“Well, we’re going to run out of money in the early afternoon.” That was the answer RBS’s chairman Tom McKillop gave when asked how long the bank could hold on as crisis gripped the UK economy in 2008.
As RBS circled the drain, the government swooped in and recapitalised the bank. HM Treasury pumped a staggering £45.5bn of taxpayer money into RBS. In return, the state got a controlling stake of the group. The cash, the government determined, would come with a few caveats.
Initially, the plan was for RBS to divest part of its business into Williams & Glyn, a revival of an old RBS subsidiary. Williams & Glyn would comprise 314 branches and take on 250,000 small business customers, 1,200 medium business customers and 1.8 million personal banking customers.
But over time, this plan gave way to two alternative initiatives. RBS remained intact, but it would put £425m towards a capability and innovation fund that would help newer, smaller ‘challenger banks’ and fintech companies.
The bank would also front £350m for what was called the Business Banking Switch scheme. This money would be used to incentivise SMEs to switch their current accounts and loans away from RBS (and NatWest, which is owned by RBS).
The incentives are actually quite handsome and they are tied to annual turnover:
There are also incentives in place for loan products. In this case, the cash amount for loan product transfers will be calculated by multiplying the outstanding loan balance transferred by 0.025.
The switching process is daunting. Not because it’s difficult or because there’s no incentive to, but simply because people don’t switch bank accounts regularly. Even after roiling IT chaos last year, TSB reported that it only lost 6,000 account holders.
Clearly, there’s a knowledge gap at play. People don’t understand what switching accounts or financial services will actually provide. The incentive payment is there, sure -- but is it worth risking the move to an unknown bank?
Accountants can help businesses be braver by offering guidance they’re getting nowhere else. Businesses shouldn’t put up with shambolic service from their bank, and they should be consuming financial services the same way they’d consume any other: by choosing what fits them best.
So is the Business Bank Switching Scheme a positive step? Sure. But it does not address the lack of knowledge businesses in the UK face. Here’s where the accountant can step in and offer advice beyond the numbers.
Business owners need guidance when it comes to banking and with bank branches closing at record rates, accountants might be just the people to fill the void and shepherd clients through the switching process.