Is it time to change bank?

Finance-iconIs it time to change bank? The banks say it is, but our experts say you can use the current climate to get a better deal without the hassles of moving.

If you haven’t noticed the big four banks wooing you of late, you haven’t been paying attention. All four — and the flotilla of smaller banks, credit unions and other alternatives — want your business and the message is simple: if your banking relationship isn’t working for you, move on.

The marriage/relationship analogy doesn’t end there. According to a Business Banking Sentiment Index from East & Partners late last year, the small to medium enterprises they surveyed received a lot less attention from their banks compared to a year ago. If fact, bank-initiated contact had halved. At the same time, a lot of businesses don’t believe their banks have been loyal to them. It doesn’t sound like a marriage made in heaven.

And yet a banking ‘fact’ that’s been doing the rounds for a long time is this: you’re more likely to get divorced than change banks. (If you’re interested in how someone figured this out, it’s based on a UK survey that found that 75 per cent of people interviewed had not closed a current account, while 45 per cent of marriages end in divorce.)

Credit where credit’s due

What’s the biggest gripe from businesses about their banks? It’s not service: credit tops the list. During the worst of the GFC, credit was tight for everyone, including the banks themselves.

Stacey Currie, businesswoman and Telstra Businesswoman of the Year nominee, tells a story that would be familiar to many business owners: “We’ve been with the same bank right from the beginning and we’ve always had a great relationship with them. We didn’t have any issues getting credit when we needed it at the beginning.

But when we wanted to invest in a larger machine in the middle of the GFC, it was much more difficult.” Thanks to a combination of factors, including some good luck, the Australian economy escaped the severe economic downturn experienced by many other economies, and banks are once again making significant profits. So why are small business customers continuing to struggle with credit availability — at higher interest rates — while there is competition between banks for deposits and home loans? No wonder some are feeling a little cynical.

“The banks have had a lot to say about introducing real competition into the business banking market, but I don’t believe business owners trust that the banks will engage in the same level of competition for business banking as now exists in the deposit and home loans markets,” says Neil Slonim, a former senior banker and Founder of Slonim Consulting.

Banks may be competing for customers, but the fact is they’re also profit-making enterprises.

Some may be prepared to reduce profits or make special offers in the short term to increase market share, although ANZ has been upfront in saying that it prefers to take a longer-term strategy, but you can be sure they’re not going to give you a good deal at their own expense.

That would be bad business. So it’s up to you to work out how to get the most out of your banking relationship — sitting around bankbashing won’t help.

It’s also worth remembering that there are options outside the big four. David Schwab, Head of Business Banking Strategy and Solutions at Bendigo & Adelaide Bank, says “We haven’t changed our conditions or analysis for business lending in the last three years, but in that time we’ve seen significant growth.” He puts that down to the fact that they’re competitive, but they also offer a point of difference via their emphasis on community building.

Should I stay or should I go?

If you’re one of the many SMEs that isn’t 100 per cent happy with your bank, what should you do? There are two options: move to another bank; or get a better deal from your existing financial institution.

At this point, we are back to the ‘you’re more likely to get divorced than switch banks’ story. If so many businesses are unhappy with their banking relationships, why don’t they move elsewhere? The most obvious reason is that changing banks can be a hassle. Chances are you have more than one account; you may have credit secured by equity in personal property, which may in turn be mortgaged to the same institution.

Then there’s the need to redirect and reorganise all automatic payments, including salaries and the like. The time and paperwork involved can be enough to put you off.

And then there’s choosing another bank to go to. If you’re going to make it worth your while to switch, you need to know that you’ll be getting a better deal for your business over the longer term.

That means taking the time to read the fine print, decide what’s most important to your business and research the options available — all things that take time. Understandably, there’s a certain degree of cynicism about whether there is much difference between the major banks.

While cynicism may not be helpful, realism is : if banks are offering to cover any switching costs as an incentive for you to move your accounts, you can be sure that they’ll find a way to recoup any costs they incur, whether that’s by locking you in for a specific timeframe or some other method.

If you do weigh up the alternatives and make the move to another bank, don’t forget to let your old bank know why you’re leaving.

If you decide to stay with your current bank, you should also be communicating with them. While Slonim agrees that many business customers are not getting the best from their bank, he makes the point that you need to be assertive to get what you want.

“Businesses shouldn’t wait for their bank to take the initiative to improve the relationship. If they want a better relationship with their bank, they need to be proactive and learn to work within the system better,” he says.

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