Results for the classification task

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particular SME customer. If the SME chooses not to accept the option (A, B or C) offered by the bank, provided such an option is not

withdrawn by the bank, the bank shall be under no obligation to offer that SME one of the remaining options. Clause 8 of the transitional undertakings states: '…Provided that the offer made to any particular SME of a business current account with options A, B or C remains available at all times, nothing in these undertakings shall be taken as preventing the bank from also offering to any particular SME a business current account, which the SME can accept as an alternative to a

business current account with the option (A, B or C) offered by the bank to it, which offers alternative propositions or features than an account with the options (A, B or C) offered to that SME by the bank'.

Banks' approaches to implementing the transitional undertakings

each of the banks have complied with the transitional undertakings, based on information they provided. The information suggests that each bank has complied with the legal requirement of the transitional

undertakings, although the manner of compliance has varied between banks.

Barclays

5.8 Barclays told us that it conducted SME consumer research showing that SME customers favoured free and reduced money transmission tariff structures to interest bearing current accounts.⁷⁸ Consequently Barclays offered (and continues to offer) its SME customers one of the following tariffs:

• free money transmission (available mainly to start-up customers; the latter are then migrated onto another tariff after a period of time) (option B), or

78 A copy of the research has been provided to the OFT.

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• a choice between:

- interest on current account (option A), applied to the standard business tariff, and

- reduced or discounted money transmission without credit interest: i) for Barclays Local Business customers with annual turnover typically under £1 million, the Free Automated Transactions Tariffs, and ii) for Barclays Business Banking customers with annual turnover typically over £1 million, a discount to the standard business tariff without credit interest.

5.9 Barclays sent letters and literature to all its SME customers explaining the various options. It sent letters to almost 1 million SME customer accounts and received a 90 per cent response rate back from its customers. Those who failed to respond were given a default option, which in the case of Local Business Customers was to move to the Free Automated Transactions Tariff.

5.10 All Local Business customers opting for the Free Automated

Transactions Tariffs can, at any time, switch to the Standard Business Tariff which includes interest on current account balances. The same principle applies to all Business Banking customers who have opted for discounted money transmission in preference to the Business Tariff. This option is regularly brought to the attention of SMEs, for example in their half-yearly statements.

5.11 These tariff offerings formed part of a wider reorganisation of tariffs by Barclays at around the same time that the transitional undertakings came into effect. In October 2002, Barclays closed its Small Business Tariff to new customers.⁷⁹ It then gradually transferred existing Small Business Tariff customers onto new tariffs (typically either the Free Automated Transaction Tariff or the Standard Business Tariff with credit interest).

Barclays intended to complete this process by the end of 2006. It told us that money transmission charges were broadly similar between the

79 The Small Business Tariff had been available to SMEs with an annual turnover of up to

£100,000.

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old Small Business Tariff and the Standard Business Tariff, with some charges being cheaper on the Standard Business Tariff and other charges being cheaper on the Small Business Tariff. Cash handling over the

counter had been free for customers on the Small Business Tariff, whereas it incurred a charge under the standard tariff. Barclays

suggested that the Small Business Tariff was in part amended 'to ensure that SME customers contributed to Barclays' SME cash handling costs'.

Among other reasons cited by Barclays for the amendment of its Small Business Tariff offering, was that it no was no longer innovative and competitive and needed simplifying. Furthermore it had originally been designed for customers with a turnover up to £100,000 and was no longer considered appropriate given the large number of larger customers using it.

5.12 Barclays told us that it was already in the process of changing its tariffs well before the imposition of the transitional undertakings. However, the CC report and the transitional undertakings accelerated Barclays'

modernisation of its tariffs.

HSBC

5.13 HSBC Bank Plc opted to implement the transitional undertakings by automatically giving credit interest (option A) on positive balances for all its customers as a matter of course, except where they were receiving free money transmission (option B). All HSBC customers were notified of the change by letter.

5.14 All customers are given option A and are generally those SME customers with turnover of less than £500,000.⁸⁰ Those SME customers with turnover above this threshold receive negotiated terms on money transmission charges but also receive interest on credit balances in compliance with the undertakings.

80 This turnover limit has applied since 2005. Before that time the Small Business Tariff covered customers with a turnover of up to £100,000.

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