Banking on its head
One thing I’ve learned since we set up Arena is that, if you run a business, you have to pay for EVERYTHING! Especially banking.
Consumer banking is nominally free, but is rife with accusations of excessive charges, arbitrarily levied. This “free banking + costly slap” pricing model is the way high street banks bump up their revenue - allegedly. In my entrepreneurial naivety (naivetee? naiveness?), I expected similar “free” terms for our business banking account - ie no charges for day-to-day account admin, but a dent in the pocket if we misbehave (or need to do something urgent/advanced (eg a same day international payment)). Ah, the innocence of youth.
The business banking model, it turns out, is in fact the total opposite of the consumer banking model. Every time you do anything, you get charged for it. For the uninitiated or rose tinted, I’ve categorised my personal highlights of our banking fee structure as green, blue or red:
Green Fees - okay, your fees are a bit cheeky but we’re a business after all, and so, haha, *grimace*, I guess we’ll just have to pay up. We’re all friends here.
- Pay in a cheque: 23p / cheque
Blue Fees - Hmmmm. Hold on a second, are you serious? You do know we’re a start up right - ie we haven’t got buckets of money sloshing about?
- Pay for anything with debit card: 41p / payment
- A cheque we’ve written is cashed: 49p / cheque
- Bank sends us our monthly statement: 95p / statement
Red Fees - Is this a joke? Are you crazy?!
- Taking £200 out of the cash point, using our debit card: Minimum 3% - so on £200 we pay £6. Six pounds? For a two hundred pound withdrawal?! What?!
- Want to use internet banking? Woo hoo! That’ll be £600 a year plus why not pay £125 for this piece of plastic (do not bend)!
As ever in business, all the above is pre VAT.
I’m afraid to even look at our debit card now, in case we get charged for image rights. Admittedly, it was totally idiotic of me to expect access to the banking network free of charge. And our account managers, Ollie and Dipesh, do do a great job for us. But such details shouldn’t get in the way of a good rant.
The charges are clearly excessive, adding up to hundreds of pounds a month at nil marginal cost to the bank (ie it’s basically pure profit for the bank). Fortunately, where there’s profit, competition should follow. The big web payments providers, such as PayPal and more recently Google, with its Checkout product, are slowly but surely moving in this direction. If PayPal were a person, it could undoubtedly be heard muttering “must become a bank, must become a bank” in its sleep. If either of these two online behemoths does indeed choose to enter the banking space with gusto, it will certainly bring some much needed competition to the cosy UK market place and significantly reduce the gratuitous fees charged to businesses. That can only be a good thing.
In the meantime, what’s the solution for the small start up looking to minimise fees? Clearly to take large amounts of cash out in one go and keep it in a shoe box on the desk. Then get burgled/mugged, lose the lot, and reflect that paying the banking charges wasn’t such a bad thing after all.
Filed under: Finance & Investment, Setting up on May 30th, 2007
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Ha!
Got a letter through from the peeps at PayPal TODAY saying that their European operation is going to become a bank. They must have heard my musings on the subject.
:)