Developments and Trends in SME Banking Services Since the Wallis Report

Abstract

This paper reviews recent developments and trends in the accessibility, affordability, and efficiency of SME banking services. Competition in the financial sector is stifled with major banks dominating 80 to 90% of small business deposit and lending assets. Maintenance of the status quo suggests that small businesses are either satisfied with their overall banking arrangements or that the perceived benefits of switching provider do not outweigh the costs. While the cost of basic business banking account transactions has not decreased, the cost of basic business cheque transactions has decreased for small businesses adopting new technology telephone and Internet banking. Credit card merchant schemes are undergoing sweeping reforms in 2003. Relatively greater competition in the provision of small business debt finance is evident with some fees on individual loans having decreased since 1997. The weighted-average interest rate paid by small businesses over all types of variable-rate loans has decreased, despite an increase in margins. The impact of these findings on SMEs are summarised and recommendations for policy-makers are made in order to mitigate any adverse effects.