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 Overall these results suggest that technology, facilitating distance banking, could have 54 a beneficial impact on competition. In particular, this is the case for larger SMEs which most commonly use telephone and internet banking in preference to visiting a branch ( recall, that market concentration is currently highest for larger SMEs). Conclusion In summary, although a sizeable number of SMEs are dissatisfied with their bank’s tariffs, the vast majority are unwilling to change providers. From the point of view of businesses that have recently switched, most have done so because of dissatisfaction with the general service rather than prices. Across firm types, high growth businesses and those with qualified financial managers are more likely to switch. Whils t it would go too far to say that most SME customers are price insensitive, it is apparent that obtaining cheaper banking is not their top priority. This suggests, within the limitations of the current analysis, that policies designed to stimulate price competition may have a limited affect on switching behaviours. Indeed, high overall levels of satisfaction with the main provider, regarding the availability of finance and understanding of their business, suggest that low switching rates refl ect unwillingness on the part of businesses to upset the status quo. Notably, switching rates are significantly higher among dynamic high growth businesses and those with qualified financial managers. Finally, the analysis provides some insights into the potential impacts of technology in reducing barriers to entry in the market for money transmission services. Whilst visiting a local branch is still the preferred mode of doing business among smaller SMEs , larger SMEs tend to use telephone and internet banking. This suggests that new e ntrants, providing distance banking, have the potential to attract larger SME customers. 54 Whether this explains any of the falls in market shares since Cruickshank (2000), observed in our data, is open to question. 95
Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances III. SPECIFIC ANALYSES OF FINANCIAL SERVICES 7 DEPOSITS Analysis of the data on amounts held in deposit accounts revealed the following information: • The average amount held on deposit by SMEs is £61,000 (±£14,000). • This amounts, on average, to just over 4% of turnover held on deposit. • In total, SMEs hold about £92 billion on deposit. (see Table A7.1, Appendix to Section 7; second bullet point not reported in this table) For comparison with data collected by the British Banker’s Association (BBA), we looked a t deposits among businesses with a turnover of £1 million or less. These results show that: • The average amount held on deposit is £33,000. • In total, these businesses hold about £38 billion on deposit. We note that the BBA estimates that businesses, with a turnover of £1 million or less, held about £40 billion on deposit in the last quarter of 2003. The results in Table A7.1 also show that: • There are no significant differences in deposits by gender, ethnicity or growth rate. • However, start-ups hold significantly less on deposit than established firms (£11,000 versus £63,000) 96
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