After a two year long investigation, the Competition and Markets Authority (CMA) has released its final report into retail banking.
An important part of this study focused specifically on business current accounts for small to medium sized enterprises (SMEs), given the concerns that have been expressed during the last few years that there were difficulties in the lending process from UK banks to firms.
Banks are an important source of finance to SMEs not only when the business is established, but also when it needs short-term financial assistance to deal with cashflow issues and during periods of growth when it needs funding to expand.
And whilst the CMA does not take the radical step of breaking up the big banks, the report is an important step forward in increasing the efficiency and effectiveness of capital flows from financial institutions into businesses.
Its first significant finding relates to how SMEs choose their banks for funding.
According to research undertaken for the report, there is little evidence that SMEs search for the best deal or, when they do, switch from their existing provider.
When opening a business account, more than half of SMEs merely went to the bank where their owner had a personal account.
In fact, three quarters of young businesses had never compared the costs of their business account with other providers.
Not surprisingly, this means that over 70% of SMEs that had been in business for over a decade had been with their main bank for at least ten years.
Indeed, only 4% of SMEs had switched providers in the last 12 months.
Of course, this could merely mean that banks are doing a good job in looking after their customers.
Indeed, satisfaction with their provider was the main reason given by SMEs for not considering switching bank accounts.
Yet, incredibly, over a third of SMEs dissatisfied with their bank had not considered looking for another provider. So why is that the case?
According to CMA, SMEs perceive that remaining with a bank, even though they are dissatisfied with the service, will be beneficial in terms of future lending decisions.
In addition, many felt that the financial gains from switching banks were not high and all banks were mostly the same. However, this finding was not borne out by the CMA report that showed that many SMEs could save money by switching banks.
Other challenges in moving accounts included a lengthy and onerous account opening process and lack of awareness of the current account switching service that has been set up to make this process easier.
There were also fears from SMEs that if they switched, they were less likely to get the same access to funding from new lenders.
Perhaps the biggest difficulty for many SMEs is to compare the different charges across banks.
Given this, it is not surprising that the main conclusion of the CMA report relates to improving the information available to SMEs about loan and overdraft charges and eligibility.
This would make it easier to compare the products of different banks and to open a new business account of they wish to.
The CMA has therefore instructed banks to publish their existing rates online for greater transparency.
However, the main recommendation from the CMA is the same one made two years ago during my access to finance review for the Welsh Government, namely the creation of an effective price comparison tool available for business loans.
This could provide a ‘one-stop-shop’ for SMEs that would enable them to quickly and reliably compare banks on price, service quality and lending criteria across the whole range of providers.
More importantly for the growth of our financial services industry, this could present a real opportunity for firms in Wales, such as GoCompare, MoneySupermarket and Confused, which are already leading the field in terms of price comparison websites for consumer financial services.
To support this development, the CMA will also require lenders to publish standard rates for unsecured loans and overdrafts of up to £25,000 in value and for large banks to offer a tool on their website to enable business customers to determine eligibility for a loan or overdraft.
Another key recommendation - which was also made during the access to finance review - is for greater links between SMEs and professional advisers in securing the right type of funding for the business, especially as accountants and lawyers can play an important role in supporting SMEs business decisions going forward.
In fact, professional associations such as the ICAEW and the ACCA could and should play a greater role in supporting their members in the provision of information to businesses on options for finance.
Whilst many SMEs will be satisfied with their current banking arrangements, there are others that would wish to make an informed decision, as they would with any other supplier, about the best source of funding for their business.
Therefore, the recommendations of this CMA report are not only good for SMEs as a whole but will hopefully also encourage the better banks to improve their services to support the sector more effectively in the future.