Business bank accounts - free vs. fee?

Banking has been hitting the headlines in all manner of guises over recent months – from IT problems through to bonuses, the UK’s banking community has never been under more scrutiny. This is why it came as little surprise a few months ago when attention turned to banking fees and the idea of ‘free banking’. Of course, there are strong arguments on both sides – whilst some customers are stung by high ‘hidden’ fees, there are plenty of responsible and prudent banking customers who have never encountered a bank charge and would resent paying for what was a previously free account service.

Yet, the plot thickens when we consider where businesses fit into the free banking debate. The high fees and charges often attached to the standard business bank account delivered through our five incumbent banks are starving businesses of key funds.  Business bank accounts often require an upfront fee and yet businesses still end up paying over the odds in additional fees, in the form of interest rates, foreign transfers and overdraft charges. In fact, a recent YouGov survey revealed that small businesses in the UK are paying £2.3 billion every year to banks in business account fees. This is a shockingly high number, especially when one considers that Project Merlin, which was intended to encourage lending from the top 5 banks to small businesses in the UK, actually missed its target by a whopping £1.1 billion.

In the world of business banking, paid-for accounts have not necessarily resulted in fairer banking – businesses still face overwhelming fees and charges and they don’t even receive the financial support they need from banks in terms of lending. This is why the key to banking, both business and personal, lies in transparency. Customers, whether business or consumer, should never receive a charge they weren’t expecting, and absolute transparency would ensure this is the case.

This is a situation which banks need to be aware of – after all, the same YouGov survey revealed that over half of businesses would move their business current accounts to another provider to reduce account cost outlays. Given the number of new finance companies which are currently chipping at the banks’ heels, keen to offer businesses lower charges and more innovative banking solutions, we are definitely now faced with an era in which implicit loyalty to our banks is over. Business banking will never be ‘free’ but now is the time to free banking of complicated and unclear charges using bank account models that help organisations drive funds back into the balance sheet.