AS small firms grapple with the uncertainty triggered by the pandemic bureaucrats last week claimed success for a scheme to encourage competition in the banking market that fell way short of meeting a key target.

The £275 million Incentivised Switching Scheme (ISS) was meant to encourage 120,000 SMEs to move their accounts from the group formerly known as Royal Bank of Scotland by the end of August last year.

Businesses were offered dowries of up to £50,000 to switch from RBS to one of 10 approved ‘challenger’ groups, including Clydesdale Bank owner Virgin Money, TSB and Edinburgh-based Hampden.

The scheme forms part of the Alternative Remedies programme developed to help address EU regulators’ concerns about the £45 billion taxpayer bailout of RBS during the 2008 financial crisis.

The costs of the scheme were borne by RBS.

The organisation that ran the scheme, Banking Competition Remedies (BCR), said last week that it had overseen the switching of 69,135 Business Current Accounts by the time the ISS closed on June 30.

READ MORE: Fresh upheaval in propect in Scottish banking sector

That means the scheme achieved only 58 per cent of the target in terms of the numbers switching.

BCR however said it had been a big success measured by the amount of money doled out.

The organisation noted the switching scheme had been designed to conclude when either 120,000 Business Current Accounts switched or when a total £225m of dowry funding was allocated.

In the event an additional £50m was made available, of which £20.4m was drawn down.

Brendan Peilow, an executive director at BCR, said he was pleased to record the success of the scheme as evidenced by the full utilisation of the dowry. He also cited the fact that that over 50% of all SMEs utilising the Current Account Switching Service during the life of ISS have done so through the scheme.

To claim that ISS has been a success simply because all the original budget was used up seems odd, to say the least.

READ MORE: Royal Bank of Scotland owner continues withdrawal from Ireland

The fact so much funding was allotted to switchers was at least partly because the incentives payable were increased by as much as two-thirds from March last year in an effort to boost laggardly take-up rates.

The deadline for applying to change banks was then extended by six months to the end of February this year while an additional 200,000 RBS group customers became eligible.

The groups that received dowry funding must be rubbing their hands with glee after getting generous-looking subsidies from a rival.

Virgin Money was the biggest beneficiary in terms of dowry funding, receiving a total of £54.1m.

Santander came next on £45.5m, followed by Starling on £37m, Co-Op bank on £33.5m and TSB on £29.4m.

In terms of numbers switching Starling did best, winning 16,528 accounts. Virgin Money came second after signing up 15,946 firms. TSB ranked third, with 10,731 wins, Co-Op Bank was fourth with 10,371 and Santander fifth with 9,137.

READ MORE: Pensions and investments giant provides vote of confidence in Scotland

More SMEs may yet get dowries to switch to either Starling, Virgin Money, or TSB. They have been awarded a further £9.2m, £8.9m and £6m respectively, which must be used by December 31. This will come from the additional £50m that was made available, of which only £20.4m was allotted.

The fact an additional £29.6m was left available to be handed out as dowries did not stop BCR from claiming the switching scheme had been a success in terms of the amount of cash handed out.

It said the “underspend” reflected “changes in the lending market driven by the Covid-19 crisis and the resultant intervention by the government,” citing the CBILS and Bounce Back loan schemes.

The claims made by BCR about the switching scheme’s success may leave some people scratching their heads.

True to form, sections of the right wing press have pinned the blame for the failure of the scheme on the organisation itself, reflecting the assumption that a quango of any kind must be inefficient.

It must be remembered however that BCR only came about as a result of the follies of the management team headed by Fred Goodwin that led the former Royal Bank on a grandiose expansion drive which went disastrously wrong. This necessitated the £45bn bail out.

READ MORE: Departing RBS boss talks of customer service regret

If questions are to be asked about the behaviour of public sector players it should be EU regulators who face the toughest scrutiny. Their decision to try to force RBS to shed huge numbers of customers as the price for allowing it to receive support that helped maintain the stability of the European banking system reflected a damaging fixation in Brussels with “free” markets.

Huge amounts of time and effort have gone into trying to make ISS a success. The Alternative Remedies programme was agreed by the UK Government after RBS was unable to meet the original condition attached to the bailout - that the group should offload its Williams & Glyn operation.

The programme also includes a £425m scheme to build the capacity of other banks.

Virgin Money has been a big beneficiary of this as well. In September it was awarded £35m funding.

The group made a commitment to BCR that it would attract 100,000 new SME customers by the end of 2025.

READ MORE: Clydesdale Bank owner signals it may close more Scottish branches

At the time, that represented a 52 per cent increase on SME customer numbers at the group, which also owns Yorkshire Bank.

The group has axed the Clydesdale and Yorkshire bank names after deciding to focus on the Virgin Money brand. All the outlets remaining after the group made deep cuts in its branch network now operate under the Virgin Money fascia.

Last week the group claimed it had been one of the successes of the ISS, with almost one in four scheme switches completed in its favour.

Business banking director Gavin Opperman declared: “The scheme was set up and run very smoothly by BCR, and it has enabled us to expand our presence more broadly across the UK, reaching a new range of customers and supporting our ambitions for the future.”

He added: “Our recent rebrand to Virgin Money Business and continued improvements in our support to help businesses flourish mean we’re confident we can attract more customers and further improve competition in the sector.”

Time will tell.

READ MORE: Virgin Money targets massive growth in SME market

However, there are reasons to be sceptical.

The pandemic may have made some firms reluctant to change banks for fear of facing unwanted complications.

On the other hand, the dowries on offer must have seemed very tempting to many others at a time when lots faced huge pressure on revenues.

Against that backdrop it is hard not to wonder just how compelling the offers of at least some of the self-styled challenger banks are.

Either that or RBS may have more going for it than some might think. Shortly after taking charge, new chief executive Alison Rose decided RBS group should be rebranded NatWest Group.

The group reports first half results on Friday.

As the UK Government still has a 55% stake in the group, the success of its business banking arm may concern many more people than use its services.