Commercial customers of Royal Bank of Scotland (RBS) may have received a letter from the bank introducing a banking switching scheme whereby they are to be incentivised to move their business elsewhere.
To put this into context, following the financial crisis in 2008/2009, the European Commission placed a number of state aid measures on RBS, one of them being to promote greater competition in the market for Small and Medium-sized Enterprises with a turnover of up to £25m per year (SME banking services) and for RBS to reduce their market share in this area.
Accordingly, a “Business Banking Switch” has been established by RBS in order to comply with this directive and provides a funding package to eligible “challenger banks” in order to incentivise eligible SME banking customers to switch their accounts and loans away from RBS. The incentive is paid in the form of cash “dowries” to the receiving bank.
A fund worth £225m has been made available as dowries to challenger banks to encourage the switch away from RBS, and an additional £50m available as loan related dowries if an RBS term loan is refinanced when transferring the business current account. An additional £75m is also available to cover associated switching costs, which includes break costs as well as legal and valuation fees.
At present, the banks that fall within the definition of “challenger” include:
- Arbuthnot Latham & Co Ltd
- Clydesdale Bank plc (including Yorkshire Bank)
- Co-Operative Bank plc
- Hampden & Co
- Handelsbanken plc
- Metro Bank plc
- Santander UK plc
- Starling Bank Ltd
- TSB Bank plc
RBS has already begun the process of contacting eligible customers and the headline offers from participant challenger banks has been visible through a new RBS Microsite since 25th February 2019.
The amount of dowry that a challenger bank will receive in respect of each eligible customer that switches is determined by the customer’s turnover and, if applicable, the outstanding balance on the loan product to be transferred. To switch your current account, the dowries can range from £750 up to £50,000 per entity. This is a key point as if you are a client with a group of companies as you could receive multiple incentives for each separate entity.
The dowries for loan products will be calculated by multiplying the outstanding loan balance x 2.5%. Dowry support for professional costs can be up to £10k legal costs on a like-for-like basis and up to £1,200 per property valuation report. Dowries are paid to the recipient bank who then decide how much of that will be passed on to the client (which varies from bank to bank).
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.
The applicable dowries in respect of business current account transfers are set out in the table below:
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 |
* Business Current Account
The following link will take you to the RBS dedicated website where you can register your interest in the scheme: switching site
If you would like any further details, or help in switching your accounts please contact your usual Burgis & Bullock adviser, call u son 0345 177 5500 or use our online chat or contact form.