So, "over 90% of SMEs get their business loans from the bank where they have their current account". This is a stark illustration of the lack of competition in SME lending in the UK.
If an SME wants to shop around, the first problem they face is discovering and comparing their borrowing options. A provisional report by the UK Competition and Markets Authority, which includes both retail customers and SMEs in its scope, hopes to make this easier by making banks adopt the open APIs proposed earlier this year by the Open Banking Working Group (in which I was involved). This will in turn support a new wave of comparison sites, hopefully for SMEs and not just consumers.
There is a second problem faced by SMEs however in the frustratingly slow and inefficient application processes for many business banking products, with paper forms still prevalent. Applications typically take up to two months and often offer such a poor experience to SMEs that drop-off rates are very high. This not only restricts competition but also reduces overall access to finance.
Smarter banks will now embrace the Open API standards and take the opportunity to feature in the launch of the new comparison sites. They will also build new business banking and loan onboarding processes that improve automation of information collection and the necessary KYC and fraud checks. This will increase their capture rate of SME business, improve the initial experience of these new customers as well as reduce costs and application drop-off rates. Everyone should win - apart from the unresponsive banks.
The UK's Competition and Markets Authority has set out a series of reforms to improve competition in the retail banking and SME market, calling on banks to provide open APIs for customers to share their data and search for the best deal. The watchdog says that at present, it is hard for bank customers to work out if they are getting good value. "Bank charges are complicated and opaque and many customers think it is difficult and risky to change banks," says the CMA in its provisional decision on remedies to improve the market. As a result, nearly 60% of personal customers have stayed with the same bank for over 10 years and over 90% of SMEs get their business loans from the bank where they have their current account.