Challenger banks were dealt a major blow when the CMA found ‘no strong evidence’ to suggest that the government’s new corporation tax would impact on smaller lenders.
One of the options the CMA is thinking about adopting is a website enabling SMEs to make price comparisons between business current accounts and between lending products.
However, Rishi Khosla, CEO and Co-Founder of OakNorth Bank, said one of the problems with a price comparison website was that it was trying to resolve adverse pricing in a market where the main problem was a lack of supply.
“If you push down prices in a supply-constrained market, you will have even less supply, therefore worsening the situation,” said Rishi.
“A simple price comparison website would not work as lending needs to be tailored very closely to the characteristics of the business at hand.
“Price comparison websites tend to ‘commoditise’ the products they compare and encourage market participants to compete on price, ultimately leading to a computer-says-no approach.”
SME alternative lending platform Growth Street has criticised the CMA’s decision to set a new deadline for its retail banking market investigation.
The CMA has delayed its final report until the middle of summer 2016.
James Sherwin-Smith, CEO of Growth Street, said: “We are disappointed that the CMA has decided to push its final report back.
“The CMA said itself, when it published its provisional findings in October 2015, that it had found a number of competition problems in the SME banking market, so this delay will only intensify the problems that small businesses face when seeking finance.”
However, James welcomed the publication of a new working paper which set out the CMA’s thinking on plans to introduce a price comparison website for SMEs.
“This remedy will only work properly if SMEs are provided with all the relevant information needed to compare products effectively across different providers,” said James.
“We have been campaigning to ensure that all SME financial products carry APR (annual percentage rate) information, thereby injecting a greater level of cost transparency into the market. Without this important measure, SME finance products remain opaque, confusing and often costly.”
The CMA is also looking at is building on the Nesta challenge prize.
Nesta, an independent charity that works to increase innovation, is considering a challenge prize to identify a solution to the lack of access to information on banking products faced by SMEs.
Rishi believed this was the best option, saying Nesta would deliver a way to address poor competition in banking for SMEs to overcome the inertia which exists amongst them.
“To raise awareness of good and bad service at specific banks and encourage businesses to shop around when seeking a loan, customers should be prompted to do this at the point when a loan application is made, not just when a decision is made about their application,” said Rishi.
“The 10 largest banks are required to refer loan applicants they reject to alternative finance providers, but another bank may be more suitable for the customer.
“These rules should be changed so referrals are also made to other banks.”
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