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Last Updated: Saturday, 22 January, 2005, 15:05 GMT
HSBC charge hike hits businesses
By Samantha Washington
BBC Radio 4's Money Box

Man working from home at a computer
New HSBC customers can still bank for free for up to 12 months
Up to 350,000 HSBC small business customers could face a quadrupling of banking costs following significant charge increases.

Those with a turnover of less than half a million must now pay much more for using the branch to do their banking.

Charges include 27 pence for every cheque paid in, and 50 pence out of every 100 cash deposited at any HSBC bank.

HSBC defended the increases by saying that it is the first rise in 15 years and has been balanced by lowering electronic banking costs.

However, the move will hit the smallest businesses - who rely on branches - the hardest.

Part-time aromatherapist Carolyn has a turnover of less than 5000 a year.

I think it discriminates against businesses that do need to be branch based
David Bishop, FSB
Most of her clients are elderly, and she receives most of her income in cheques and cash, which she takes to her HSBC branch each week to pay in.

Her costs are set to quadruple.

She told BBC Radio 4's Money Box that she was wondering if her business could continue:

"It is making me think: is it viable for me to keep operating as a small business... with these huge charges?"

The Federation of Small Business (FSB) is critical of HSBC's decision. FSB spokesperson, David Bishop said:

"I think it discriminates against businesses that do need to be branch-based. We estimate that is about one third of businesses in the UK."

'Best-buy' accounts

Business Moneyfacts, which monitors the market, told Money Box that the move had knocked HSBC out of their top 10 business banking current accounts:

HSBC were the cheapest of the big four... They are now the second most expensive
Nikki Cann, Business Moneyfacts
"HSBC were the cheapest of the big four. Since they changed their tariff, they are now the second most expensive," said Editor Nikki Cann.

In a statement, HSBC said that the increases had been balanced by lowering electronic banking costs.

The bank added that this was the first rise in 15 years, and that new customers could still bank for free for up to 12 months.

But criticisms about high charges are not just directed at HSBC, and are not new.

All of the "big four" banks, which include Barclays, Lloyds and Natwest, have been criticised in the past for their treatment of small businesses.

Uncompetitive market

Back in 2000, the Cruickshank report revealed that these four had 85% of the current account market.

It also found they were overcharging these customers by 725 million pounds a year.

Despite the best efforts of the smaller banks, they have only made small inroads
David Bishop, FSB
Some improvements have been made in the last five years, but FSB's David Bishop said the market is still far from competitive:

"The situation remains that the big four banks account for 80% of the small business banking market. And despite the best efforts of the smaller banks, they have only made small inroads."

Part of the problem is that small businesses do not shop around.

Professor Francis Chittenden of Manchester Business School said that gathering the information you need to make a move takes time, and time is money:

"We have estimated that it takes two working days to go through this process from start to finish. At 40 an hour, this is going to cost a small business owner 560".

Cheaper options

But there are over 50 current accounts available to choose from at nearly two dozen banks. Nikki Cann at Moneyfacts said that investing the time to look at your options can actually save you money:

"If you look at the British Bankers' Association website, there is a Business Account Finder. You can compare accounts and see what would be cheaper. It could save businesses a fortune."

Some of the smaller players do offer free banking for small businesses and not just for new customers.

The Alliance & Leicester Commercial Bank has recently launched an account where cheques written and paid in are free and unlimited. And you can deposit cash of up to 1000 a month without charge.

Abbey, the Co-op and Bank of Scotland also have free or cheap branch banking.

BBC Radio 4's Money Box was broadcast on Saturday, 22 January, 2005, at 1204 GMT.

The programme was repeated on Sunday, 23 January, 2005, at 2102 GMT.



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