Twenty percent of mid-sized companies and more than 15% of small businesses have requested competitive proposals for a new bank in the past six months, according to the results of the latest Greenwich Market Pulse.
Historically, about 10% of small and mid-sized enterprises (SMEs) switch banks in any given year. In the context of that traditional average, the current rate at which US companies are issuing bank request for proposals (RFPs) is truly striking.
The share of US SMEs requesting proposals for new banks has been doubling every six months for the past year and a half. In the last six months of 2009, 11% of mid-sized companies and 7% of small businesses issued bank RFPs. In the first half of 2009, approximately 4% of mid-sized companies and small businesses issued RFPs.
“Unfortunately, it seems that this high level of activity is being driven as much by negative factors associated with the recession and credit crunch as by positive developments, such as an increased demand for capital in step with an economic recovery,” said Greenwich Associates consultant Chris McDonnell.
Reasons for Issuing RFPs
The single most important factor driving the spike in RFPs over the past 18 months has been corporate efforts to reduce banking fees. Roughly half of SMEs cite fees as a top three consideration in issuing an RFP.
The next biggest driver of bank RFP issuance over the 18-month period has been an increase in the demand for capital. However, the Greenwich Market Pulse results suggest that corporate demand for capital could be slipping due to new worries about the strength of the economic recovery, especially among small businesses. Of the relative handful of small businesses that issued RFPs for new banking partners in the first half of 2009, only 21% attributed the move to an increased demand for capital.
As the pace of RFP issuance picked up last year, so too did the share of small businesses reporting that their decision to issue an RFP had been driven by an increasing need for capital. Half of small businesses issuing RFPs in the second half of 2009 reported a growing need for capital as the reason. In the first half of 2010, that share dropped back to 27%. The trend was similar – if less dramatic – among mid-sized companies.
“At the start of this year it seemed clear that a good portion of switching activity was being driven by the positive trend of companies looking for new sources of capital to fund their businesses in the face of an economic recovery,” said Greenwich Associates consultant Pete Garrison. “Although the share of companies looking to switch banks has increased dramatically since then, this activity does not seem to reflect new strength, but rather, increased frustration with current providers.”
Companies Seek Better Service, More Credit
Over the past six months, small businesses were more likely to report issuing an RFP because they were unhappy with the current level of service they are getting from their banks than to say they issued an RFP because their capital needs were increasing. In the second half of 2009, 35% of small businesses that issued RFPs did so because they were dissatisfied with the service they were getting from their current bank – in the first half of 2010 that share remained about the same at 33%, topping the 27% of small business RFP issues motivated by a growing need for capital.
Of course, since credit is such an important part of business banking relationships, it can be difficult to separate companies’ satisfaction with the customer service they experience from their ability to secure credit from these providers. A large number of small businesses and mid-sized companies say they are having more trouble finding credit now than at the mid-point of 2009. Fifty-three percent of small businesses and 41% of mid-sized companies say it’s harder for them to borrow from their banks now than it was a year ago. These difficulties help explain why one-third of small businesses issuing RFPs so far in 2010 say they are looking for new credit providers, up from slightly more than a quarter in the second half of 2009.
“Among both small businesses and mid-sized companies, the share of RFPs aimed at identifying a new full-service provider declined from 2009 to 2010, while the share aimed at identifying new credit providers increased,” said Greenwich Associates consultant Don Raftery.
Conclusion: No Sign of Stability
Looking ahead, 16% of small businesses and 19% of mid-sized companies plan to issue an RFP for new banks in the next 12 months. “This is a very high level of activity relative to historic norms,” said Garrison. “Our research results suggest that RFP issuance and bank switching levels will remain inflated for the foreseeable future as small and mid-sized businesses struggle to survive and navigate the recession, and eventually begin to source the capital they’ll need to restore business capacity as the long-awaited recovery finally takes hold.”
The annual BNP Paribas Cash Management University kicked off on Thursday morning with treasury professionals congregating in Paris from across Europe.
APIs may be a solution to MT940 challenges, says Karen Fagan, treasury operation manager, for British television company, ITV.
Kicking off the first day of the Singapore Fintech Festival, issues with cryptocurrencies were addressed by MIT media labs director, Joi Ito, and panels of technology leaders discussed how they’re using data analytics.
Sibos 2017 day two highlights: Brexit and banking, and why ‘data is the new oil’ in financial services
How nation first politics can impact global financial organisations It’s clear that data and regulation are the two key topics that are ... read more