UK SME account switching rates remain low but according to Finastra that is set to change.
Some 29% of SME finance managers are likely to switch their main bank account in the next five years. The figure seems implausibly high at first glance but that is the key finding in a Finastra/Gov survey. The survey findings are summarised in a report entitled ‘SME Opportunities for Digital Banks’.
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There are currently 5.7 million SMEs accounting for 99% of business in the UK. Consequently, this is a potentially lucrative sector for the UK banking sector.
As a result digital challenger banks are keen to ramp up efforts to accelerate UK SME account switching.
By contrast with the survey findings, switching rates in the mass market retail banking sector remain lamentably low.
On 25 July, Bacs released the latest data for UK 7 day current account switching. The figures reveal another fall in annual switching.
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By GlobalDataIn the past 12 months (1 July 2018 to 30 June 2019) there were 941,708 switches. That is down 2.4% from 965,317 switches in the 12 month period to end June 2018.
Account switching: retail banking rates low and falling
Around 46 million adults hold a current account. That means that only around 2% of account holders are using the 7 day current account switching service.
The latest figures are in no way a one off. For example, there were 1,056,378 switches in the 12 month period to end June 2017.
So the latest figures reveal a 10% drop in switches since the period July 2016 to June 2017.
To be fair to Bacs, awareness and satisfaction levels for the service remain consistently high at 79% and 92% respective.
Moreover, the banks’ efficiency in administering seven day switching is not in doubt.
On the other hand, open banking offers a major opportunity to innovate and transform the market.
And it is not in dispute that the potential of open banking is untapped, with public awareness low.
It is also not in dispute that there is a growing number of lenders targeting the SME sector.
UK SME account switching: Finastra/You Gov survey takeaways
The vast majority of SME respondents (86%) are either fairly happy, or very happy with their bank. Yet a significant proportion of all respondents (29%) are likely to switch bank accounts in the next five years.
This number rises significantly among a younger demographic. Some 49% of respondents aged under 45 say they would be very or fairly likely to switch banks in the next five years.
Popular reasons given include a better overall service; an incentive or recommendation to switch and better digital/ mobile banking experience.
Other findings include:
- 32% of recent switchers now hold their main bank account with a challenger bank;
- 53% of those that switched in the last three years say they are likely to switch banks again;
- 40%of finance managers under 45 would consider banking with a digital giant like Google, Amazon or Facebook. In contrast, just 13% of over 55s feel the same way, and
- Just 11% of SME finance managers overall are familiar with the term Open Banking;
“This report is a must-read for any bank targeting the UK SME market,” says Finastra’s Mary O’Connor. “It highlights that differentiation beyond the online banking experience, in terms of the products and services offered, is really important.
“For long-term success, banks need to rapidly evolve their portfolio of SME banking services. And build their ecosystem on a platform delivering great customer service, increased agility and the ability to scale rapidly.”
