SMEs told to shop around as bank fees surge 13% during 2009

Businesses must shop around and investigate different banking products before signing up in order to avoid unnecessary fees, an industry expert warns.

The comments come after the Reserve Bank of Australian yesterday revealed income from bank fees charged to business increased by 13% to $7.6 billion during 2009, with most of that growth from charges on loans and bank bill facilities.

Maurice Blackburn principal Ben Slade says SMEs need to shop around and look for cheaper products before they sign up to a system that could cost them a significant amount over time.

“Small businesses definitely need to shop around. There are some banks not in the top four that offer quite competitive deals, and they are on the fringe of the banking world.”

“There are other banks quite substantially involved in other countries, such as the Arab bank, and as I understand it they have good deals for small business lending that are always worth considering.”

Slade says businesses need to be strategic and attempt to have the lenders compete with each other. “Think about the products you are going to use, and think about it early.”

The RBA data found fee income from business loans increased by 20% in 2009 for the banks, while fee income from bank bills and bill facilities increased by 28%. However, it also noted that lending to the business sector did not change much at all.

“In contrast to the solid growth in business loan fees, business deposit fee income was broadly stable over 2009, even though business deposits increased significantly over the year.”

“This reflects strong competition for business deposits over the period. Exception fees paid by businesses declined by 2%in 2009, with growth in exception fees on business loans being more than offset by a fall in exception fees on deposit accounts.”

“Exception fees on business deposits are likely to decline further in the 2010 financial year as a number of banks have undertaken initiatives to lower or remove these fees,” the RBA states.

Maurice Blackburn is organising a class-action lawsuits against the major banks for the alleged abuse of exception fees, with tens of thousands of businesses and individuals already signed up.

Slade says the data reveals how unfair the banking sector has become, especially for businesses, saying there is little room for negotiation.

“What’s happening is that banks are cost shifting from household and consumer fees into small businesses, which can be exploited just as easily as households.”

While Slade says upcoming consumer protection laws should help businesses, there is still an imbalance of power and SMEs need to reconsider what banking products they are using and why.

“I don’t think dealing in a marketplace where there is such an extraordinary shift of marketing power is fair, and I think the big four banks will inevitably exploit that power in the interest of shareholders.”

“We do have a relatively aggressive regulator, with resources to do a good job, but we do have to get to a point where there is a level playing field.”