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In the first of three blog post which will be focusing on the banking sector and specifically interaction with SMEs, I am discussing the Incentivised Switching Scheme.
I am aware that a number of our clients have taken advantage of the incentives that are on offer to switch from RBS/ NatWest and I thought it may be timely to blog about the scheme.
The 2008 financial crash resulted in the bail-out of RBS by the UK government amounting to £45.5 billion. To reflect the potential competitive benefit this gave RBS, the European Commission agreed a package of measures on RBS to minimise distortions in competition that resulted from this. The primary aim of the Alternative Remedies Package (ARP) is to promote greater competition in the SME banking market (for businesses with annual turnover of £25 million or less).
ARP consists of two schemes:
|Capability and Innovation Fund||Purpose of the Capability and Innovation Fund is to encourage eligible bodies to:
(i) develop and improve their capability to compete with RBS in the provision of banking services to SMEs
(ii) develop and improve the financial products and services which are available to SMEs.
A total of £425 million is divided into four pools. The four pools each have a distinct purpose and are divided into a number of pre-determined grants – see further information here.
|Incentivised Switching Scheme||Up to £350 million to provide funding to eligible bodies, in order to incentivise RBS/NatWest SME banking customers to switch their primary business current accounts and borrowing facilities to the eligible bodies – see further below.
[£225 million of the fund is available in dowries with respect to any relevant customers that agree to transfer their business current account and £50 million will be available for loan related dowries for those Relevant Customers who move a loan product in addition to their business current account. Up to an additional £75 million will be made available by RBS to ‘cover customers’ costs of switching (e.g. through waiving or reimbursing break fees and/or other third party costs incurred by customers, such as legal fees).]
Incentivised Switching Scheme
More details of the Incentivised Switching Scheme, which is now more commonly referred to as the‘Business Banking Switch’ across the RBS customer base:
- Challenger banks can determine how to apply the dowries for the benefit of the eligible RBS/NatWest customers through preferential offers and incentives.
- RBS/NatWest have commenced contacting eligible customers to formally register their interest in the Business Banking Switch.
- Challenger banks’ headline offers and propositions for individual eligible RBS/NatWest customers have been visible through a new RBS micro-site since 25 February 2019 (see below).
The initial duration of the Incentivised Switching Scheme will be 18 months or, if earlier, until such time as £225 million has been distributed to eligible bodies as dowries in relation to business current accounts.
The amount of dowry that an eligible body is entitled to receive in respect of each relevant customer that switches will be determined based on the relevant customer’s turnover and, if applicable, the outstanding balance on the loan product being transferred. Dowries will be distributed quarterly. Eligible bodies will be required to use the dowries for the benefit of transferring relevant customers.
|Turnover of relevant customer (£)||BCA* Element (£)|
|Less than 15,000||750|
|15,000 to 100,000||1,000|
|100,001 to 500,000||3,000|
|500,001 to 1,000,000||3,000|
|1,000,001 to 1,500,000||6,250|
|1,500,001 to 2,000,000||13,125|
|2,000,001 to 2,500,000||16,875|
|2,500,001 to 5,000,000||25,000|
|5,000,001 to 7,500,000||25,000|
|More than 7,500,000||50,000|
The applicable dowries in respect of business current account transfers are set out in the table below. In addition, outstanding loan balance transferred x 0.025:
In total, the eligible cohort consists of around 202,000 SME primary business current accounts. RBS need to migrate a minimum of 120,000 primary business current accounts to eligible challenger banks.
More details can be found on the website of Banking Competition Remedies Limited (BCR)
I am aware of some clients that are getting paid a few thousand pounds as a result of switching under the scheme.
Customers seeking to participate in the scheme will need to be registered on the RBS micro-site and will be provided with a unique reference to confirm eligibility.
The RBS microsite includes an overview of the scheme; a list of the participating banks and a section which I understand shows how the Challenger Banks will use the incentive monies etc if you were to switch e.g., cash back.
If you would like assistance in comparing finance offer(s) received from challenger banks to your existing RBS facilities, please do not hesitate to contact your usual PKF Francis Clark contact or if you are not a client, please contact me in the first instance.
By Andrew James