Examination of Witnesses (Questions 60
WEDNESDAY 1 MAY 2002
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 onin fact, they have
these very large branch networks, which is what you want them
(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.
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
(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.
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.
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
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
(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 daysso 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
76. So you are sounding as though you are quite
satisfied with the Banking Code as it stands, by what you have
(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
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