Table of Contents
Executive Summary
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- The market
- Small business balances are forecast to reach £135 billion by 2022
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- Figure 1: Forecast of small business account balances (current and savings accounts), 2012-22
- The number of small business loans issued fell in 2016
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- 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
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- Figure 3: Market share for business bank accounts, June 2017
- Business banking adspend totalled £31.7 million in 2016/17
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- 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
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- 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
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- Figure 6: Business account tenure, June 2017
- 85% have used online banking in the last three months
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- Figure 7: Use of business banking services in the last three months, June 2017
- Bank account providers have a huge advantage in other markets
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- Figure 8: Ownership of other business banking products, June 2017
- Three in 10 business owners plan to increase their cash reserves
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- Figure 9: Business owners’ plans for their business’ finances over the next two years, June 2017
- Push factors hold more sway than pull factors
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- 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
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- Figure 11: Preferred channels for carrying out various business banking activities, June 2017
- Banks suffer from a serious lack of differentiation
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- Figure 12: Attitudes towards business banking, June 2017
- What we think
Issues and Insights
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- 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
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- 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
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- The number of overdrawn accounts fell again last year
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- Figure 13: Number of small business current accounts, by in credit and overdrawn, 2012-16
- Business owners are increasing their cash reserves
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- Figure 14: Number and value of small business current and savings accounts, 2012-16
- Balances are forecast to reach £135 billion by 2022
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- 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
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- Small growth in the value of new small business loans…
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- 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
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- Figure 18: Annual number of loans and overdrafts approved for small businesses, 2012-16
Market Drivers
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- Small enterprises dominate the UK business population…
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- Figure 19: UK business population, by business size, 2012-16
- … and account for a third of private sector turnover
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- Figure 20: Share of UK private sector turnover, by size of business, 2016
- Self-employment represents 15% of the labour force
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- Figure 21: Number of self-employed workers in the UK, January 2012-May 2017
- Most businesses are doing OK, but just 30% are growing
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- Figure 22: Current financial situation of the business, March 2015 vs June 2016 vs June 2017
Regulatory and Legislative Changes
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- 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
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- 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
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- The Big Five banking groups hold 88% of small business accounts…
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- Figure 23: Market share for business bank accounts, June 2017
- … helped by recognition and experience from personal accounts
Competitive Strategies
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- 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
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- Business banking adspend totalled £31.7 million in 2016/17
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- 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
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- 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
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- 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
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- 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
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- 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
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- Two thirds use a specialist business current account
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- 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
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- Figure 29: Type of bank account used to manage business finances, by number of employees, June 2017
Business Account Tenure
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- A third of business owners have used the same bank for over 10 years
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- Figure 30: Business account tenure, June 2017
- Lack of switching is not limited to business customers
Use of Business Banking Services
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- 85% have used online banking in the last three months
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- 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
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- 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
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- Figure 33: Number of business banking services used in the last three months, June 2017
- Larger businesses are more engaged with their finances
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- Figure 34: Number of business banking services used in the last three months, by number of employees, June 2017
Other Business Banking Products Held
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- Bank account providers have a huge advantage in other markets
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- 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
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- Figure 36: Ownership of other business banking products, by number of employees, June 2017
Borrowing and Short-term Future Plans
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- A fifth of small business owners have sought credit in the last three years
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- Figure 37: Small business’ credit applications in the last three years, June 2017
- Three in 10 business owners plan to increase their cash reserves…
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- 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
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- Push factors hold more sway than pull factors
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- 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
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- 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
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- Online banking is the preferred channel for most tasks…
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- 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
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- Banks suffer from a serious lack of differentiation
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- 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
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- Abbreviations
- Consumer research methodology
Appendix – Market Size and Forecast
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- Figure 43: Best- and worst-case forecast for small business account balances (current and savings accounts), 2017-22
- Forecast methodology
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