The issue of ‘free banking’ has been the root of vehement arguments over the past year, and it’s about heat up again as HSBC announces it will start charging small business customers for banking services from Sunday. The bank it to increase its charges for 700,000 small businesses, some of these will be paying for their banking for the first time.
Charities and community account customers with turnovers of less than £100,000 will be omitted from the charges, but start-ups currently getting free banking for their first 18 months will pay the new charges once their offer period is up.
For those already paying a small sum for their business banking, the hike is hardly catastrophic, going from £5 to £5.50 per month, but at a time when business growth is on the minds of many, it is bound to cause some consternation. Especially in the light of the latest lending figures, out this morning from the Bank of England - in July, lending to small and medium sized businesses plummeted by £0.9bn. According to the figures, repayments by small businesses have risen to £4.1bn, up from an average of £3.5bn.
‘Money is going in but it’s not coming back out,’ says Goncalo de Vasconcelos, founder of equity crowdfunding platform, SyndicateRoom.
HSBC has defended its move, saying the new fees were part of an overhaul of accounts, designed to provide more overt pricing.
‘This will provide customers with clearer, more transparent pricing, making it easier for them to manage their costs,’ HSBC said.
‘For those businesses that are subject to charges, our small business bank accounts remain very competitive.’
Banks have been using the transparency argument in favour of bank charges for some time. The crux is, proving free banking has become a lot less profitable for banks since the interest rate reached rock bottom in 2009. This has pushed banks to claw back some money back through less obvious means, such as high fees for unauthorised overdrafts.
These penalties have led to many arguing ‘free banking’ is actually a myth – we all end up paying up in some way or another – so why not just pay a monthly fee? This would be a good argument if HSBC was going to ditch its high overdraft fees and penalties, but MT can’t see that happening.
HSBC is the first bank to take the plunge, hike up its fees and try to convince businesses it’s actually a good thing for everyone. It could well be a starting pistol for similar moves by other banks.
It’s a brave move by HSBC, considering the free switching service is about to kick in. From 16 September, banks must make it much easier for customers to switch banks – making the process possible in seven working days, rather than the current average of 30 days.
We’ll have to see how this move pans out for HSBC, but if other banks follow suit, it may work out well. After all, fortune favours the brave.
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