Business banking made fairer

The Office of Fair Trading is to look at whether banks are delivering on their promise to offer small businesses a more competitive service.

In a 2002 report, the Competition Commission criticised the main High Street banks for excessive charges and failure to pay interest on current accounts in credit to small businesses.

The watchdog said the so-called big four banks - Barclays, HSBC, Lloyds TSB and the Royal Bank of Scotland - were running a near-monopoly of the business banking sector. It also criticised them for making excessive profits at the expense of their business customers and making it too difficult for clients to switch accounts to other banks of they were dissatisfied.

The commission proposed that the banks either offer free banking services or pay interest on business current accounts to address their criticisms.

In its report, the commission found the value of balances for SME customers was approximately £228bn and that the largest clearing banks in England and Wales, accounting for over 70% of the value of balances, were making profits of well over £700m a year over the period 1998 to 2000.

The OFT's review will focus on the short-term impact of the transitional undertaking on excessive profits and prices and whether the effectiveness of the undertaking has been compromised by the banks - for example, if they have increased money transmission charges.

It will also consider the overall impact of the behavioural undertakings on competition generally. The OFT has powers to change or amend the undertakings, or to release banks from them.

It will consult stakeholders as part of the first phase of its review, which is expected to take up to nine months. The results will be reported to the competition commission.