Report critical of banks’ service performance

A RECENT report by the Small Business Ministerial Council has slammed banks for their failure to offer a wide range of services to small businesses.

The council is seeking an inquiry by the competition watchdog, the Australian Competition and Consumer Commission, into possible anti-competitive behaviour by the “big four” banks.

The report, Small Business Banking: Issues and Statistics, prepared by Khaldoun Hajaj from the University of NSW Financial Services Consumer Policy Centre, found there was no evidence of competition on price between the major banks, with the big four providing very similar basic small business bank accounts.

The main choice offered to small business is between paying for transactions ‘up front’ or paying ‘as they go’.

The report also says banks have exploited small businesses by levying a higher merchant fee – paid by small business to banks for clearing and processing the proceeds of credit cards and electronic payments.

The amount of total merchant fees paid by businesses was $750 million in 1998, with possibly more than half coming from small business.

Findings by the Reserve Bank show small business bank fees rose 15 per cent in 1998-99 and now account for more than 30 per cent of the total fees and charges taken by banks.

“Small business face an ever increasing array of individual fees and charges,” the report says.

“For example, the newly issued ANZ booklet Small business fees and charges is 45 pages long and lists more than 260 individual fees and charges.”

“The most recent fee to attract attention is the CBA administration fee for deposits above $3,000. This fee will have a significant impact of small business and is likely to be followed quickly by the other major banks.”

Council of Small Business chief executive Rob Bastian said he would like to see banks publish an effective rate of interest (ERIC) incorporating fees and charges into the total cost of lending to make the cost of lending more transparent and less confusing.

Mr Bastian said he could not understand why banks were resisting the implementation of ERIC.

“I believe the Australian Bankers Association’s defensiveness is misguided because their image can only be improved if they reduce confusion,” he said.

“This is a very simple call.”

The report also questions the cost effectiveness of online banking, finding that the initial start-up process is quite complex, time consuming and expensive.

The software packages offered by the big four cost between $500 and $1,000.

With the need for an adequate computer and modem, “it could take small business a considerable period of time to make on-line banking ‘break even’,” the report says.

One in four bank branches has closed since 1996, creating further frustration for small businesses and leading to a rapid drop in satisfaction levels.

Small business satisfaction has fallen from 78 per cent to 68 per cent during the past seven years.

Despite this, the nation’s big four banks (National Australia Bank, Westpac, ANZ and the Common-wealth Bank) have a complete monopoly on the small business market, with between 80 and 90 per cent of small business deposit and lending assets.

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