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Small Business Banking - UK - September 2017

OVERVIEW
What you need to know
Products covered in this report
EXECUTIVE SUMMARY
The market
Small business balances are forecast to reach £135 billion by 2022
Figure 1: Forecast of small business account balances (current and savings accounts), 2012-22
The number of small business loans issued fell in 2016
Figure 2: Annual value of gross loans advanced and overdraft facilities approved for small businesses, 2012-16
Companies and brands
The Big Five banking groups hold 88% of small business accounts
Figure 3: Market share for business bank accounts, June 2017
Business banking adspend totalled £31.7 million in 2016/17
Figure 4: Total above-the-line, online display and direct mail advertising expenditure on business banking services, 2012/13-2016/17
The consumer
Two thirds use a specialist business current account
Figure 5: Type of bank account used to manage business finances, June 2017
A third of business owners have used the same bank for over 10 years
Figure 6: Business account tenure, June 2017
85% have used online banking in the last three months
Figure 7: Use of business banking services in the last three months, June 2017
Bank account providers have a huge advantage in other markets
Figure 8: Ownership of other business banking products, June 2017
Three in 10 business owners plan to increase their cash reserves
Figure 9: Business owners’ plans for their business’ finances over the next two years, June 2017
Push factors hold more sway than pull factors
Figure 10: Factors that would encourage small business owners to switch business account provider, June 2017
Online banking is the preferred channel for most tasks
Figure 11: Preferred channels for carrying out various business banking activities, June 2017
Banks suffer from a serious lack of differentiation
Figure 12: Attitudes towards business banking, June 2017
What we think
ISSUES AND INSIGHTS
Increasing switching activity will be a tough task
The facts
The implications
Opportunities for digital banks
The facts
The implications
Small business owners are starting to dig in ahead of Brexit
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Small business balances are forecast to reach £135 billion by 2022
The number of small business loans issued fell in 2016
Small businesses turned over £1.28 trillion in 2016
CMA and FCA seek to improve competition in SME banking
MARKET SIZE AND FORECAST
The number of overdrawn accounts fell again last year
Figure 13: Number of small business current accounts, by in credit and overdrawn, 2012-16
Business owners are increasing their cash reserves
Figure 14: Number and value of small business current and savings accounts, 2012-16
Balances are forecast to reach £135 billion by 2022
Figure 15: Forecast of small business account balances (current and savings accounts), 2012-22
Figure 16: Forecast of small business account balances (current and savings accounts), 2012-22
Forecast methodology
SMALL BUSINESS LENDING
Small growth in the value of new small business loans…
Figure 17: Annual value of gross loans advanced and overdraft facilities approved for small businesses, 2012-16
… but lending volumes have fallen in the last five years
Figure 18: Annual number of loans and overdrafts approved for small businesses, 2012-16
MARKET DRIVERS
Small enterprises dominate the UK business population…
Figure 19: UK business population, by business size, 2012-16
… and account for a third of private sector turnover
Figure 20: Share of UK private sector turnover, by size of business, 2016
Self-employment represents 15% of the labour force
Figure 21: Number of self-employed workers in the UK, January 2012-May 2017
Most businesses are doing OK, but just 30% are growing
Figure 22: Current financial situation of the business, March 2015 vs June 2016 vs June 2017
REGULATORY AND LEGISLATIVE CHANGES
The CMA’s Retail Banking Investigation starts to take effect …
… with help from the FCA
NESTA announces the winners of the Open Up Challenge
Government agrees deal to support post-Brexit exports
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
The Big Five banking groups hold 88% of small business accounts
Challengers and incumbents seek to improve their digital services
Business banking adspend totalled £31.7 million in 2016/17
MARKET SHARE
The Big Five banking groups hold 88% of small business accounts…
Figure 23: Market share for business bank accounts, June 2017
… helped by recognition and experience from personal accounts
COMPETITIVE STRATEGIES
Digital innovation comes to the fore in SME banking
Tide hits the UK
PayPal launches Business in a Box
RBS and Barclays target quicker delivery of credit
HSBC introduces selfie identification and global connections hub
Santander teams up with Tradeshift to provide supply chain financing
Making funding more accessible
High street banks pledge to support small businesses
Peer-to-peer lending is now a mainstream alternative to traditional lenders
Supporting the gig economy
ADVERTISING AND MARKETING ACTIVITY
Business banking adspend totalled £31.7 million in 2016/17
Figure 24: Total above-the-line, online display and direct mail advertising expenditure on business banking services, 2012/13-2016/17
Barclays increased above-the-line adspend by 58% in the last year
Figure 25: Total above-the-line, online display and direct mail advertising expenditure on business banking services, by brand, 2014/5-2016/17
Providers use a range of media to advertise business banking services
Figure 26: Share of total above-the-line, online display and direct mail advertising expenditure on business banking services, by media type, 2016/17
Brand building and credit products dominate high street banks’ adspend
Figure 27: Share of total above-the-line, online display and direct mail advertising expenditure on business banking services, by product type, at major high street banks, 2016/17
Nielsen Ad Intel coverage
THE CONSUMER – WHAT YOU NEED TO KNOW
Two thirds use a specialist business current account
A third of business owners have used the same bank for over 10 years
85% have used online banking in the last three months
Bank account providers have a huge advantage in other markets
Three in 10 business owners plan to increase their cash reserves
Push factors hold more sway than pull factors
Online banking is the preferred channel for most tasks
Banks suffer from a serious lack of differentiation
BUSINESS BANK ACCOUNT OWNERSHIP
Two thirds use a specialist business current account
Figure 28: Type of bank account used to manage business finances, March 2015 vs June 2016 vs June 2017
A third of one-person businesses use the same account for personal and business needs
Figure 29: Type of bank account used to manage business finances, by number of employees, June 2017
BUSINESS ACCOUNT TENURE
A third of business owners have used the same bank for over 10 years
Figure 30: Business account tenure, June 2017
Lack of switching is not limited to business customers
USE OF BUSINESS BANKING SERVICES
85% have used online banking in the last three months
Figure 31: Use of business banking services in the last three months, June 2017
Specialist business account customers are more likely to use an overdraft
Figure 32: Use of business banking services in the last three months, by type of bank account used to manage business finances, June 2017
Most business owners used one or two banking services in the last three months
Figure 33: Number of business banking services used in the last three months, June 2017
Larger businesses are more engaged with their finances
Figure 34: Number of business banking services used in the last three months, by number of employees, June 2017
OTHER BUSINESS BANKING PRODUCTS HELD
Bank account providers have a huge advantage in other markets
Figure 35: Ownership of other business banking products, June 2017
Borrowing appears to be focused on supporting cash flow
Larger businesses are significantly more likely to have other products
Figure 36: Ownership of other business banking products, by number of employees, June 2017
BORROWING AND SHORT-TERM FUTURE PLANS
A fifth of small business owners have sought credit in the last three years
Figure 37: Small business’ credit applications in the last three years, June 2017
Three in 10 business owners plan to increase their cash reserves…
Figure 38: Business owners’ plans for their business’ finances over the next two years, June 2017
… and investments are most likely to come from profits
PROMPTS TO SWITCH BUSINESS BANK ACCOUNT
Push factors hold more sway than pull factors
Figure 39: Factors that would encourage small business owners to switch business account provider, June 2017
Charges are the biggest issue for business account users
Figure 40: Factors that would encourage small business owners to switch business account provider, by type of bank account used to manage business finances, June 2017
PREFERRED BUSINESS BANKING CHANNELS
Online banking is the preferred channel for most tasks…
Figure 41: Preferred channels for carrying out various business banking activities, June 2017
… but face-to-face advice is still the first choice
ATTITUDES TOWARDS SMALL BUSINESS BANKING
Banks suffer from a serious lack of differentiation
Figure 42: Attitudes towards business banking, June 2017
Incumbents retain a massive advantage
Most say they are unaffected by Brexit
Open Banking likely to get a lukewarm response from SMEs
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Abbreviations
Consumer research methodology
APPENDIX – MARKET SIZE AND FORECAST
Figure 43: Best- and worst-case forecast for small business account balances (current and savings accounts), 2017-22
Forecast methodology

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