Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. It strikes me that you are asking for two things that are almost contradictory. On the one hand you are saying that the small business wants to have a long term relationship with the local branch manager in the high street of his town; on the other hand, you want him to be able to switch that at the drop of a hat?
  (Mr Walker) The switching could be between banks who are in the same town so the locale remains the same.
  (Mr Alambritis) If you look at most high streets, they would have a compliment of two or three of the major high street clearers and therefore they could quite easily move from one to another within the same high street. What we want small businesses to do and what they have asked us to do is to allow them to shop around for banking facilities, and it is not just for a bank, it could be for an account. Just as today, parents look at departments within universities as to which are the best for their children, not necessarily the university as a whole, so small businesses are now being very choosy about a particular bank which has a particular account which would be useful to them, so allowing them to switch and to move around is very important.

  61. But then, in effect, if you are saying you want them to allow them to choose between the high street banks, you are reinforcing the dominance of the big four in small business lending, are you not?
  (Mr Alambritis) We would welcome encouraging the foreign banks into small business banking, and that is a whole new area, but also we are certainly working with the third and fourth division banks like the Abbey National, HBOS so that we work with them quite imaginatively. In the hiatus between the Competition Commission Report being on the DTI Secretary of State's desk, and it being published, there was lot of debate and a lot of movement by Abbey National and HBOS to come up with innovative proposals, so we certainly want all banks and all small businesses to be talking to each other and the switchability element is very important.

  62. But the dominance of the big four in SME lending must, to some extent, depend on—in fact, they have these very large branch networks, which is what you want them to have?
  (Mr Alambritis) Yes, that is the case. They do have this dominance in the high street, but increasingly, the second and third division banks are moving in and that is very important.

Mr Plaskitt

  63. Just to follow up a question on the same issue: you said in your submission to us that there is this stigma attached to small businesses who swap their bank accounts on a regular basis. I was puzzled; why should small businesses want to swap them on a regular basis?
  (Mr Walker) Some banks give incentives for people to move around. There might be some particular offer or something, but that would have a time expiry date, and then after that it is back to the standard terms, so you may find that some businesses move around for those reasons, others move around because they are unhappy with the service they have been having, or lending decisions, a whole variety of reasons why people change their banks with regularity.

  64. I can understand why there might be an occasional change, I understand that entirely, but I was puzzled by your use of the word "regular" because there is work involved, there is administration involved for the small business. We keep hearing from your organisation complaints about how much paperwork there is, but to go out there and keep changing the bank account is bringing a lot of paperwork on yourself. Are you telling us that there are many small businesses who are regularly moving their accounts around?
  (Mr Alambritis) Not many, not the majority, certainly. What there is within the banking fraternity is discounts for selected customers only, so that could be new businesses, it could be businesses gaining a certain threshold, it could be businesses moving into the VAT threshold, so there is an enticement for them to move regularly and to look out. What we are saying is that we need to encourage this, but we also need to make sure there is no stigma attached to moving regularly to get the best possible deal.

  65. What form is that stigma taking at the moment?
  (Mr Alambritis) Generally, you would normally be rewarded if you were loyal to a building society or to a bank, or to a certain institution: longevity gives loyalty. Therefore, if you do move fairly frequently, sometimes there is this stigma attached.

  66. I still do not understand what the stigma is. You may get a loyalty bonus if you stay with someone; if you do not stay, you have not got the loyalty bonus, but I do not see the absence of a loyalty bonus as the equivalent of a stigma?
  (Mr Alambritis) That is what our members have been saying, that they feel uncomfortable about changing banks. We can certainly look into it in greater detail, but that is the discomfort, including the problems with moving.

  67. Stigma suggests to me a black mark: "We are not going to have you because you keep changing bank". Is that happening?
  (Mr Alambritis) We can certainly look at our files and our case studies and come back to the Committee, but certainly that is what our members have been saying.

  68. You are using a pretty strong word—
  (Mr Alambritis) Yes.

  Mr Plaskitt:—and I am not entirely sure whether it is justified.


  69. Is it not the relationship? Is it the fact that if they move, they do not have the same warmth and relationship with the new bank; is that not what you are getting at, rather than stigma?
  (Mr Alambritis) There is that as well, as well as the fact that the banks will talk to each other very regularly about certain customers and perhaps a customer that moves regularly may not get the full backing when the bank managers are talking to each other about a move.

Mr Beard

  70. Is it not also that people may be moving on occasion because they are a bad risk and the bank wants to get rid of them because they are a bad customer and they get that stigma, is that it?
  (Mr Alambritis) There are all sorts of reasons for moving: dissatisfaction with the existing bank; dissatisfaction with the relationship with a new branch manager, for example, that he is not as helpful as the previous manager , so there is all sorts of reasons—

  71. Or because you have not got a good credit record, and therefore you are not able to borrow?
  (Mr Alambritis) Or a good credit record with that bank, and there may be another player that would more likely look at you because they specialise in that particular sector in which you trade. There are banks known for favouring certain sectors.

Mr Plaskitt

  72. You are looking for portable credit histories as part of the answer here. How confident are you that there will be a standardised view of what a credit history amounts to that will be accepted by all the players in small business sector banking out there; is that achievable?
  (Mr Alambritis) I think that should be achievable. We have had discussions with the Bank of England on this particular issue as well, and we are very confident that it is something that is being pushed by other institutions as well, the portable credit reference, a consistent template that is recognised by all banks so that banks can speed through moves from one bank to another.

Mr Beard

  73. The Banking Code has been brought in and it is in operation now. To what extent does the Banking Code reflect the concerns that were expressed by the Competition Commission Report?
  (Mr Alambritis) The business Banking Code by the British Banks Association was published in March 2002 and we worked closely with the BBA in the composition of the Banking Code. One of the areas it touched on was switchability, was speeding the movement of businesses from one bank to the other and whilst we were working with it, nevertheless, the note in that was that the bank's aim to switch a business from one branch to a different bank within five weeks, obviously the Competition Commission which we welcomed stated that that should be speedier and that should speed up switching within five working days where there are no complex borrowing arrangements and within ten working days—so the Competition Commission has gone further. Nevertheless the Business Banking Code is very important in terms of the relationship, looking at complaints, how they are dealt with, to ensure that the relationship is on a good footing between small businesses and their bank.

  74. Are you saying that it does cover all the points that were raised by the Competition Commission?
  (Mr Alambritis) It covers most of them, but the Competition Commission has gone further in terms of interest on current accounts, in terms of speedier switching, and in terms of free banking.

  75. And what about in terms of the portable credit record that we were just talking about?
  (Mr Alambritis) The Business Banking Code hinted at credit references that were recognisable or that the banks shared, but not as far as what we would want. We want a modern template portable credit reference recognised by all the players to allow businesses to move from one to another. The other important thing is that it would be a live document that the entrepreneur would have with them and could check up on nearly every day or every evening.

  76. So you are sounding as though you are quite satisfied with the Banking Code as it stands, by what you have just said?
  (Mr Alambritis) We are satisfied with the way in which the BBA have operated with the FSB and other business organisations to make sure that the relationship between banks and small businesses is at its highest level. We are also happy with the Competition Commission Report's recommendations, and with the way in which the Chancellor of the Exchequer has accepted all the recommendations lock, stock and barrel. We are pleased with that, and now is the time to be talking to the banks and small businesses to move forward so that there are no accusations of rip offs or overcharging.

  77. Move forward in what respect?
  (Mr Alambritis) The undertakings now have to be given by the banks, the four major clearers in particular, within the next three months about interest on current and/or free banking and obviously the switching as well.

  78. The Code does not touch these points.
  (Mr Alambritis) No, the Code does not touch these points.

  79. So presumably in those respects you would like the Code to improve. Are there any other ways in which you would like the Code to improve.
  (Mr Alambritis) There is a review of the Code. We are talking to the Standards Board on the Code and again, it will be looked at regularly. We also worked with the BBA on the statement of principles about banks and businesses working together, that is this document. That is the Business Banking Code. The two together hopefully will ensure that there is not a souring of relations between banks and small businesses should there a be a dip in the economy. What we do not want if there is a dip in the economy is a knee jerk reaction from the banks to pull back from small businesses and for small businesses to be left high and dry, which is exactly what happened in the early 1990s during the severe recession.

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