it found there were “substantial variations” in the pricing structures applied by banks on business current accounts, and that typically in Northern Ireland monthly prices were higher than those charged by business current account providers in the UK.

However, according to its research SMEs are not that keen to move banks because it is generally difficult for them to compare fees. Also, there are existing barriers to switching accounts such as the account opening process which can take a long time.

The CMA also found that SMEs have a perception that if they are a loyal to a particular bank then it will be beneficial to them especially if they need a loan in the future.

This might help explain why in the North it discovered that 77 per cent of SME firms that had been in business for more than 10 years had also been with their main bank for at least 10 years.

Overall the authority concluded that a number of factors including low customer engagement and barriers to searching and switching business current accounts has resulted in an “adverse” impact on competition.

The CMA has now put forward a number of “remedy” options to help fix this. These include encouraging banks to both publicise the benefits of switching accounts and actively prompt customers to review the services they receive.