The deadline for the Incentivised Switching Scheme (ISS) has been extended to the end of February 2021, whilst a further 200,000 RBS customers have become eligible to apply for the initiative.

The ISS offers payments of up to £50,000 to qualifying firms that switch from RBS group to one of 10 approved lenders. The list includes Virgin Money-owned Clydesdale Bank and Edinburgh-based Hampden & Co.

The scheme was intended to boost competition within the SME banking market, however, even before the outbreak of the coronavirus, it was running well behind target. 

Banking Competition Remedies (BCR), the organisation which runs the ISS, admitted yesterday that switching banks is unlikely to be a priority for SMEs due to the current economic uncertainty caused by COVID-19.

The ISS forms part of the Alternative Remedies Programme agreed in 2017 to help RBS comply with terms imposed by European regulators for agreeing to the £45 billion taxpayer bailout the group received during the financial crisis of 2008. The scheme was expected to encourage 120,000 SMEs to switch from RBS by the original deadline of the end of August this year.

The take-up had fallen so far below expectations that the size of the dowries payable to some sizes of firms that switched were increased in March, The Herald reports. 

Yesterday, Banking Competition Remedies revealed that only around 41,000 SMEs have switched from the bank or are in the process of doing so.

The organisation insisted the scheme had already made a difference in doubling the SME switching rate, but progress had inevitably been impacted since mid-March by the coronavirus pandemic. 

Brendan Pellow, lead director on ISS, said the changes announced offered the best opportunity to sustain momentum towards the ambitious targets put in place at the outset of the scheme, in what was a very different economic environment. He said: “Switching is understandably not top of SMEs’ ‘must do’ list at the moment.”

RBS said the announcement of the changes provided greater certainty. It said it would write to a diverse cross section of 200,000 businesses with an annual turnover of up to £1m to let them know they are now eligible. Firms of that size could be eligable for dowries worth up to £3,000.

However, the lender may have to pay up to a further £50m if the switching scheme target is not met.