This Valentine’s Day it’s time for SMBs to be better treated by banks

Banks often profess their love of small- and medium-sized businesses SMBs. And it’s no surprise - SMBs constitute 99.9% of the UK business population and a significant part of banks’ customer base. However, the relationship between banks and SMBs is decidedly one sided and unhealthy - especially when it comes to international banking. Valentine’s Day is as good a day as any to reflect on this imbalance - and why SMBs may be feeling blue.

A new report conducted by PublicFirst and commissioned by Wise found that SMBs lost a shocking £3.6bn in FX fees when selling goods and services overseas in 2022, with all UK businesses losing £4.2bn. Fees are not only high, but often hidden through markups within the exchange rate. This standard industry practice doesn’t simply make international payments more expensive for SMBs - it often makes hopes of expansion abroad altogether impossible.

Perhaps unsurprisingly, the report also found that 24% of SMBs cited the cost and inconvenience of international banking services as a major deterrent to international expansion. And this doesn't just affect those businesses looking to expand internationally. 59% of UK SMBs are also looking to take their operations abroad - a goal equally hindered by the reality of hidden fees.

SMBs face enough obstacles to business success without the added burden of high, hidden fees on international payments. Particularly in the context of a cost of living crisis, these inflated costs add insult to injury and, more widely, affect the economy as a whole by limiting SMBs’ ambitions and stifling their growth potential.

So what’s the solution? Well, it would help if banks showed their love for SMBs with more than words. They should follow up on their promises with action, by making clear and, ideally, reducing any international payments mark ups. This would give SMBs the reassurance they need that they are in a transparent relationship with their bank - and able to see if there might be better, cheaper partners out there.

The government should also step in to tighten existing regulations and require banks to make fees clearer and more transparent.

When trading in Europe, SMBs are supposed to be protected by regulation known as ‘CBPR2’, which demands that banks make clear any fees. Yet this is circumvented by banks through hiding fees in exchange rates. Outside Europe, the situation is even worse. Banks are encouraged to be transparent by the ‘Payments Services Regulations’, but these are vaguely worded and allow a ‘corporate opt out’, meaning that already weak legislation does not apply to businesses. The Regulations, under review, need to be tightened - as does CBPR2.

SMBs deserve more than yet another marketing campaign about how banks love them - they deserve an international payments system that truly works for them. They deserve a system that is transparent, competitive. It’s doable - and can be enacted either by banks or the Government. It just requires a little love.