Four in ten of the UK’s smallest businesses primarily run their finances with personal current accounts rather than proper business accounts, with more than half of all microbusinesses claiming banks profit at their expense, new research reveals.
Microbusinesses, including sole traders, make up more than 95 per cent - just over 5.4 million of the 5.7 million businesses in the UK - and boast turnover greater than £800 billion2.
The Ipsos MORI research, commissioned by Nationwide Building Society, highlights that more than four in ten (43%) firms with fewer than ten employees prefer banking using a personal account. This rises to 55 per cent of sole traders. The research also highlights around a fifth (19%) with business bank accounts end up feeling cheated due to branch closures and hikes in fees and charges.
The poll of 500 UK microbusinesses comes as Nationwide prepares to enter and challenge the market with a new type of business current account aimed at smaller businesses, which blends the benefits of digital and branch service with leading levels of customer service. Currently just five big banks hold 85 per cent of business accounts3.
A defined business account can provide access to associated services such as overdrafts, loans, credit cards and even marketing and accountancy support. Not having a separate business current account can also make it more difficult to complete tax returns and claim business expenses through HM Revenue & Customs.
Despite this, well over half (58%) of all microbusinesses agree banks place too much emphasis on making a profit at their expense. The view that small firms are being underserved may be an underlying factor why more aren’t opening business bank accounts.
Around a third (36%) of microbusinesses established before 2001 primarily use their personal current account, compared to more than half (57%) of enterprises founded since 2011.
Nationwide’s insight highlights systemic service issues when it comes to switching due to lack of competition. Around 420,000 microbusinesses with a business account have looked to switch provider. However, 59 per cent have been left in limbo as they struggled to find a suitable alternative.
The wishlist microbusinesses have isn’t lavish at all – they are unequivocal in their need for a simple account. While three quarters (75%) value efficient online banking - enabling them to transact quickly and efficiently - traditional service remains vitally important. Close to two thirds (64%) value having branches close by, while 69 per cent want easy-to-understand terms and conditions. Low commissions and interest rates are valued by close to two thirds (65%) of businesses, while more than half (57%) want personalised customer service.
Kevin Hollinrake MP, Co-Chair of the All-Party Parliamentary Group on Fair Business Banking, said: “Small businesses are the lifeblood of our high streets and the backbone of our economy. Innovators and challengers in the financial services sector have the opportunity to use the Capability and Innovation Fund to change the face of business banking in the UK so that small enterprises are given more choice from a more competitive sector that should drive down fees and drive up service.
“As the world’s largest building society, Nationwide has a wonderful opportunity to become a key player in a market currently dominated by the Big Five”.
Joe Garner, Chief Executive of Nationwide Building Society, said: “Business banking in the UK needs greater choice. We are entering this market to create a positive shift in favour of small enterprises. Nationwide’s branch network is a recognisable presence on the High Street. And at a time when high streets are under pressure we want to support small businesses as much as we can. The demand is there, with tens of thousands of our members asking us about having a Nationwide account for their business each year.
“We believe that having a trusted and recognised brand committed to offering the same levels of service and trust for both retail and business customers will make a difference. With a network of around 650 branches we understand the importance of face-to-face service, while also valuing the need to deliver the very best digital experience for members.”
Nationwide, which has won the accolade of Which? Best Banking Brand of the Year for the last two years, is the only major provider not currently offering an SME current account. The Society, which recently made a successful submission to the Incentivised Switching Scheme4 and will shortly be applying for up to £50 million of funding from the Capability and Innovation Fund5, will use the funding to strengthen and support the launch a market-leading, digitally enabled business current account by the end of 2019. The account will focus on the UK’s 5.6 million small businesses – representing 99.3 per cent of the total UK business population, which could benefit from being able to transact across the Society’s network of around 650 branches.
Funding will ensure Nationwide maximises its potential to enter the market with a strong and vibrant proposition which broadens into savings and lending. But even without the funding, Nationwide has committed to launching a business current account next year that could grow organically over time.
Notes to Editor
- 1 Ipsos MORI conducted 500 online interviews with UK microbusinesses (0-9 employees) between the 2nd to the 12th October 2018. Quotas and weighting were applied to ensure the final data matched the profile of the population of UK microbusinesses by number of employees, region and business activity.
- 2 Business Population Estimates for the UK and Regions 2018 This will open a PDF document which may open in a new window (depending on how your browser is set up).
- 3 https://www.bacs.co.uk/DocumentLibrary/CASS_dashboard_-_published_24_Oct_18.pdf This will open a PDF document which may open in a new window (depending on how your browser is set up)
- 4 Incentivised Switching Scheme: The purpose of the Incentivised Switching Scheme is to provide funding of up to a maximum of £275 million to eligible bodies to use as incentives to encourage SME banking customers (with an annual turnover of £25 million or less) of the business previously described as Williams & Glyn to switch their business current accounts and loans from RBS to the eligible bodies
- 5 Capability and Innovation Fund: The purpose of the Capability and Innovation Fund is to encourage eligible bodies to (i) develop and improve their capability to compete with RBS in the provision of banking services to SMEs; and (ii) develop and improve the financial products and services which are available to SMEs. The Capability and Innovation Fund comprises a total of £425 million which is divided into four pools. The four pools each have a distinct purpose and are divided into a number of pre-determined grants.
About Nationwide
Nationwide is the world's largest building society as well as one of the largest savings providers and a top-three provider of mortgages in the UK. It is also a major provider of current accounts, credit cards, ISAs and personal loans. Nationwide has around 15 million customers.
Customers can manage their finances in a branch, via the mobile app, on the telephone, internet and post. The Society has around 18,000 employees. Nationwide's head office is in Swindon with administration centres based in Northampton, Bournemouth and Dunfermline. The Society also has a number of call centres across the UK.
