Australians urged to “vote with their feet” on interest rate cuts – but is it really that easy for business customers?

As Treasurer Wayne Swan reminded us this week, Australians can vote with their feet if their bank don’t pass on interest rate cuts to their customers.

Before the big four banks surprised many by passing on this week’s 25-basis-point rate cut by the Reserve Bank, Swan encouraged customers to “walk down the road and get a better deal”.

But how does this work in practice?

Kevin Davis, from the Australian Centre for Financial Studies, says switching business loans is much more complex – and therefore cumbersome – than transferring a mortgage.

“You can’t walk over to a bank and say, ‘I’m switching my loan to you’; they have to go through due diligence,” Davis, Professor of Finance at the University of Melbourne, says.

Beyond the complexity of assessing the credit-worthiness of a prospective business customer, there’s also the matter of transferring deposits and payroll, for example.

Paul Dowling, principal analyst at financial services information firm East & Partners, says it’s still tricky for businesses to switch lenders, especially those with transaction accounts.

“Any small business with a credit line is reluctant to move,” Dowling says.

He adds that since the GFC, the number of micro and small businesses switching lenders has about halved.

For micro-businesses – those with less than $5 million in revenue – the churn rate is 4.1%; for businesses turning over between $5 and $25 million, it’s about 4.7%.

And the number of micro-businesses and SMEs that are keen to move is almost three times that, Dowling says.

Peter Strong, executive director of the Council of Small Business of Australia, says full account portability – where customers can transfer their bank account number across financial institutions, similar to the way mobile phone numbers can be transferred – deserves deeper examination.

“It’s something we should a look at,” Strong says.

Treasury officials in 2008 said that account portability would increase prices for financial institutions, which would then be passed on to customers.

There have been some changes designed to ease movement between institutions: three years ago, banks, building societies and credit unions agreed to give customers a list of their direct debit and credit arrangements over the past 13 months, which could then be handed to their new financial institution.

And from July next year, customers will be asked to fill in just one form and lodge this with their new institution, rather than with the one they are departing.