Plans by the U.K. Competition and Markets Authority (CMA) to boost banking competition by facilitating bank switching for small and medium-sized enterprises could backfire, according to one critic of the initiative.
Professor Russel Griggs reportedly sent a letter to the CMA warning of the possibility that the effort could fail. Griggs, who heads the process for companies to appeal their loan rejections, argued that the new system that facilitates bank switching could lead to confusion.
“Lack of financial and business knowledge has always been an issue with micro- and small SMEs and still is,” he said in his letter to the CMA, according to reports on Monday (Aug. 8). “And I see many times small SMEs being declined and then overturned because correct information has not been submitted initially.”
“While I accept that these recommendations to the CMA may have come from the trade associations, who have micro- and small SMEs as members, with the best intentions, they might give the opposite result than was desired,” he continued.
The CMA announced over the weekend that it will introduce new measures to facilitate bank switching for SMEs after a two-year investigation of the industry revealed the need for greater competition among SME-serving banks. The full plans will be revealed on Tuesday (Aug. 9), according to reports.
The authority is proposing a £5 million prize to incentivize the FinTech space to develop a way for SMEs to switch their banking providers. But according to Griggs, a lack of financial expertise among SMEs is at the heart of bank loan rejections, not a lack of competition.
Reports said the professor had sent the letter to the CMA a week before its proposals were announced. The initiative also includes plans to boost competition in the consumer banking space, including a cap on overdraft charges and other efforts to encourage consumers to switch banks as well.