Table of Contents
Introduction
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- Market definition
- Abbreviations
Executive Summary
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- The market
- Current market size and value
- Strong growth in small business deposits forecast
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- Figure 1: Forecast of small business banking deposit balances, at current prices – fan chart, 2008-18
- Number of small business current accounts falls short of the number of small firms
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- Figure 2: Number of small firms and small business current and savings accounts, 2008-13
- Value of outstanding lending has edged lower over the past couple of years
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- Figure 3: Small business lending, by total balances, 2008-13
- Market factors
- Size of the small business population
- Market competition and access to finance
- Improving economic backdrop
- Companies, brands and innovation
- The big banks dominate this market
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- Figure 4: Estimated small business customer share by top five banking groups (based on where business account is held), October 2013
- Few new product launches, but some new players
- Heightened increase in adspend
- The small business customer
- Most small businesses are in moderate-to-good financial health
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- Figure 5: Current financial situation of the business, by firm size, October 2013
- Improving prospects
- Take-up of business bank accounts
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- Figure 6: Type of account used to manage business finances, by firm size, October 2013
- Cost is key
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- Figure 7: Account features and services considered most important, October 2013
- Customer satisfaction levels are reasonably high…
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- Figure 8: Level of satisfaction with business banking provider, October 2013
- …but switching intentions are fairly strong
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- Figure 9: Likelihood of switching banking provider over the next 12 months, October 2013
- Top reasons to switch
- Recent borrowing activity
- Take-up of other products
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- Figure 10: Other financial products owned and arranged with business banking provider, October 2013
- What we think
Issues in the Market
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- What potential is there to improve take-up of the small business bank accounts?
- What account features do small business customers consider the most important?
- Are small business customers more likely to switch now simply because it’s quicker to do so?
- How successful are the banks at selling additional products to their small business customers?
Trend Application
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- Small firms need to be convinced of the benefits of business accounts
- Using technology to help address grievances and improve satisfaction
- Mobile banking services are important to nearly a quarter of small business owners
Market Drivers
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- Key points
- Meeting the banking needs of small business is high on the political agenda
- OFT reviews SME banking
- New faster account switching service
- FSB launches a new survey to find best SME bank in Britain
- Small businesses draw on a diverse range of finance options
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- Figure 11: Sources of finance used in the past year, November 2011
- Over the past five years there has been a general reduction in bank lending to small businesses
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- Figure 12: New term lending to small businesses (monthly basis), October 2008-June 2013
- Recent government efforts to get the banks lending
- Research suggests spreads on SME lending may have contracted recently, despite indicative loan rates showing little change
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- Figure 13: Indicative lending rates to SMEs, effective loan rate to PNFCs and official bank base rate, November 2008-Auguust 2013
- A benevolent macro-economic environment is crucial for small business growth
- Still some areas of concern…
- … but the services sector sees an increase in profitability…
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- Figure 14: Net rate of return of private non-financial corporations, 2003 Q1-2013 Q2
- …and confidence among small businesses picks up
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- Figure 15: Small business confidence index, 2010 Q1-2013 Q3
- Number of corporate insolvencies continues to fall
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- Figure 16: UK corporate insolvencies (not seasonally adjusted) 2003-13
Small Business Population
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- Key points
- Small firms’ contribution to the economy is no minor feat
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- Figure 17: Number of UK private-sector businesses, employment size and turnover, January 2013
- Around three in five small firms are sole traders
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- Figure 18: Proportional distribution of small businesses, by legal status, January 2013
- Self-employed population growing strongly
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- Figure 19: Number of self-employed and employees – UK, 2008-13
- Nearly a fifth of all private-sector firms operate in the construction industry
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- Figure 20: Number of private sector businesses, by industry sector and size (number of employees), January 2013
Market SWOT Analysis
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- Figure 21: Small business banking market – SWOT analysis, 2013
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Who’s Innovating?
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- Key points
- Barclays launches new current account for small businesses…
- … and introduces ‘instant’ business loans
- RBS plans to revive the Williams & Glyn’s brand to create a new challenger bank
- TSB also returns to the high street
- Government creates ‘new business bank’ to improve cash flow to SMEs
- Cashplus launches ‘alternative’ business account with no credit check
- CashFlows introduces a new holistic business banking service
Market Size and Forecast
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- Key points
- Recovery in the number of small business current accounts gathers pace…
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- Figure 22: Number of small business current accounts, by type, 2008-13
- … but there’s considerable scope for future expansion
- Small business deposits also rise strongly
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- Figure 23: Number of small business current and savings accounts, and total account balances, 2008-13
- A much larger share of small business banking money is held in current accounts than in savings accounts
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- Figure 24: Number and value of small business current and saving accounts and average account balance, 2011-13
- Very steady growth trend is forecast to continue
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- Figure 25: Forecast of small business deposit account balances, at current prices – fan chart, 2008-18
- Figure 26: Forecast of small business deposit account balances, 2013-18
- Forecast methodology
- Fan chart explanation
Small Business Lending
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- Key points
- Outstanding small business debt continues to steadily recede
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- Figure 27: Small business lending (total balances), 2008-13
- Term loans account for the majority of bank lending to small businesses
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- Figure 28: Number of small term loans and amounts outstanding, 2008-12
- Average small business overdraft balances fell by 25% between 2008 and 2012
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- Figure 29: Number of small business accounts overdrawn and amounts outstanding, 2008-12
Market Share
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- Key points
- Small businesses are offered a limited choice of banking providers
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- Figure 30: Bank where business account is held, October 2013
- RBS plans to move ahead of its rivals and become the number one bank for SMEs
- Nationwide delays entry into market
Companies and Products
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- HSBC
- Company description
- Market position
- Distribution mix
- Business banking product range
- Recent financial performance
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- Figure 31: Key annual financial data for HSBC Bank Plc, 2011 and 2012
- Recent activity
- Lloyds Banking Group
- Description
- Market position
- Distribution mix
- Business banking product range
- Recent financial performance
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- Figure 32: Key annual financial data for Lloyds Banking Group, 2011 and 2012
- Recent activity
- RBS Group
- Description
- Market position
- Distribution mix
- Business banking product range
- Recent financial performance
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- Figure 33: Key annual financial data for RBS Group, 2011 and 2012
- Recent activity
- Barclays
- Company description
- Market position
- Distribution mix
- Business banking product range
- Recent financial performance
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- Figure 34: Key annual financial data for Barclays Plc, 2011 and 2012
- Recent activity
- Santander
- Company description
- Distribution mix
- Market position
- Business banking product range
- Recent financial performance
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- Figure 35: Key annual financial data for Santander UK, 2011 and 2012
- Recent activity
Brand Communication and Promotion
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- Key points
- Increased adspend as the banks seek to reinforce their brands
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- Figure 36: Advertising expenditure on business banking services, by product category, 2009-13
- Barclays is the number one advertiser of business banking services
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- Figure 37: Advertising expenditure on business banking services, by the top seven providers of small business bank accounts, 2009-13
- NatWest’s ‘Ahead for Business’ campaign
- The press attracts the largest share of adspend
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- Figure 38: Proportional distribution of adspend on business banking services, by media type, 2011-13
- A note on adspend
The Small Business Owner
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- Key points
- Survey background
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- Figure 39: Segmentation of sample by size of business (based on number of employees), October 2013
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- Figure 40: Segmentation of sample by legal status of business, October 2013
- Just over a quarter of small firms operate in the business services sector
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- Figure 41: Industry sector that business is active in, October 2013
- Just 3% have been trading less than a year
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- Figure 42: Length of time trading, October 2013
- One in six is only just managing to get by or is facing difficulties
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- Figure 43: Current financial situation of the business, by firm size, October 2013
- Financial situations improve the longer a business has been trading
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- Figure 44: Current financial situation of the business, by legal status and length of time trading, October 2013
- Manufacturers and retailers are in relatively good shape
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- Figure 45: Current financial situation of the business, by industry sector, October 2013
- Half of all small business owners are confident about their financial prospects over the coming year
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- Figure 46: Expected financial situation over the coming 12 months, by firm size, October 2013
- Firms that have been trading for longer are more confident about their future prospects
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- Figure 47: Expected financial situation over the coming 12 months, by legal status and length of time trading, October 2013
- Confidence levels are reasonably high across all sectors
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- Figure 48: Expected financial situation over the coming 12 months, by industry sector, October 2013
Ownership of Business Bank Accounts
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- Key points
- One in four small business owners don’t have a business bank account
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- Figure 49: Type of account used to manage business finances, by legal status, October 2013
- Ownership increases the longer a firm has been trading
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- Figure 50: Type of account used to manage business finances, by firm size and length of time trading, October 2013
- Take-up varies according to industry sector
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- Figure 51: Type of account used to manage business finances, by industry sector, October 2013
- Barclays is a firm favourite among small firms with 11-100 employees
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- Figure 52: Bank where business account is held, by firm size, October 2013
- Roughly half of all small business customers belonging to the top four banks have held their account for more than ten years
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- Figure 53: length of time business bank account held, October 2013
Assessing Customer Needs and Satisfaction
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- Key points
- What most small business customers want from their banks are low maintenance and transaction charges
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- Figure 54: Account features and services considered most important, October 2013
- Access to a personal relationship manager is also viewed as essential by many
- Around two in five consider access to an overdraft of paramount importance…
- …while one in five puts more onus on extended branch opening
- Roughly two in five chose to take out the business account offered by their personal current account provider
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- Figure 55: Factors influencing choice of business banking provider, October 2013
- Most small business customers are satisfied with the business banking provider…
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- Figure 56: Level of satisfaction with business banking provider, October 2013
- …but only 13% trust their bank to act in their best interests
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- Figure 57: Agreement with statements about business bank accounts, October 2013
- A third of small business account customers say it’s difficult to compare the fees charged by different banks
Switching Experience and Intentions
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- Key points
- Small business customers are a pretty loyal bunch…
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- Figure 58: Switched business bank account provider in the past five years, October 2013
- …but the faster switching service could change all that
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- Figure 59: Switching intentions over the next 12 months, October 2013
- An increase in account charges would prompt around three in five small business customers to switch
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- Figure 60: Factors that would encourage switching, October 2013
Other Products Held and Access to Finance
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- Key points
- The banks are least effective at cross-selling insurance to their small business customers…
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- Figure 61: Other financial products owned and arranged with business banking provider, October 2013
- … and the most effective at cross-selling overdrafts and loans
- One in five small businesses who have needed to borrow money in the past three years have been refused credit
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- Figure 62: Experience of accessing finance, October 2013
- Partnership and companies have a greater need for finance
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- Figure 63: Experience of accessing finance, by firm size and length of time trading, October 2013
- Firms that have been trading for longer are less likely to be declined credit
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- Figure 64: Experience of accessing finance, by firm size and length of time trading, October 2013
Appendix – Market Size and Forecast
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- Total market forecast – best- and worst-case scenarios
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- Figure 65: Forecast of small business deposit account balances – best- and worst-case scenarios, at current prices, 2013-18
- Forecast of the number of small business current accounts
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- Figure 66: Forecast of the number of small business current accounts, 2008-18
- Forecast methodology
- Fan chart explanation
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