Improving customer loyalty - let's get back to business

Earlier this month, the Bank of England launched the Funding for Lending scheme, to lend money at below market rates to financial institutions. It is designed to prompt banks and lenders to make more money available to homeowners and businesses.

This renewed focus on bank lending to British businesses has intensified since Project Merlin, the attempt by the Bank of England to force banks to increase lending to British small businesses.  Barclays, HSBC, Lloyds Banking Group, RBS and Santander UK were tasked with making it easier for smaller firms to access credit. Yet in reality total net lending from the five main UK banks' fell in every quarter of 2011, with £74.9 billion lent to smaller firms, as opposed to the £76 billion target.

Compare this £1.1 billion shortfall with the YouGov figures released last month which revealed that British small businesses pay over £2.3 billion to banks in fees every year. The research showed that 24 per cent of small businesses pay an average of £1,792 on business banking services every year.

When we consider the recent GDP figures which revealed that the UK is in the deepest recession of more than 50 years, this flagrant disregard for the needs of small business owners by banks is unsettling.

The truth is that public trust in banks is at an all time low and the customer loyalty banks have enjoyed in the past simply does not exist anymore – in the same survey, 52 per cent of those asked said they would move their business current account to another provider in order to receive lower cost business banking services.

There is plenty that our banks could do to improve their own image - supporting the British small business economy is just one example.  

This research suggests that banks should start by lowering business banking charges, but there is also scope for banks to start thinking outside the box –what about offering a payment of a base rate interest on business accounts? Our research showed that this could contribute £330 million to the UK economy – no small sum in the current climate.

Business secretary, Vince Cable, said last month that Britain’s banks are ‘throttling’ the economic recovery because of an anti-business culture. Evidently banks and financial providers have a long way to go in convincing the public and business community of their merits. Given the strong impact it would have on both public relations and the wider economy, it seems to me that banks need to get back to business.