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Business bank charges 1993-2008
April 2008

Business bank charges have long been a source of contention, though often more so with people who have nothing to do with business. The Cruickshank report was a classic example of how governments tilt at windmills in this regard. Not only was the exercise a complete waste of time in that it revealed little, it also gave us a chilling foretaste as to the commercial ineptitude of Gordon Brown.

Having expressed a wish to see two new entrants, Abbey and Bank of Scotland make a dent in the market share enjoyed by the big four banks, he considered the Competition Commission report that followed the Cruickshank investigation and came to the most incomprehensible decision possible. He decreed that all of the banks offer credit interest on business current accounts, eliminating at a stroke the marketing advantage of the two very banks he wished to encourage to build a business customer base.

The dust has settled from that particular government intrusion on a free market though it is true that business banking forms a substantial proportion of a big bank’s retail profits: but why not? It costs a lot of money to put branches on the high street, to build and maintain money transmission infra-structures.

Those very infrastructures have constantly adopted modern technologies to facilitate better services to customers and many of the cost savings have been passed on. The reality is that business bank charges have become progressively cheaper over the last 15 years. Of how many business overheads can that be said?

And with Abbey moving well beyond its stated aim of capturing 5% of the business banking market there is now a substantial and effective competitor to the big four.

We look at the big four as the price controls that followed Cruickshank come off.
The cheque may be used ever less to settle bills but there are still an awful lot of them written yet compare the cost now with that for 1993.
 

Standard tariff	1993	2008	Price change
Barclays	68p	59p	-13%
Lloyds/Lloyds TSB	75p	65p	-13%
Midland/HSBC	74p	60p	-19%
NatWest	66p	67p	+2%

Can you think of any other business overhead that has fallen in price comparing 1993 prices with those for 2008? It is something worth remembering in the next meeting with a customer to discuss bank charges where even the NatWest increase held at 2% from a lower start point looks amazing let alone Lloyds TSB’s 20% reduction. But it is only part of the story.
 

What about paying in?

 

Standard tariff	1993	2008	Price change
A non-automated credit entry:
Barclays	68p	75p	+10%
Lloyds/Lloyds TSB	75p	70p	-7%
Midland/HSBC	74p	70p	-5%
NatWest	66p	70p	+6%

 

Standard tariff	1993	2008	Price change
Standing charges per annum:
Barclays	£24	£66	+175%
Lloyds/Lloyds TSB	£30	£60	+100%
Midland/HSBC	£30	£36	+20%
NatWest	£28	£69	+146%

These increases seem high compared with an RPI climb of 66 points from 1993 to the end of 2007 and I expect HSBC to increase its standing charge soon.
We must, however, address the changing mix of entries passing through an account over time probably best reflected in automated entry charges. I will stick with standard tariffs here though some electronic tariffs offer lower prices: I must compare like with like.
 

Standard tariff	1993	2008	Price change
Automated receipts:
Barclays	68p	15p	-78%
Lloyds/Lloyds TSB	75p	15p	-80%
Midland/HSBC	74p	20p	-73%
NatWest	66p	20p	-70%

A direct comparison overlooks the changing entry mix as internet banking and a greater number of electronic, or automated, entries are seen and a decline in cheques issued, nevertheless we will take an account with 600 cheques issued, 250 single non-auto credits paid in, 120 automated standing orders, 120 direct debits and 250 automated credit entries each year and cost it 1993 over 2008. I am ignoring cheque collection charges because I do not have the data for 1993, I am also restricting the automated debit entry calculation to standing orders and direct debits.

And the findings are very favourable to the big banks:

 

	1993	2008	Price change
Barclays	£937.20	£774.60	-17%
Lloyds/Lloyds TSB	£1,021.60	£735.00	-28%
Midland/HSBC	£1,035.00	£771.00	-26%
NatWest	£912.40	£789.60	-13%

Cost savings of between 13% and 28%. Compare any other overhead cost from 1993, energy, rent, wages, business rates, they have all spiralled upwards, yet the good old business banks have delivered huge cost savings to their customers. Blame competitive pressures because that is what it’s all about, praise technology but praise too the customers who now undertake far more account management and transaction execution themselves. Note too that if HSBC’s standing charge is increased, how close the final costs are in 2008.

Speaking of competitive pressures, the same account with Abbey would cost nothing so no surprise here at its steady acquisition of market share for accounts with a certain activity profile and other zero cost options can be had with several providers if a substantial credit balance is maintained. The big four also offer very attractive electronic and direct options as does Bank of Scotland which competes with excellent credit interest terms.

It all goes to underline, as we have for 15 years, that the UK SME owner has the choice of the best, and most competitive, range of business bank accounts in the world. You can have whatever you want, at a price commensurate with the service and branch availability.

And just in case some bandwagon jumping chancer tries to make political capital out of it, that was the situation in 1993 too. It has nothing to do with Cruickshank, the Competition Commission, or the man in the moon.