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

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