Small business ministers will meet today to push for a federal inquiry into the lack of competition in the banking sector and the resultant escalation in fees charged to smaller enterprises.
The move is in response to growing concerns about the poor service and high fees levied on small businesses, as evidenced by a new report released this week that found small businesses feel trapped with under-performing banking services.
Research by the Financial Services Consumer Policy Centre at the University of New South Wales found only one-third of small businesses feel they are getting value for money from their bank, with the remainder feeling frustrated and dissatisfied.
And the frustration is compounded by an inability to change institutions due to a lack of information, a fear of high costs and a lack of competition.
Small businesses have called for the current
Trade Practices Act review to investigate "controlled monopolies" in banking services, as the big four banks account for 80 to 90% of small business deposit and lending assets in each state.
The report recommends a banking code of conduct and access to information for small business, as well as education campaigns showing benefits of changing banks.
Victorian Small Business Minister Marsha Thomson says the sector is not loyal as claimed in an Australian Bankers Association report released earlier this year.
"Small businesses are not 'remarkably loyal', as has been claimed by the Australian Bankers Association, but trapped by their banks," she says.
"Bank fees paid by small businesses total $2.5 billion and this is increasing by around 13% each year. Additionally, climbing interest rates and high rates for business products such as business credit cards are hitting small businesses extremely hard."
However, the Australian Bankers' Association (ABA) rejects such claims – also made by NSW Small Business Minister Sandra Nori.
Chief executive David Bell argues Nori "continues to mislead the public on bank fees paid by the small business banking sector", dismissing her claims that small businesses are subsidising big business are "grossly inaccurate".
"Fees paid by small business are on a user-pays basis – cross subsidies have been largely unwound, which is fairer for all bank customers including small business," he says.
"Ms Nori fails to acknowledge that the fall in interest rate margins has more than offset any increase in fees for the small business sector, which result in significant savings on interest repayments.
"For an individual small business, the interest rate margin savings on a $100,000 overdraft written in 2001 compared to 1997 are $1,530. The sector as a whole is saving around $630 million a year on variable rate loans because competition is squeezing interest rate margins.
"RBA data released last week showed that fees collected by banks from small business did increase to $2.6 billion, but there was an accompanying large increase in the volume of business transacted by small business with their banks.
"Also, small business make up 96% of the Australian business sector, so you would expect them to pay a significant proportion of fees compared to big business."
And while conceding there has been branch closures, Bell contends Nori fails to acknowledge the "vast increase" in banking services available to small business including ATMs, EFTPOS, telephone banking, Internet, agency arrangements and Australia Post's GiroPost facilities.
"Ms Nori and her Small Business Banking Issues Paper, and authored by the Financial Services Consumer Policy Centre, refuses to acknowledge the facts that the RBA data makes crystal clear – overall banking is cheaper than ever before," he says.
As such, Bell says an inquiry by the Australian Competition and Consumer Commission is unnecessary and would be a waste of taxpayers' money.
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To read more on small business concerns about the market power of the big end of town, see the latest Queensland Business Review magazine, mailed to subscribers this week. Call Lee Ryan on 1800 649 578 or email subs@pubserv.com.au for details.