The small business wish-list for the royal commission into banks

SmartCompany, December 1, 2017

The small business community has been quick to outline their preferences for what should be included in the federal government’s royal commission into the banking sector, despite Prime Minister Malcolm Turnbull pledging that the inquiry “will not put capitalism on trial”.

After years spent rejecting the concept of a royal commission structure to review alleged unethical behaviour in the banking sector, the Prime Minister took to a lectern with Treasurer Scott Morrison on Thursday and claimed this was regrettably what things had come to.

From lending practices to dispute resolution, the relationship between SMEs and the banking sector has been in the spotlight throughout all of 2017. So with more scrutiny set to be put on the banks, what would the small business and startup communities want if they were in charge of the royal commission?

Here’s what is at the tip of their list.

An efficient process

“We want it to start quickly and end quickly, and it’s not just about the banks – we want it to be about the whole [financial system].”

— Council of Small Business Australia executive, Peter Strong

Addressing the power imbalance between SMEs and the banks

“Fundamentally, a royal commission has to look backwards, not forward. And already, on a range of areas that have been raised, like lending terms, things have already been addressed. So the thing that needs to be highlighted in a royal commission is the imbalance of power and [moving towards] a rebalancing of power.

“When we look at what banks have done in the past, it is fairly obvious that [when dealing with the banks] it’s simply not a reasonable business relationship. 

“What this is really about is giving a whole lot of businesses that haven’t had access to justice to have a chance to have their cases heard. It will give businesses who haven’t yet had justice a chance for it.”

— Small Business and Family Enterprise Ombudsman, Kate Carnell

Looking beyond the big four

“I also want them to take an industry focus, and look at things like processes [between businesses and] industry superannuation. On the idea that they make us do their work for them for nothing, that should be part of the review.”

— Peter Strong

“It’s not just the banks that have acted improperly from time to time. There are non-bank SME lenders that are guilty of improper practices. I hope the royal commission covers them too.

“I’d also love to see how much the banks actually lend SMEs compared to how much they borrow from SMEs. This data is not provided by the banks because they get a massive funding advantage from the SMEs that have surplus funds in different accounts on which no interest is paid.”

— Independent banking commentator and founder of, Neil Slonim

Focusing on access to capital for small businesses

“Lumping non-bank lending in with a royal commission into the financial sector could muddy the waters. There likely won’t be enough focus on small business finance and the difficulty SMEs face to access finance and understand its cost.

“This is the result of a wide-open regulatory framework versus strict regulations in the consumer lending space regarding fees and rates that enable consumers to readily compare.” 

— Chief executive of small business lending marketplace Bigstone, Boyd Pederson.

“Banking regulation today means big banks almost always require the owner of a small business to put their real estate up for collateral to back a loan. So when they say they back business, most of the time they are really backing real estate. Feedback from our customers is that the small business access to finance with banks is opaque, time-consuming and doesn’t meet the needs of their business which often needs access to funding fast and at a fair rate. 

“At the other end of the spectrum there are non-bank lenders in the market offering small business loans, but often at rates in excess of 30%. There is no regulation on how interest rates and fees/terms for small business loans need to be advertised, so it’s very confusing for small businesses to compare loan providers and understand the amount of repayments they are committing themselves to.

“Bigstone is calling upon the banking royal commission to make the advertising of small business loans as uniformly calculated as consumer lending currently is and to gain further government support to the non-bank lending sector which helps businesses to gain funding without having to put the family home on the line.” 

— Bigstone chief risk officer, Marcus Korff

Discussing new technologies as solutions

“Obviously there is the risk of a let’s-circle-the-wagons mentality developing under these conditions. I really hope though that the large financial institutions look to fintech as a way to set better controls and processes within their businesses more quickly than they could do by themselves… I think the time is right to go through this royal commission process. It will deliver certainty for both businesses and consumers and provide an opportunity for financial services firms to articulate again the value they provide to their customers.” 

— C0-founder and chief executive of AI-driven platform for accoutants and advisers, Nod, Joel Robbie

Avoiding putting the breaks on innovation

“Historically, financial regulation and reviews have tended to slow innovation at established organisations, due to uncertainty about government direction.  Yet, technology is creating the opportunity for change and customer expectations are changing fast, spurred by other industries … It’s certainly not clear to this observer how an inquiry will help consumers or justify its costs, including the disguised costs of slower management decision-making.”

Co-founder and chairman of digital superannuation advice platform SuperEd, Jeremy Duffield.