Table of Contents
Issues in the Market
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- Definition
- Abbreviations
Insights and Opportunities
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- Don’t rest on your laurels
- Small business are better financial managers
- Relationship management is key
- A case for a new hybrid account?
Market in Brief
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- A large, growing market to target…
- …but is the market now slowing?
- But at least the customer base is loyal
- A market constrained by personal banking...
- …but also introduced by personal banking
- A market that is becoming more fluid…
- …but the big four still dominate
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- Figure 1: The shares of the small business liquidity management market, 2008
- A wide product space
Fast Forward Trends
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- Trend 1: Growing a Longer Tail
- The niche becomes mainstream
- Businesses follow suit
- Catering for the micro business
- Trend 2: Staying Connected
- Building new links…
- …and new communtities
- Facilitating small businesses
Internal Market Environment
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- Key points
- Small businesses are loyal, but switching is on the rise
- How much does competition drive switching?
- As is multi-banking and multi-sourcing on the rise
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- Figure 2: Range of banking services provided by principal bank, 2006
- Implications and opportunities
- Cash flow is important for determining payment method
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- Figure 3: Methods by which SMEs make and receive payments, 2006
- Location is key…
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- Figure 4: Reasons for visiting a local branch, 2006
- …as are personal relationships
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- Figure 5: The main reasons why SMEs chose bank for main business account, 2006
- Soft factors are vital
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- Figure 6: The characteristics most important in a bank, 2006
- Advice is important, so get it right
- Small businesses are important savers
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- Figure 7: Sources of finance used (% of businesses) iin order of significance, 2006
- Investigations into small business banking
- Banking Review 1998
- Competition Commission Investigation in 2002
- OFT Review of Undertakings 2006
- Outcome of the OFT Review
- Small businesses react negatively to the OFT findings
Broader Market Environment
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- Key points
- 4.7 million small businesses
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- Figure 8: Number of small business enterprises (000) and the share of all enterprises taken by small businesses, 1997-2007
- Small businesses turnover over £1 billion
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- Figure 9: The turnover of small business enterprises (£bn) and the share of all enterprises turnover taken by small businesses, 1997-2007
- Most small businesses aren’t small, they are micro
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- Figure 10: The breakdown of small business turnover and number of enterprises, by employee numbers, 2007
- Private sector dominate along with sole proprietors
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- Figure 11: The breakdown of small business turnover and number of enterprises, by legal status and economic sector, 2007
- Services and people businesses dominate
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- Figure 12: The number of private sector small businesses (000), by industry sector and employee numbers, 2007
- The economy drives the sector
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- Figure 13: Number of enterprises, turnover and GDP, at current and constant 2003 prices, 1997-2007
- But are the good times over?
- The cost of borrowing gets stuck in 2008
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- Figure 14: UK inter-bank three months offer rate and selected UK bank base rates, January 2000-June 2008
- Life gets tougher for small businesses
- Sales expectations are down
- Start-ups a vital source of new business
- New VAT registrations on a downward trend
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- Figure 15: Volume of VAT registrations and the share of the VAT stock accounted for by new registrations, 1994-2006
- Improved access to finance
- New access to finance
- Implications
Competitive Context
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- Key points
- Not all small businesses use business banking
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- Figure 16: The use of business and personal banking by small businesses (number of businesses), 2005-07
- Personal current accounts are the main competitive threat
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- Figure 17: Number of sight accounts+, by ownership (million, year-end), 2002-07
- Consumer credit used for business use
Strengths and Weaknesses in the Market
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- Figure 18: Summary Chart of the small business banking sector’s strengths and weaknesses, 2008
- The credit crunch will set the tone in the short term
- A stable customer base but competitive forces are growing
- Regulation eases for the banks but could it lead to more switching?
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Who’s Innovating?
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- Key points
- Using innovation to gain a leading edge
- Bank of Scotland launches business offset loans…
- …and other business-oriented offset products are developed
- Lloyds TSB launches Islamic Business and Corporate account
- HSBC targets multicultural entrepreneurs
- Abbey savings bond
- Mobile business banking
Trade Perspective
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- More shopping around and proactive banking
- The credit crunch: how will it affect business banking?
- Are the banks still lending?
- The credit crunch: business are adjusting their behaviour
- Post-crunch: less competition but more competitive pressures?
- Post-crunch: increased importance of technology
Market Size and Forecast
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- Key points
- Market segmentation
- Liquidity management services
- Businesses get more canny with their money
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- Figure 19: Trends in the number of business bank accouts (year-end data) and market forecast, 2000-13
- Small businesses seem to have better cash flow
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- Figure 20: Trends in the average amount of money held in current and deposit accounts, 2000-07
- The appetite for overdrafts is waning…
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- Figure 21: Trends in business overdraft services (year-end data), 2000-07
- …as is the number of accounts with overdraft facilities
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- Figure 22: Trends in the number of business current accounts with overdraft services (year-end data), 2000-07
- Factors used in the forecast
- Term and other loans
- Number of terms loans declining
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- Figure 23: Trends in term loans (year-end data), 2000-07
- Term lengths are increasing
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- Figure 24: The breakdown of term loans, by length of term (amounts outstanding, £bn), 2000-07
- Most loans are of variable rate
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- Figure 25: The breakdown of term loans, by rate variability (amounts outstanding, £bn), 2000-07
- SFLGs not growing in popularity
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- Figure 26: Number and value of SFLGs issued and average loan size, 1999/2000-2007/08
- Credit crunch slows the market
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- Figure 27: The number of small business banking customers, Q2 2006-Q4 2007
Market Share
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- Key points
- A concentrated market
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- Figure 28: The banks providing business accounts in the UK, 2008
- RBS leads the way
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- Figure 29: Estimated shares of the small business banking liquidity market (% of accounts), 2008
- But the big four’s share is slipping
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- Figure 30: Changes in market shares, 2006 and 2008+
- Lloyds TSB shows how it should be done
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- Figure 31: Market shares* of the big four banks, by turnover, region, sector, employees and start date, September 2008
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- Figure 32: Market shares* of the smaller banks, by turnover, region, sector, employees and start date, September 2008
- Small Firm Loan Guarantees
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- Figure 33: Lender market shares by number of loans, 2007/08
Companies and Products
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- Key points
- The product space is wide
- Discounted tariffs are a hook to new business
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- Figure 34: Examples of introductory offers offered by banks, September 2008
- Increasing charges?
- Company snapshots: The big four
- RBS Group
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- Figure 35: The Royal Bank of Scotland small business bank accounts and charges, September 2008
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- Figure 36: NatWest small business bank accounts and charges, September 2008
- Barclays Bank
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- Figure 37: Barclays small business bank accounts and charges, September 2008
- Lloyds TSB
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- Figure 38: Lloyds TSB small business bank accounts and charges, September 2008
- HBOS
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- Figure 39: Bank of Scotland small business bank accounts and charges, September 2008
- HSBC
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- Figure 40: HSBC small business bank accounts and charges, September 2008
- Company snapshots: smaller banks
- Alliance & Leicester
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- Figure 41: Alliance & Leicester small business bank accounts and charges, September 2008
- Abbey
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- Figure 42: Abbey small business bank accounts and charges, September 2008
- Co-operative Bank
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- Figure 43: The Co-operative Bank small business bank accounts and charges, September 2008
Brand Communication and Promotion
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- Key points
- Little spend promoting business accounts
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- Figure 44: Advertising expenditure on business banking services, 2006/07 and 2007/08
- The money transmission gateway…
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- Figure 45: Advertising expenditure on business banking services, by category, 2006/07 and 2007/08
- …but expenditure is still low
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- Figure 46: Advertising expenditure on money transmission business services, 2006/07 and 2007/08
Channels to Market
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- Key points
- The branch is the gateway to new business
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- Figure 47: Relative use (% of banking undertaken) of channels by SMEs, 2006
- Relationship managers are an important aspect of business banking
- Online banking is on the rise
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- Figure 48: The number and percentage of small businesses using online facilities, 2003-07
The Consumer: Business Banking Penetration
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- Key points
- Mintel’s consumer research
- Most use business banking but personal banking still important
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- Figure 49: Business account usage, September 2008
- Implications and opportunities
- Is online challenging the branch?
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- Figure 50: The main channels used for business banking, September 2008
- Implications and opportunities
- New businesses leading the charge online
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- Figure 51: The main channels used, by start date, September 2008
- Services are more tech-savvy
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- Figure 52: The main channels used, by region and sector, September 2008
- Size isn’t everything
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- Figure 53: The main channels used, by turnover and employee number, September 2008
- Technological sophistication drives online banking
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- Figure 54: Tendency to use online banking, by access to/usage of computer technology within the business, September 2008
The Consumer: How Well are the Banks Performing?
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- Key points
- Banks are meeting their customers’ needs…..
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- Figure 55: The level of satisfaction with the main banking provider, September 2008
- …because they show high levels of understanding…
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- Figure 56: Positive small business perceptions of their main account provider, September 2008
- …and offer value for money
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- Figure 57: Negative small business perceptions of their main account provider, September 2008
- Smallest businesses are helped the most…
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- Figure 58: Positive attitudes towards the main account provider, by turnover, sector, employees and start date, September 2008
- …but start-ups feel the cost burden more
The Consumer: How Competitive is the Market?
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- Key points
- Few want to switch provider
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- Figure 59: Small businesses willingness to switch accounts, September 2008
- Smaller businesses are the most loyal
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- Figure 60: Small businesses who are unlikely to switch in the foreseeable future, September 2008
- Newer business feel that switching is too much hassle…
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- Figure 61: Small businesses believing it is too much trouble/difficult to swap, September 2008
- …possibly because there is less product differentiation
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- Figure 62: Small businesses believing there is no point switching as all accounts are the same, September 2008
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