Finance for Small and Medium-Sized Enterprises - DTI Home Page

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Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances Table 6.3.4: Percentage of SMEs with Current Accounts which have: Switched Main Providers (Annualized Rate); or are Considering Switching; or would Consider Switching if Approached by Another Bank SWITCHED CONSIDERING WOULD (TO CURRENT SWITCHING CONSIDER BANK) (FROM SWITCHING CURRENT (FROM BANK) CURRENT BANK) All 2% 7% 29% N = 3,239,060 p N = 2,2 48 Number of employees 0 2% 6% 27% 1-9 2% 8% 31% 10-49 4% 11% 29% 50-249 4% 9% 29% Turnover (£) Less than 10,000 1% 8% 32% 10,000-49,999 2% 7% 26% 50,000-99,999 3% 9% 27% 100,000-249,999 4% 5% 35% 250,000-499,999 5% 8% 32% 500,000-999,999 2% 8% 33% 1,000,000-4,999,999 2% 10% 28% 5,000,000 or more 2% 5% 31% Finan cial Qualifications Yes 3% 9% 31% No 2% 6% 27% Gender Ethnicity Age Male 3% 8% 28% Female 2% 7% 32% White 2% 7% 29% Non-white 3% 13% 33% Less than 2years 1% 14% 32% 2 years or more 3% 7% 29% Turnover Growth Less than 30% 2% 8% 29% 30% or more 6% 6% 27% 89
Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances This tabl s with a current account: • This figure rises to 5% among businesses with a turnover in the range £250,000-£499,999. • Over 7% of SMEs are currently considering switching to a new provider from their current bank. • The implied level of annual churn is just under 10% (representing 344,931 businesses). 49 e shows that, among SME • The annual rate of bank switching is just above 2% over all types of business. • A further 29% of SMEs would consider switching if approached by another bank. Also: Comment • Businesses with qualified financial managers (including companies) are more likely to switch than businesses without qualified financial managers. This suggests that a lack of financial acumen could be a barrier to switching. 50 • Start-ups are 3 times less likely to have switched than established businesses. However, start-ups are twice as likely, as established firms, to be considering switching. • High growth businesses are 3 times more likely to have switched than slow growing businesses. Our figure for switching rates is lower than a figure of 4% reported in FSB (1998). Interestingly, the percentage of businesses considering switching is less than the proportion who feel very dissatisfied with the charges levied by their bank (7% versus 12%, see Table A6.3.1). Indeed further analysis (not reported) revealed that fewer than 16% of businesses, which are very dissatisfied with bank charges, are considering changing their bank. In contrast, 28% of these very dissatisfied businesses say they are unlikely to change banks in the near future. Perhaps this inertia is due to a fear that, while establishing a relationship with a new provider, they would lose out on accessing new finance. At the very least, it suggests, for these businesses, that the perceived cost of the switch outweighs any benefits. Switching rates, into the largest four banks, vary narrowly between 1% and 2.7% (not reported in Table 6.3.4). Potential outflows, in the same group of banks, vary between 4.5% and 11.5%. The highest implied level of churn, among the largest four 49 This is based on the assumption that businesses, currently considering switching, will act on this consideration. The proportion considering switching is likely to overestimate actual switching in the near future since, if the business makes its intention to switch known, the current provider may be induced to negotiate its tariff downwards, (Competition Commission, 2002) 50 Estimation of a limited dependent variable equation for switching (specifically, a probit model) found that businesses, with qualified financial managers, are over 6 percentage points more likely to have switched in the last 3 years than other businesses (controlling for other business and regional characteristics). 90
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