High bank fees turn off small business
Published Jan 28 2003
Article by Mark Lawson (Australian Financial Review)

When antique dealer Robert Wallace rang up his old bank to sort out finance details for importing antiques for his $1 million-plus-a-year business, all he got was an operator at a call centre.

That meant the person was different each time - being whoever happened to answer the phone - and knew nothing about the business.

"All they knew about the business was what they could see on the screen in front of them," he said.

Mr Wallace's business, the House of Desks antique dealership in the Sydney suburb of Paddington, has financial requirements that set it apart from other businesses.

For example, he might have imported a container of furniture all paid for and sitting on the docks and pre-sold - just waiting to go to customers - but require another $8,000 to pay the GST bill required to get the container off the wharfs.

Mr Wallace eventually abandoned his old bank and its call centre in favour of the BankWest business express service, which includes access to business banking managers pledged to stay in that role for at least two years.

But Mr Wallace's attitude to his old bank is unusual among small businesses only to the extent that he did not actively hate the institution.

Business operators have always disliked their banks, but after several years of paying increasing amounts in fees, only to find that they now have to deal with call centre operators rather than old-style bank managers, there is some evidence that small businesses have come to hate banks.

But at the same time, they usually do not switch banks because they believe all banks are the same. Although there is increasing competition in the sector, that competition, as noted later in this article, appears to be at the larger end of the small-business market - companies with annual turnovers of $5 million-plus.

Chris Connolly, director of the Financial Services Consumer Policy Centre at the University of NSW's Faculty of Law, said there was a "sense of despair" among small businesses about banks.

The policy centre recently completed a substantial report entitled Small business banking - options for reform, which was discussed at a banking summit held last year, and prompted calls for reductions in bank fees from small-business ministers in most of the state governments.

Mr Connolly said that most businesses did not like the level of service or the now very large fees they were paying but did not believe it worth the trouble to shift banks.

"From word of mouth - and business owners talk to one another - they hear that the banks are all the same and there is no point in changing," he said.

He said the Canadian government had set up the Business Development Bank of Canada, which dealt specifically with small businesses, but in Australia the sector was mostly "under the radar" of the banks.

There had been stirrings of competition, with the likes of BankWest and St George starting campaigns, but he did not believe that either bank had made the slightest difference to the market shares of the major banks.

The report produced by the policy centre contains a number of case studies that detail surprisingly high bank fees being paid by small businesses.

One restaurant (the businesses were not named) in Sydney with a turnover of $1 million a year and employing 22 mainly part-time and casual staff estimated bank fees and charges cost $120 a week plus merchant fees (the 3 per cent deducted from credit card transactions) of $350 a week.

In all, total annual bank and merchant fees accounted for 2 per cent of the restaurant's total turnover, without the bank actually lending the restaurant any money.

The restaurant owner noted that complaining to the bank about any of the fees was futile and "impossible".

Another recent piece of evidence, which BankWest executives have been trumpeting, is a survey by Macquarie Research Equities on business attitudes to their banks.

One result of the survey was that 70 per cent of SME owners were "very or somewhat dissatisfied" with the quality and service given by their bank