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Small Business Banking - UK - December 2013

Published By :

Mintel

Published Date : Dec 2013

Category :

Banking

No. of Pages : 107 Pages

The small business banking market is afflicted by low levels of competition and low levels of customer churn, but this could be about to change. As more small business customers become aware of new faster switching times and are better able to make comparisons between providers, more are likely to consider changing banks.
Table of Content

Introduction
Market definition
Abbreviations

Executive Summary

The market
Current market size and value
Strong growth in small business deposits forecast
Figure 1: Forecast of small business banking deposit balances, at current prices – fan chart, 2008-18
Number of small business current accounts falls short of the number of small firms
Figure 2: Number of small firms and small business current and savings accounts, 2008-13
Value of outstanding lending has edged lower over the past couple of years
Figure 3: Small business lending, by total balances, 2008-13
Market factors
Size of the small business population
Market competition and access to finance
Improving economic backdrop
Companies, brands and innovation
The big banks dominate this market
Figure 4: Estimated small business customer share by top five banking groups (based on where business account is held), October 2013
Few new product launches, but some new players
Heightened increase in adspend
The small business customer
Most small businesses are in moderate-to-good financial health
Figure 5: Current financial situation of the business, by firm size, October 2013
Improving prospects
Take-up of business bank accounts
Figure 6: Type of account used to manage business finances, by firm size, October 2013
Cost is key
Figure 7: Account features and services considered most important, October 2013
Customer satisfaction levels are reasonably high…
Figure 8: Level of satisfaction with business banking provider, October 2013
But switching intentions are fairly strong
Figure 9: Likelihood of switching banking provider over the next 12 months, October 2013
Top reasons to switch
Recent borrowing activity
Take-up of other products
Figure 10: Other financial products owned and arranged with business banking provider, October 2013
What we think

Issues in the Market

What potential is there to improve take-up of the small business bank accounts?
What account features do small business customers consider the most important?
Are small business customers more likely to switch now simply because it’s quicker to do so?
How successful are the banks at selling additional products to their small business customers?

Trend Application

Small firms need to be convinced of the benefits of business accounts
Using technology to help address grievances and improve satisfaction
Mobile banking services are important to nearly a quarter of small business owners

Market Drivers

Key points
Meeting the banking needs of small business is high on the political agenda
OFT reviews SME banking
New faster account switching service
FSB launches a new survey to find best SME bank in Britain
Small businesses draw on a diverse range of finance options
Figure 11: Sources of finance used in the past year, November 2011
Over the past five years there has been a general reduction in bank lending to small businesses
Figure 12: New term lending to small businesses (monthly basis), October 2008-June 2013
Recent government efforts to get the banks lending
Research suggests spreads on SME lending may have contracted recently, despite indicative loan rates showing little change
Figure 13: Indicative lending rates to SMEs, effective loan rate to PNFCs and official bank base rate, November 2008-Auguust 2013
A benevolent macro-economic environment is crucial for small business growth
Still some areas of concern…
but the services sector sees an increase in profitability…
Figure 14: Net rate of return of private non-financial corporations, 2003 Q1-2013 Q2
and confidence among small businesses picks up
Figure 15: Small business confidence index, 2010 Q1-2013 Q3
Number of corporate insolvencies continues to fall
Figure 16: UK corporate insolvencies (not seasonally adjusted) 2003-13

Small Business Population

Key points
Small firms’ contribution to the economy is no minor feat
Figure 17: Number of UK private-sector businesses, employment size and turnover, January 2013
Around three in five small firms are sole traders
Figure 18: Proportional distribution of small businesses, by legal status, January 2013
Self-employed population growing strongly
Figure 19: Number of self-employed and employees – UK, 2008-13
Nearly a fifth of all private-sector firms operate in the construction industry
Figure 20: Number of private sector businesses, by industry sector and size (number of employees), January 2013

Market SWOT Analysis

Figure 21: Small business banking market – SWOT analysis, 2013

Who’s Innovating?

Key points
Barclays launches new current account for small businesses…
and introduces ‘instant’ business loans
RBS plans to revive the Williams & Glyn’s brand to create a new challenger bank
TSB also returns to the high street
Government creates ‘new business bank’ to improve cash flow to SMEs
Cashplus launches ‘alternative’ business account with no credit check
CashFlows introduces a new holistic business banking service

Market Size and Forecast

Key points
Recovery in the number of small business current accounts gathers pace…
Figure 22: Number of small business current accounts, by type, 2008-13
but there’s considerable scope for future expansion
Small business deposits also rise strongly
Figure 23: Number of small business current and savings accounts, and total account balances, 2008-13
A much larger share of small business banking money is held in current accounts than in savings accounts
Figure 24: Number and value of small business current and saving accounts and average account balance, 2011-13
Very steady growth trend is forecast to continue
Figure 25: Forecast of small business deposit account balances, at current prices – fan chart, 2008-18
Figure 26: Forecast of small business deposit account balances, 2013-18
Forecast methodology
Fan chart explanation

Small Business Lending

Key points
Outstanding small business debt continues to steadily recede
Figure 27: Small business lending (total balances), 2008-13
Term loans account for the majority of bank lending to small businesses
Figure 28: Number of small term loans and amounts outstanding, 2008-12
Average small business overdraft balances fell by 25% between 2008 and 2012
Figure 29: Number of small business accounts overdrawn and amounts outstanding, 2008-12

Market Share

Key points
Small businesses are offered a limited choice of banking providers
Figure 30: Bank where business account is held, October 2013
RBS plans to move ahead of its rivals and become the number one bank for SMEs
Nationwide delays entry into market

Companies and Products

HSBC
Company description
Market position
Distribution mix
Business banking product range
Recent financial performance
Figure 31: Key annual financial data for HSBC Bank Plc, 2011 and 2012
Recent activity
Lloyds Banking Group
Description
Market position
Distribution mix
Business banking product range
Recent financial performance
Figure 32: Key annual financial data for Lloyds Banking Group, 2011 and 2012
Recent activity
RBS Group
Description
Market position
Distribution mix
Business banking product range
Recent financial performance
Figure 33: Key annual financial data for RBS Group, 2011 and 2012
Recent activity
Barclays
Company description
Market position
Distribution mix
Business banking product range
Recent financial performance
Figure 34: Key annual financial data for Barclays Plc, 2011 and 2012
Recent activity
Santander
Company description
Distribution mix
Market position
Business banking product range
Recent financial performance
Figure 35: Key annual financial data for Santander UK, 2011 and 2012
Recent activity

Brand Communication and Promotion

Key points
Increased adspend as the banks seek to reinforce their brands
Figure 36: Advertising expenditure on business banking services, by product category, 2009-13
Barclays is the number one advertiser of business banking services
Figure 37: Advertising expenditure on business banking services, by the top seven providers of small business bank accounts, 2009-13
NatWest’s ‘Ahead for Business’ campaign
The press attracts the largest share of adspend
Figure 38: Proportional distribution of adspend on business banking services, by media type, 2011-13
A note on adspend

The Small Business Owner

Key points
Survey background
Figure 39: Segmentation of sample by size of business (based on number of employees), October 2013
Figure 40: Segmentation of sample by legal status of business, October 2013
Just over a quarter of small firms operate in the business services sector
Figure 41: Industry sector that business is active in, October 2013
Just 3% have been trading less than a year
Figure 42: Length of time trading, October 2013
One in six is only just managing to get by or is facing difficulties
Figure 43: Current financial situation of the business, by firm size, October 2013
Financial situations improve the longer a business has been trading
Figure 44: Current financial situation of the business, by legal status and length of time trading, October 2013
Manufacturers and retailers are in relatively good shape
Figure 45: Current financial situation of the business, by industry sector, October 2013
Half of all small business owners are confident about their financial prospects over the coming year
Figure 46: Expected financial situation over the coming 12 months, by firm size, October 2013
Firms that have been trading for longer are more confident about their future prospects
Figure 47: Expected financial situation over the coming 12 months, by legal status and length of time trading, October 2013
Confidence levels are reasonably high across all sectors
Figure 48: Expected financial situation over the coming 12 months, by industry sector, October 2013

Ownership of Business Bank Accounts

Key points
One in four small business owners don’t have a business bank account
Figure 49: Type of account used to manage business finances, by legal status, October 2013
Ownership increases the longer a firm has been trading
Figure 50: Type of account used to manage business finances, by firm size and length of time trading, October 2013
Take-up varies according to industry sector
Figure 51: Type of account used to manage business finances, by industry sector, October 2013
Barclays is a firm favourite among small firms with 11-100 employees
Figure 52: Bank where business account is held, by firm size, October 2013
Roughly half of all small business customers belonging to the top four banks have held their account for more than ten years
Figure 53: length of time business bank account held, October 2013

Assessing Customer Needs and Satisfaction

Key points
What most small business customers want from their banks are low maintenance and transaction charges
Figure 54: Account features and services considered most important, October 2013
Access to a personal relationship manager is also viewed as essential by many
Around two in five consider access to an overdraft of paramount importance…
while one in five puts more onus on extended branch opening
Roughly two in five chose to take out the business account offered by their personal current account provider
Figure 55: Factors influencing choice of business banking provider, October 2013
Most small business customers are satisfied with the business banking provider…
Figure 56: Level of satisfaction with business banking provider, October 2013
but only 13% trust their bank to act in their best interests
Figure 57: Agreement with statements about business bank accounts, October 2013
A third of small business account customers say it’s difficult to compare the fees charged by different banks

Switching Experience and Intentions

Key points
Small business customers are a pretty loyal bunch…
Figure 58: Switched business bank account provider in the past five years, October 2013
but the faster switching service could change all that
Figure 59: Switching intentions over the next 12 months, October 2013
An increase in account charges would prompt around three in five small business customers to switch
Figure 60: Factors that would encourage switching, October 2013

Other Products Held and Access to Finance

Key points
The banks are least effective at cross-selling insurance to their small business customers…
Figure 61: Other financial products owned and arranged with business banking provider, October 2013
and the most effective at cross-selling overdrafts and loans
One in five small businesses who have needed to borrow money in the past three years have been refused credit
Figure 62: Experience of accessing finance, October 2013
Partnership and companies have a greater need for finance
Figure 63: Experience of accessing finance, by firm size and length of time trading, October 2013
Firms that have been trading for longer are less likely to be declined credit
Figure 64: Experience of accessing finance, by firm size and length of time trading, October 2013

Appendix – Market Size and Forecast

Total market forecast – best- and worst-case scenarios
Figure 65: Forecast of small business deposit account balances – best- and worst-case scenarios, at current prices, 2013-18
Forecast of the number of small business current accounts
Figure 66: Forecast of the number of small business current accounts, 2008-18
Forecast methodology
Fan chart explanation

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