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 Figure 6.3.2: Ease of Switching Banks by Number of Employees (Switchers Only) (Box and Whiskers) (1=extremely difficult; 10= extremely easy) 10 9 8 7 6 5 4 3 2 1 0 1-9 10-49 50-249 Number of Employees The above figure shows that the median switching-ease score, at 8, is the same for all sizes of business. re of between 6 and 10. 53 The bulk of businesses (i.e., within the box): • With 0 employees, report a switching-ease sco • With 1-9, or 10-49, employees, report a switching-ease score of between 6 and 9. • With 50-249 employees, report a switching ease score of between 5 and 8 The incidence of difficulties in switching is characterized by the length of the whisker extending below the box and the data points individually identified with a circle. In this regard we note that all business, except those with 50-249 employees, have instances of extremely difficult switches (‘1’ scores). Comment Overall, these results indicate that all sizes of SMEs find switching banks to be relatively easy. If the inertia of non-switchers is indeed due to perceived complexities in the switching process, the above evidence suggests these perceptions are unfounded. There is some evidence that switching-ease diminishes with firm size, presumably, due to the increasing complexity of the business’ finances. 53 th th Note that the diagram indicates that, for 0 employees, all scores, between the 75 and 100 ercentile, equal 10. On the other hand, the boxes for larger businesses correspond to the inter-quartile nge (between the 25 th and 75 th p ra percentile). 93
Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances The caveat with these high ease of switching scores is that we only observe the scores of businesses which have completed switches; some may have found the process so hard that they gave up trying to change banks (self-selection bias). In reality, switching may be harder than reported. Technology and competition A potentially significant barrier to entry, into the market for money transmission services, is the perceived need for new entrants to offer their customers a local presence (Cruickshank, 2000). The implication is that new entrants would require a branch network or, at least, some form of agency arrangement, to supply customers with money transmission services. However, with the development of internet and telecommunications technologies, there is increased scope for new entrants to circumvent this barrier and offer distance banking as an alternative to local banking. Accordingly, in the following table, we look at the most frequent method of conducting business with the main bank to see what, if any, scope there is for technological change to improve competition. Table 6.3.6: Most Frequently Used Method of Doing Business with the Main Bank in the Last 12 Months (Population Percentages) ALL 0 1-9 10-49 50-249 N = 3,239,060 EMPLOYEES EMPLOYEES EMPLOYEES EMPLOYEES p N = 2,248 Visiting branch 46% 50% 42% 24% 15% By telephone 30% 26% 34% 47% 48% By mail Through a cash 5% 7% 3% 4% 2% machine /ATM 2% 3% 1% 0% 0% Through the internet Non internet 15% 12% 19% 21% 28% electronic link Visit from 0% 0% 0% 2% 4% branch 0% 0% 0% 1% 1% Other 1% 1% 0% 0% 1% These results show that: • Visiting a branch is the most frequent mode of doing business among all SMEs and businesses with fewer than 10 employees. • Telephone banking is most frequently used in businesses with 10-249 employees • Internet banking is used most frequently by around 1 in 7 SMEs. • This figure is higher than 1 in 4 for larger SMEs (50-249 employees) and outstrips visiting a branch. 94
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