Small Business Banking - UK - June 2015

INTRODUCTION
Market definition
Abbreviations
EXECUTIVE SUMMARY
The market
Figure 1: Forecast of value of small business current account and savings account balances, 2010-20
Companies and brands
Major banks dominate the market
Figure 2: Bank where business bank account is held, March 2015
Adspend fell in 2015 but remained focused on brand building
Figure 3: Recorded above-the-line, direct mail and online display business banking adspend, by product category, 2011-15*
The consumer
71% of business owners have a business bank account
Figure 4: Type of bank account used to manage business finances, March 2015
Most business owners are satisfied with their bank
Figure 5: Satisfaction with business banking provider, March 2015
Online services are key but branches are still important
Figure 6: Use of business banking features in the last three months, March 2015
One in 10 think they’ll switch provider in the coming year
Figure 7: Switching intentions, March 2015
Most business owners have a business credit card
Figure 8: Ownership of other business banking products, March 2015
83% of business owners think they could get credit if they needed it…
Figure 9: Confidence in obtaining credit, March 2015
…but most believe borrowing should be easier to get
Figure 10: Attitudes towards small business lending, March 2015
There is more faith in banks to help in good times than in bad
Figure 11: Attitudes towards business banking, March 2015
What we think
ISSUES AND INSIGHTS
Satisfaction may be high, but trust is low
The facts
The implications
Banks need a new approach to self-employed workers
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
17.5% growth in business current account balances
The UK small business population is at record levels
Regulation could threaten the industry giants
Lending to small businesses remained steady in 2014
MARKET SIZE AND FORECAST
Modest growth in the number of small business current accounts…
Figure 12: Number of small business current accounts, by type, 2010-14
…but an impressive rise in balances
Figure 13: Number and value of small business current and savings accounts, 2011-14
Market forecast
Figure 14: Forecast of value of small business current account and savings account balances, 2010-20
MARKET DRIVERS
The UK has a record number of SMEs…
Figure 15: Volume of UK private businesses, 2010-14
…driven by more self-employed workers than ever before
Figure 16: Number of self-employed workers in the UK, 2010-15
SMEs have a combined turnover of more than £1.65 trillion
Figure 17: Total annual turnover of UK private businesses, 2014
Financial wellbeing among business owners is on the up
Figure 18: Current financial situation of the business, October 2013 vs March 2015
CMA investigation poses a potential threat to the big four
SMALL BUSINESS LENDING
Lending to small businesses stayed flat in 2014…
Figure 19: Quarterly value of gross loans advanced to small businesses, Q3 2011-Q1 2015
…while overdraft use continued to fall
Figure 20: Quarterly volumes of approved loans and overdraft facilities for small businesses, Q3 2011-Q1 2015
THE KEY PLAYERS – WHAT YOU NEED TO KNOW
A highly concentrated market
Banks focus on higher lending and better service
Lloyds dominates recorded adspend, which is focused on brand building
MARKET SHARE
Top four banking groups hold 79% of small business accounts
Figure 21: Bank where business bank account is held, March 2015
Challengers could be about to receive a boost
Challenger banks are ready to move in
COMPETITIVE STRATEGIES
“The lending bank”
HSBC
Barclays
Lloyds Banking Group
RBS Group
“The helping bank”
HSBC
Barclays
Lloyds Banking Group
RBS Group
BRAND COMMUNICATION AND PROMOTION
Adspend fell in 2015, but remained focused on brand building
Figure 22: Recorded above-the-line, direct mail and online display business banking adspend, by product category, 2011-15*
Specialist lenders have increased marketing activity in recent years
Figure 23: Recorded above-the-line, direct mail and online display business banking adspend, by brand, 2011-15
Lloyds dominates recorded brand and business current account adspend
Figure 24: Recorded above-the-line, direct mail and online display adspend on business bank brand building and business current accounts, by major high street banks, 1 March 2014-28 February 2015
THE CONSUMER – WHAT YOU NEED TO KNOW
Seven in 10 small businesses use a business current account
Traditional channels still have a major role
Switching is rare
The scope for growth in cross-selling is vast
Most have not needed credit, but are confident they could get it
Banks are not trusted to look after customers in bad times
BUSINESS BANK ACCOUNT OWNERSHIP
Seven in 10 business owners use a business current account
Figure 25: Type of bank account used to manage business finances, March 2015
Half of sole traders use personal bank accounts
Figure 26: Type of bank account used to manage business finance, by size of company (number of employees), March 2015
USE OF BUSINESS BANKING SERVICES AND SATISFACTION
Web services are key…
Figure 27: Use of business banking features in the last three months, March 2015
…but traditional facilities retain importance
The personal touch is appreciated
Most business owners use a range of services…
Figure 28: Repertoire of use of business banking features in the last three months, March 2015
…and are satisfied with their bank
Figure 29: Satisfaction with business banking provider, March 2015
SWITCHING EXPERIENCE AND INTENTIONS
Most small businesses have had long relationships with their bank…
Figure 30: Length of time business bank account held, March 2015
…but 9% think they will switch account in the next year
Figure 31: Switching intentions, March 2015
OTHER BUSINESS BANKING PRODUCTS HELD
Cross-selling opportunities are being missed…
Figure 32: Ownership of other business banking products, March 2015
…but harnessing satisfaction levels could change this
Half of small businesses don’t have a savings account
Figure 33: Ownership of business savings account, by current financial situation of the business, March 2015
LENDING EXPERIENCE AND AWARENESS OF P2P LENDING
Three quarters of small business owners have had no need for lending…
Figure 34: Small business lending experience in the last three years, March 2015
…while a fifth have borrowed funds in the last three years
16% of applicants have been rejected
Confidence in obtaining credit is high
Figure 35: Confidence in obtaining credit, March 2015
Harder for smaller businesses?
Figure 36: Confidence in obtaining credit, by number of employees, March 2015
Peer-to-peer lending has high awareness but low use
Figure 37: Experience of peer-to-peer lending, March 2015
Fear of the new?
ATTITUDES TOWARDS BUSINESS BANKING
Banks are seen as happy to help in good times, not so much in bad
Figure 38: Attitudes towards business banking, March 2015
Recommendations can make banks stand out from the crowd
Consumers are a barrier to competition
More help from everyone…
Figure 39: Attitudes towards small business lending, March 2015
…but should you need it?
APPENDIX – PANEL COMPOSITION
APPENDIX – MARKET SIZE AND FORECAST
Figure 40: Best-and worst-case forecast of small business current account and savings account balances, 2015-20