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Did somebody cut the CMA’s balls off?

25th May 2016
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As you might expect, I was asked to contribute to the Competition and Markets Authority Retail Banking Markets Investigation which has, this week, published its provisional decision on remedies.

My comments to them were confined to one aspect of the review, the availability and transparency of different sources of funding for SME’s.  The rest of it, around switching current accounts and the whole debate about the ‘free if in credit’ illusion lay somewhere outside of my area of expertise, interesting though it was.

I must admit that when the British Business Bank suggested that the CMA should seek my views I was a bit sceptical about what such a review would achieve as, historically, almost irrespective of the subject matter, if it’s a consumer issue the ultimate answer seems to be ‘someone should build a website so everyone can compare what they are getting with what everyone else is offering’.  Technology to the rescue again, although this always ignores the human behaviour (laziness, to put it rudely) aspect that is prevalent in consumer choice making, especially so in financial product selection.

I suggested to the CMA that if they really wanted to change the way banks and SME’s interact they need to start with the goal of changing the behaviour of both parties, not just the SME owner.  The only way to do that in any realistic timeframe was to build on the work already done by BIS and HMT through the Small Business Enterprise and Employment act (SBEE).  The provision included in the Act, which myself and the UK’s leading alternative funders lobbied for, intends to  force banks to refer small businesses rejected for finance to resource sites such as Alternative Business Funding (ABF), that could point them in the direction of alternative funders that may have an appetite for the deal. 

Although the part of the SBEE to which I refer was, disappointingly, watered down to require a referral only at the point of formal rejection, it did prove that there was an acceptance that such interventions in the market were both needed and could work.

Imagine my surprise then, when the CMA published, in October of last year, its notice of possible remedies.  Instead of a vapid thing lacking fire in its belly what I read was a gutsy document that set out some genuinely radical solutions and seemed to have really taken on board my observations about making banks themselves responsible for changing their customer’s behaviour.

The most interesting and innovative part of the whole notice document was the proposal that the CMA should order that banks, at the point of engagement with an SME on the subject of lending (of any sort) should set out up front that they were not the only source of possible finance, nor even likely to be the best or most appropriate, and that they should have the responsibility of ensuring that other appropriate options were considered at the outset, via reference to such resource sites as ABF.  Pretty much word for word what I had originally proposed to the Downing Street summit of 2014.

In a stroke, problem solved.  Banks now have a responsibility for an outcome, not just a product sale.  (Admittedly this outcome can, and will, still be a negative from time to time, not all businesses should automatically get funding.  There are occasions when it’s just kinder to say no).  SME’s now have real exposure to the myriad alternative solutions out there and the banks quadropolistic stranglehold on loan distribution is broken.

Hurrah! Thought I, now we are getting somewhere and the good old CMA is prepared to step in where HMT chickened out.  It’s as plain as the nose on your face that with their massive army of relationship managers and constant SME touch points such an initiative would have the banks own mighty reach changing the business funding landscape virtually overnight.

Then, BUMP!  Back down to earth with a thud.  This week’s provisional decision document has been, like Sampson, shorn of its strength giving hair, and now stands cowering in the corner of technologically led answers which depend on the ‘someone needs to build a website’ type solution. Instead of radical behavioural change being forced on the banks by the guardian of efficient markets and consumer interests, we are going to have a competition to…wait for it…build a website!

Sadly, phrases such as ‘one stop shop’ even make an appearance.  Aaargh!  I thought that went out ten years ago.  The whole thing demonstrates a lack of understanding of the problem or, more accurately, what solutions will actually solve the problem.  They recommend the creation of a ‘soft search’ facility so that multiple credit applications can be made without damaging a business’s credit rating.  Err, chaps, that already exists, just ask the likes of Experian, they’ll be happy to give you a demo-we use it on ABF.

I can only conclude that, somewhere between the notice of possible remedies and the provisional decision publication a shadowy group of heavily armed bankers (with ministers holding their coats, presumably), cornered the reports lead author in a dark alleyway and did to him what they do to racehorses that turns them into geldings.  Such a shame.  Can I lead the enquiry next time?  I’m prepared to take a risk with the family jewels if it will actually deliver real change for our SME’s.

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