NMa study reveals: switching banks easier than expected

A majority of small and medium-sized business owners (SMBs) that have switched banks have said that the switching process was not that complex. In addition, only on a limited scale do banks coerce SMBs into purchasing one or more additional financial products (such as a merchant account or business insurances) when they take out a business loan (for example, a business line of credit or a commercial mortgage). These are the most important findings of a study into tying among banks, carried out by Dutch market research firm TNS NIPO, which had been commissioned by the Netherlands Competition Authority (NMa).

'Despite these findings, however, we believe that switching barriers that are still existing can be lowered even further,' says Pieter Kalbfleisch, chairman of the Board of the NMa. 'Dutch website www.overstapservice.nl (external website) ('Switching Service') can be of help here,' Mr. Kalbfleisch explains. This service automatically forwards transactions from the old bank to the new one, and thus reduces the administrative burden, which many SMBs are perceiving as the biggest switching barrier. Mr. Kalbfleisch continues: 'Furthermore, I urge banks to increase transparency of their prices and of the conditions of their products and services, which would also lower the hidden-tariff switching barrier.'

Switching barriers
The study reveals that 35 per cent of small-business owners expect switching banks will entail facing considerable switching barriers, though a mere 14 per cent of SMBs that have actually switched in the last two years indicated that they indeed came across considerable switching barriers. Switching barriers may lead to less switching, which in turn may lead to banks offering lower service quality or charging higher prices. Apparently, tying is not considered to be the biggest switching barrier for SMBs, according to the study, as administrative burden, search costs and non-transparent tariffs top that list.

Tying
According to the same study, at least one out of four small-business owners that take out a commercial mortgage, a business line of credit or any other form of business loan is either coerced (5-8 per cent) or encouraged (18-23 per cent) to purchase an additional financial product. Most of the time, these additional products include business insurances or merchant accounts. Tying arrangements could be a violation of the Dutch Competition Act, if the bank in question enjoyed a dominant position and was abusing that position to exclude competitors from the market. However, the NMa currently does not have any indications pointing in that direction.

The market study had been launched, among other reasons, because of media reports, tip-offs and indications the NMa had been receiving from SMBs about tying arrangements by banks when offering business loans. More than 2,000 small-business owners participated in the study.