How small business firms select a bank: DISCUSSION part 2

Another possible reason why small firms in Australia are concerned about long-term relationships relates to the frequency of staff turnover within most large banking organisations. This has been especially true in recent years in the four major national banks where it has not been uncommon to transfer successful branch employees after only a few years. Most small firms want to deal with someone they know; not a new branch manager or loan officer every few years. Anecdotal evidence is that many firms are happy with the manager who initially started the banking relationship. Once that manager is moved, however, the relationship sours. As a way to combat the problems associated with employee turnover and unhappy business customers, the major national banks have started to introduce business banking units to ensure continuity of service and that customers’ needs are met. On the other hand, business-banking units have been prevalent in the United States for many years.

In Australia, the higher ranking of factor C, efficient day-to-day operations, by small business firms compared to those in the US is, at first, difficult to understand. One possible explanation, however, relates to the fact that the major national banks have been involved in massive programmes to centralise administrative functions in the last decade. Many of these activities, which were previously carried out at the local branch level, have been transferred to satellite service centres. Since service centres are often further removed and not as familiar with specific customer needs, the turnaround time to answer account inquiries has lengthened.

A greater percentage of small business firms in Australia are also involved in foreign trade compared to the small business firms in the United States. The importing and exporting business requires the arrangement of letters of credit and drafts on a quick and timely basis. Foreign trade transactions negotiated over the phone can be lost because the bank was unable to get the documents in place. Bank errors in the processing of letters of credit or the release of documents of title not only cost importers and exporters financially; they can damage reputations. When the bank’s operations are efficient, these types of mistake are less likely to occur.

The fact that Australian small business firms are more concerned about competitive prices for product and services (factor A) than their American counterparts is probably a result of the poor reputation Australian banks have had with their business customers in recent years. For the past decade, the Australian media and consumer action groups have criticised the banks for having high profit levels and for continually imposing fees for services they provide. The small business community believes that they are not getting a fair value from their banks.

Small business firms from both counties ranked factor I, willingness to accommodate credit needs, almost the same. The weighted average rank score for this factor was 0.85 in the USA and 0.96 in Australia. In the overall ranking of each country, willingness to accommodate credit needs was the most important factor in the USA and the second most important factor in Australia. This finding was not surprising given the fact that banks have typically provided the major source of financing for small business firms.