Is your bank a bastard?

Business is not happy with the deal it is getting from the banks, but (at last) the banks are starting to listen. By JASON BRYCE.

By Jason Bryce

The big banks are picking up the phone and contacting their business customers directly as they try to arrest disastrous customer satisfaction ratings from them.

NAB is still the outright market leader in business banking but, like the other major banks it is struggling to overcome 20 years of undervaluing SME customers and the skill sets of their own business banking staff.

The regional banks, low-doc lenders and mortgage brokers are attracting businesses with innovative products and asset-based lending.

St George Bank, and its subsidiary BankSA, has increased its market share in the SME banking market by allocating relationship managers to all business customers and promoting some innovative business banking products.

The NSW-based regional bank has captured almost 8% of the national SME banking market and is now investing in further expansion in Queensland, Victoria and Western Australia.

St George Bank chief executive Gail Kelly said last Tuesday in announcing the bank’s results that the key to the success of St George’s business banking is its relationship management model.

St George scored the highest customer satisfaction ratings of any lender in the latest East & Partners Business Banking Sentiment survey.

HSBC and Bank of Queensland were the only other banks to get a rating of more than 50 out of 100 from their customers.

Overall, business customers are not happy with their banks. The East & Partners score fell to a new low of 42.2 in February, with the Commonwealth Bank scoring 34.

“A lot of the skills of business banking have been dissipated over the past 20 years,” says Denis Orrock from banking research firm InfoChoice. “The ability to do risk assessments on a business for example. These days a lot of that is system-generated.”

CBA is re-establishing business banking in its branches, has launched a new small business website, hired 120 new business bankers, launched an agribusiness phone service and is opening specialised business banking centres as it tries to turn around its declining market share.

“Considering the size of Commbank, 120 new staff isn’t going to make much difference,” says Orrock. “Are they going to have 600 clients each?”

While Commonwealth is investing in “clicks and mortar”, following the trend from North American banks, the other banks are getting on the phone and initiating contact with their business customers.

More than two thirds of customers who were in contact with their bank in February said that it was their bank that had initiated the contact, according to East & Partners.

“A lot of banks say they are trying to return to the traditional business banking model,” says Orrock, “but frankly quite a few simply aren’t interested in you until you reach a critical size.”

Orrock says that while the major banks retain a stranglehold on the corporate banking market, the smaller banks are mopping up the SMEs that the majors have let slip away.

“In the deposit space, ING and BankWest have good business products,” he says. “In the lending space, Suncorp is looking good at the moment.”

BankWest, like CBA, is also hiring business bankers and has recruited 100 over the past year.

St George’s high customer satisfaction ratings are the result of some innovative banking products and services, says Harry Senlitonga from research group Cannex.

“St George enables business customers to draw down funds upon an invoice being approved, rather than having to wait weeks or months for access to those funds,” says Senlitonga. “They have a bit of a range in their business lending products and flexibility about security other than simply residential.”

St George’s “Open Account” cashflow finance facility allows the business owner to access 85% of the value of an invoice within 24 hours. The business retains the task of collecting on the invoice itself.

This service can be expanded up to a regular funding facility called Invoice Discounting Plus whereby additional borrowings can be secured against stock, plant and equipment.

Under the St George “Business Umbrella” product, the business owner can apply for an overall credit limit that covers a range of different loans and debt facilities.

It is these products and the relationship approach that is driving St George’s cross-selling success. On average, the bank’s business customers have each purchased more than five St George products.

The bank has an 82% score on satisfaction with its relationship managers, compared to a 66% average among the majors, according to a customer satisfaction survey by independent market research firm Jones Donald Strategy Partners.

Jones Donald found that St George had a 54% advocacy score among its SME customers (advocates are prepared to recommend the bank to others), compared to an average of 29% for the big four.

While most lenders offer small business loans without residential property security, the reality is that many start-ups and small businesses and entrepreneurs are turning to mortgage brokers and low-doc lenders to fund their enterprises.

“A lot of SMEs are accessing low-doc loans,” says Orrock. “A lot more business is being done through mortgage brokers than most people would like to admit, and that’s lending on the asset rather than the business.”

Australia’s largest network of mortgage brokers is Mortgage Choice, which says that about 10–15% of their total business is now low-doc lending, mostly to the self-employed.

“Low-doc loans in general are growing in popularity,” says Warren O’Rourke, corporate communications director at Mortgage Choice. “A lot of those people would be self-employed people looking to buy or refinance to release equity for business purposes.”

Low-doc lending is filling a gap left by the majors in the commercial banking market says Orrock.

The obvious downside to that trend is that entrepreneurs and the self-employed are increasingly having to risk their home in order to fund their business.

See our Growth Resources section for a thorough checklist on how to get a better deal from a bank.