CMA report demands banking reform for small businesses, but is it enough?

The Competition and Markets Authority (CMA) has released its long-awaited report addressing how the UK’s banks can better serve SMEs, recommending a set of reforms that they want put in place by 2018.

Alasdair Smith, chair of the investigation, says these reforms would “ensure that both personal customers and small businesses get a better deal from their banks.”

Business as usual for the banking sector

The report finds that the big, long-established banks do not have to work hard enough to win and retain customers, while new, smaller providers struggle to enter the market.

According to the CMA, this means that the sector just isn’t as innovative or competitive as it should be, and this is having a negative impact on customers, with small businesses amongst those hardest hit.

The report goes on to make a number of suggestions for improvement. These are the ones that will most affect SMEs:

1. Technology is the key to banking innovation

The report recommends the use of open Application Programming Interfaces (APIs), which they call “the hidden technological drivers behind digital applications such as Facebook, Google Maps and Uber”. The report writers believe an innovative approach to product development - already being used by financial technology (‘fintech’) companies - can “transform the financial services sector”.

2. More information that’s easier to access will help small businesses

The report urges banks to be clearer and more open about the quality of services that they offer, suggesting that there should be far more information out there for SMEs:

“We think that small businesses would be best served by the development of ‘one-stop-shops’ that would enable them quickly and reliably to compare the price, quality of service and lending criteria offered by a wide range of providers.”

3. SMEs have a part to play

But the report also says that it’s up to small business owners to actually take the information on board and make sure they shop around for the right deal, using the Current Account Switch Service (CASS) if they choose to move banks.

Reactions from small business leaders

The reaction from leaders in the field of small business has been mixed, but some think that more could be done on top of the CMA’s recommendations.

Mike Cherry, chairman of the Federation of Small Businesses (FSB) says that “The CMA’s recommendations will help to create a more customer focused retail banking market by tackling some of the challenges small firms face.”

However, he also highlights the FSB’s concerns about the impact of bank branch closures on small businesses and stresses they are keen for ministers to look at ways of protecting businesses’ access to banks.

Suren Thiru, the Head of Economics and Business Finance at the British Chambers of Commerce, argues that “The report fails to address the structural problems in the provision of business finance, which are holding back some of our most dynamic young firms.”

He says that awareness of alternative funding options is low amongst businesses, and says that the government needs to address some of the deep-rooted problems in finance provision.

You can read the full report on the CMA’s website.

What do you think about the recommended reforms? Will they make your business life easier, or is it all too little too late? Let us know in the comments.

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