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Small Business Banking - UK - September 2017

“The small business banking market is taking steps to address the concerns raised by the CMA by increasing competition and differentiation, particularly through the introduction of innovative and useful digital tools. However, there is a long way to go. Small business owners continue to consider all banks more or less the same and show a bias towards large high street banks.”
– Rich Shepherd, Senior Financial Services Research Analyst

This report looks at the following areas:

  • Increasing switching activity will be a tough task
  • Opportunities for digital banks
  • Small business owners are starting to dig in ahead of Brexit

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Table of contents

  1. 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

                                                                                                                            Small Business Banking - UK - September 2017

                                                                                                                            US $2,648.76 (Excl.Tax)