Rich Wagner, CEO and founder Advanced Payment Solutions (APS)

Banks have been criticised for a long time now for failing to meet the needs of their small business customers. This problem is usually raised in relation to the trouble smaller companies face when trying to secure essential finance to help fund and grow their business. However we’re hearing from our customers that the problem goes far beyond simply accessing credit, with small businesses often denied access to even basic business current accounts from their banks – blocking them from making and receiving crucial business payments. We recently launched a survey amongst UK small companies to assess the scale of this problem.

Dodging the banks

The study uncovered that 60% of small companies are so fed up with rejection and poor service from their banks, that they have avoided opening a bank account with a high street bank altogether. Those that had applied for a traditional bank account had suffered on average 16 days’ worth of red-tape, fact-checking and general delays before being granted access to their accounts.

Such set-backs are not only preventing small companies from making and receiving crucial payments, they are also entirely unnecessary. In reality, if a small customer is not requesting access to credit, there is no risk associated with them simply opening a bank account from which to make and receive payments. Credit checks are an additional hurdle that banks force upon SMEs to assess their eligibility for credit in the future – if the customer doesn’t look likely to be a profitable client with credit needs further down the line, the bank doesn’t want their business.

This bureaucracy has not gone unnoticed by Britain’s small companies. A third of small business owners claim “dealing with banking red tape makes operating a business a laborious task”. Meanwhile, over a third describe interacting with their banks as a “necessary evil of operating a business”. As a consequence of complex fines and fee structures, 16% of small business owners admit that they do not know how much they are being charged to run their business bank account each month – an astounding admission from those at the helm of these companies, and evidence of how opaque the bank fee structures can be.

Complex fines and fees

The cost of running a traditional current account is an additional barrier that is holding many small companies back from accessing these services. The study found that small businesses are paying an average of £468 a year in fees and fines to operate their business bank account with a high street bank – the equivalent of £39 per month. Nearly a third of those questioned even believe that their bank “actively seeks ways to sneak in fines and fees that [they] do not understand”.

There is a very real concern that bad experiences with traditional banks could force small business owners to put themselves at risk by instead relying on cash or personal bank accounts. Simon McVicker, Director of Policy and External Affairs at IPSE, (the Association of Independent Professionals and the Self-Employed) had similar concerns upon seeing the data. He pointed out that if banking facilities aren’t meeting the needs of small businesses, they may be left with no choice but to merge personal and business incomes, which can result in mismanagement of funds and create significant finance problems in the future.

However, such risky measures can be avoided, without small companies having to battle with high street banks. The nature of banking is changing and traditional banks are no longer the only solution for SMEs. As small business owners become increasingly disillusioned with traditional banks, there is a real opportunity for alternative business account providers to step in and provide simple, tailored services that meet the needs of small companies.