Small Business Banking - UK - September 2018

“Switching is rare in the small business current account market. However, business owners’ attitudes towards challengers suggest there are opportunities for smaller and newer providers to grow their share of the market. For example, 57% of small business owners would be willing to use an online-only or app-based provider. If such providers can effectively market their products and offer a degree of personalisation, there is a chance that more business owners will look to switch banking providers.”

– Douglas Kitchen, Financial Services Analyst

This report examines the following issues:

Banks must regain trust before Open Banking can make its mark
Alternative lenders can reinvigorate the market

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Overview
- What you need to know
- Products covered in this Report
Executive Summary
- The market
- Balances are forecast to rise above £150bn by 2023
  - Figure 1: Forecast of small business account balances (current and savings accounts), 2013-23
- Lending volume continues to fall
  - Figure 2: Annual number of loans and overdrafts approved for small businesses, 2013-17
- Companies and brands
- The big five account for 80% of small business bank accounts
  - Figure 3: Market share for business bank accounts, June 2018
- Open Banking can improve access to small business lending
- The consumer
- Two thirds use a specialist business bank account
  - Figure 4: Type of bank account used to manage business finances, June 2018
- Poor customer service is the biggest prompt to switch
  - Figure 5: Factors that would encourage small business owners to switch business account provider, June 2018
- Online banking the most used channel
  - Figure 6: Channels used to carry out various business banking activities, June 2018
- The majority feel their business loan application would be approved
  - Figure 7: Chances of business loan approval, June 2018
- 40% are looking to develop their business
  - Figure 8: Business owners’ plans for their business’ finances over the next two years, June 2018
- Only a fifth will consider opting in to Open Banking
  - Figure 9: Small business’ interest in open banking, June 2018
- Almost 30% do not trust their bank
  - Figure 10: Attitudes towards business banking, June 2018
- What we think
Issues and Insights
- Banks must regain trust before Open Banking can make its mark
- The facts
- The implications
- Alternative lenders can reinvigorate the market
- The facts
- The implications
The Market – What You Need to Know
- Balances are forecast to rise above £150bn by 2023
- Lending volume continues to fall
- Small business share of private sector grows
- 85% of small businesses’ finances are ‘Healthy’ or ‘OK’
- Small businesses can use Open Banking to get ahead
Market Size and Forecast
- Number of overdrawn accounts ends decline
  - Figure 11: Number small business current accounts, by in credit and overdrawn, 2013-17
- Savings accounts decline for the second year running
  - Figure 12: Number and value of small business current and savings accounts, 2013-17
- Balances are forecast to rise above £150 billion by 2023
  - Figure 13: Forecast of small business account balances (current and savings accounts), 2013-23
  - Figure 14: Forecast of small business account balances (current and savings accounts), 2013-23
- Forecast methodology
Small Business Lending
- Consistent growth in value of small business loans
  - Figure 15: Annual value of gross loans advanced and overdraft facilities approved for small businesses, 2013-17
- Lending volume falls once again
  - Figure 16: Annual number of loans and overdrafts approved for small businesses, 2013-17
Market Drivers
- Smaller companies dominate the UK business population
  - Figure 17: UK business population, by business size, 2013-17
- Small businesses influence grows
  - Figure 18: Share of UK private sector turnover, by size of business, 2015-17
- Number of self-employed begins to fall
  - Figure 19: Number of self-employed workers in the UK, January 2013-March 2018
- 85% of small businesses’ finances are ‘Healthy’ or ‘OK’
  - Figure 20: Current financial situation of the business June 2016 vs June 2017 vs June 2018
Regulatory and Legislative Changes
- Small businesses can use Open Banking to get ahead
- Ring-fencing initiative takes centre stage
- FCA looks to tackle peer to peer investing
- MPs launch enquiry into SME exploitation
Companies and Brands – What You Need to Know
- The big five account for 84% of small business bank accounts
- Barclays doubles unsecured lending limit to SMEs
- Open Banking can improve access to small business lending
- Business banking advertising falls by over 20%
Market Share
- Barclays accounts for around a fifth of small business bank accounts
  - Figure 21: Market share for business bank accounts, June 2018
Company Profiles
- Barclays
- Profile
- Recent activity
- Santander
- Profile
- Recent activity
- RBS Group
- Profile
- Recent activity
- HSBC
- Profile
- Recent activity
- Lloyds
- Profile
- Recent activity
New Innovations
- Open Banking can provide better access to credit
- New current account providers can help in financial planning
Advertising and Marketing Activity
- Business banking adspend declines for the second year running
  - Figure 22: Total above-the-line, online display and direct mail advertising expenditure on business banking services, 2013/14-2017/18
- Top five banking groups make up only a quarter of adspend
  - Figure 23: Total above-the-line, online display and direct mail advertising expenditure on business banking services, by brand, 2013/14-2017/18
- Digital advertising falls
  - Figure 24: Share of total above-the-line, online display and direct mail advertising expenditure on business banking services, my media type, 2017/18
- Credit products the priority for Lloyds and Natwest
  - Figure 25: 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, 2017/18
- Large Banking groups focus more on wider brand building
- Nielsen Ad Intel coverage
The Consumer – What You Need to Know
- Two thirds use a specialist business bank account
- Poor customer service is the biggest prompt to switch
- Online banking the most used channel
- The majority feel their business loan application would be approved
- 40% are looking to develop their business
- Only a fifth will consider opting in to Open Banking
- 29% do not trust their bank
Business Bank Account Ownership and Tenure
- Almost 70% use a specialist business bank account
  - Figure 26: Type of bank account used to manage business finances, June 2018
- Less than half of one-person businesses own a business account
  - Figure 27: Type of bank account used to manage business finances, by number of employees, June 2018
- 70% have been with their provider longer than five years
  - Figure 28: Business bank account tenure, June 2018
Prompts to Switch
- Customer service the most important factor
  - Figure 29: Factors that would encourage small business owners to switch business account provider, June 2018
- Push factors more influential
  - Figure 30: Factors that would encourage small business owners to switch business account provider, by number of employees, June 2018
Business Banking Channels
- Online banking the most used method
  - Figure 31: Channels used to carry out various business banking activities, June 2018
- Mobile banking more popular among younger businesses
  - Figure 32: Use of mobile banking services when carrying out business activities, by age of business, June 2018
Attitudes towards Business Borrowing
- Two thirds believe their business loan application would be approved…
  - Figure 33: Chances of business loan approval, June 2018
- …but one-person businesses are less confident
  - Figure 34: Chances of business loan approval, by number of employees, June 2018
- Low interest rate the most important factor
  - Figure 35: Interest in business loan features, June 2018
- Case study: Barclays takes minority stake in FinTech financing platform MarketInvoice
Short-term Future Plans
- 40% are looking to develop their business…
  - Figure 36: Business owners’ plans for their business’ finances over the next two years, June 2018
- But micro business owners are less likely
  - Figure 37: Business owners’ plans for the business’ finances over the next two years, by number of employees, June 2018
Attitudes towards Open Banking
- Only a fifth interested in Open Banking…
  - Figure 38: Small business’ interest in open banking, June 2018
- But newer businesses more likely to be tempted
  - Figure 39: Small business’ interest in open banking, by business age, June 2018
- Personalised offers the key incentives
  - Figure 40: Interest in features which would encourage data sharing, June 2018
Attitudes towards Small Business Banking
- Two thirds concerned about the prospect of data sharing…
- …while 29% do not trust their bank
- Opportunities for new challengers
  - Figure 41: Attitudes towards business banking, June 2018
- Almost a third are concerned by Brexit
Appendix – Data Sources, Abbreviations and Supporting Information
- Abbreviations
- Consumer research methodology
Appendix – Market Size and Forecast
- - Figure 42: Best-and worst-case forecasts for small business account balances (current and savings accounts), 2018-23
- Forecast methodology