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Small Business Banking - UK - June 2015

“Banks have a larger potential customer base for small business banking products than ever before. However, there are gaps in the market that must be addressed. Convincing sole traders of the benefits of business accounts over personal ones is key to growing account numbers.”
– Rich Shepherd, Financial Services Research Analyst

This report looks at the following areas:

  • Satisfaction may be high, but trust is low
  • Banks need a new approach to self-employed workers
 
Persuading sole traders and the significant minority of micro businesses that use personal accounts to opt for a business bank account is key to sustained, and improved, growth. To achieve major increases in the proportion of sole traders choosing business bank accounts, banks will likely need to implement some degree of innovation in their products, something which has largely been missing for some time. It could be that the CMA (Competition and Markets Authority) enforces change in the market as a result of its investigation of the competition in the business banking sector.
 
The dominance of the big four banks is unlikely to be broken up any time soon, but challengers may find that the CMA and FCA (Financial Conduct Authority)make it easier for them to grow at the market leaders’ expense. Banks need to be willing and able to change their products and their approach to small business banking as their customers’ behaviours and attitudes change.
 
For example, online banking is now the most used service among small business owners. Banks need to ensure as many actions as possible, from account management to loan applications, can be made quickly and easily online. If banks do this, and the economy continues to strengthen and support SMEs, the small business banking market should be set for significant growth in the coming years.

This report examines the UK market for small business banking, specifically small business current accounts. This includes discussion of the size of the market for small business current accounts, with a forecast for the next five years, and a look at major factors which influence the market. The report also examines lending to small businesses.

The report looks at the key players in the market, including market share, company strategies and promotional activity. Finally, Mintel’s exclusive consumer research covers the market in detail. This includes looking at the rates of ownership of small business bank accounts, the services that small business owners use and how satisfied they are with their current bank. The report also examines the length of business owners’ relationships with their banks and their switching intentions, what other products they have, and experience of borrowing and how confident business owners are of obtaining credit now. Finally, the report looks at consumers’ attitudes towards business banking, and towards borrowing.

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Table of contents

  1. 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

                                                                                                    Companies Covered

                                                                                                    To learn more about the companies covered in this report please contact us.

                                                                                                    Small Business Banking - UK - June 2015

                                                                                                    £1,995.00 (Excl.Tax)