When banks fail small business
Originally published in the Financial Times on 21 February 2013.
The industry has lost the ability to understand customers’ needs, writes John Fingleton
I have been trying to open a bank account for my new business. I use the word “trying” because it is proving problematic. I do not need lending facilities, an overdraft or anything else fancy. Just the basics.
We hear many banks are casinos; that they are not lending enough to small businesses, suppressing growth. But things are worse than we thought: they may not even know how to run banks. They appear to have replaced the judgment of staff with blunt, centrally imposed controls. Amazingly, after the scandals surrounding payment protection insuranceand interest rate swaps, some of these controls appear designed to push additional products rather than provide what is needed. Perversely, “know your customer” may mean “know what your customer can afford”.
My requirements were simple. I wanted to open my account quickly; I wanted reasonable service; and I wanted online banking without a security token that I can never find. I began my journey by asking which business accounts people rated. The glimmers of begrudging praise went to private banks. I was universally rejected by several, sometimes charmingly, sometimes snootily. With neither a longstanding record nor a personal relationship, they were not interested in my business.
The mainstream banks came next. Their websites eagerly invited me aboard. I tried HSBC as they offered the ability to open my account by phone. It went well until 15 minutes into the call. I was asked for my first year’s expected turnover. Since the figure was above the threshold for a new account, I merited “extra services” and was therefore no longer qualified to apply by phone. I was not permitted to revise down my optimistic estimate, so was referred to someone in the City who returned my call after a few days. He asked me to make an appointment to see him a week later; the account could be opened five to 10 days after that if my business plan was satisfactory. Seriously? I walked to a local branch instead. The one person able to open business accounts works only two days a week. I could have an appointment in about a week.
Barclays allowed online applications: surely this process would be an improvement? They asked for a three-hour window, in which they then called me. All I had to do was pop in with documents to confirm my identity. The earliest local slot – just to show them three documents – was two weeks away. I have since received 18 letters; 12 copies of one, six of another.
Early indications augured well at Santander before I was confronted with demands for documents certified and letters signed by my accountant. The regulations do not go that far, so why would I use a bank that wants me to jump through expensive hoops? Its competitors don’t. It even attempted to sell me insurance for which I have no need.
In the end, I looked at smaller new entrants. Since leaving the Office of Fair Trading, I have examined access to finance for small businesses, so I thought these banks would be well-placed for small-business accounts. In reality, they focus more on lending. Then I found Metro Bank, recently arrived from the US. There is a local branch, no need for appointments and a seven-day opening process. Better still, there is no security token. Then I found Handelsbanken, a subsidiary of the Swedish banking group, which has a novel approach: local managers using their own discretion. Hurrah!
Adam Smith argued in The Wealth of Nations that economic growth comes from division of labour, where workers become expert in individual tasks. I am all for the efficiency that comes with specialisation, in particular if it is supported by new technology – but banks seem to have lost the ability to understand customers’ needs. Their crude systems deny managers local discretion and impose superfluous private sector red tape.
Standardising and centralising decision-making has been counterproductive for banks and the wider economy. If my effort to open a simple business account reflects a collective inability to distinguish high-growth businesses from bad credit risks in their lending decisions, it is hardly surprising UK productivity figures are so dismal. Our banks need a radical transformation if they are to stimulate, rather than depress, economic activity.