Thirty years ago if you wanted to fly somewhere you had to visit your travel agent, pick your flight from a limited number of expensive options – all of which included services you may not have wanted – and then wait for your tickets to arrive in the post. Then along came Easyjet, and now in a matter of minutes you can buy a cheap flight for later today if you want.
Thirty years ago if you wanted anything to do with your personal bank account you had to visit your branch. If you wanted cash, you might be lucky and have a branch that had installed a cash machine, but you probably had to write out a cheque and present it to the cashier. If you wanted a loan you had to make an appointment in advance to meet your bank manager. Today, you barely need cash because card payments have become so prevalent, and you can arrange a personal loan online or by phone in just a few minutes.
So much has changed in these two sectors that the service of 2006 is almost unrecognisable from that of 1976. The same is true of almost any sector you consider. Yet, until recently, business banking for small companies was a glaring exception.
In 1976 if you wanted to do anything with your business bank account you did it by post or visited your branch. You dealt with an account manager who knew about your business, but you paid for this service in low interest rates on credit, high rates on debt, and charges for almost everything you did.
The same was more or less true in 2000. For over 20 years while the rest of the world changed almost beyond recognition, business banking stood still. Yet recently there have been signs that this is changing. The battle for the large corporate market has been fought, and now banks are turning their attention to smaller businesses. As they do so, regulatory attention and new competitors are forcing the Big Four banks to look at how they market their services to SMEs. The result could well be the long-awaited revolution in SME business banking.
New entrants
In March 2000, the Cruickshank Report accused the banking industry of making excessive profits from its customers. It highlighted the small business banking sector as one where there was insufficient competition, where banks charged too highly and where customers received a poor deal. The Big Four – who were at the time the only serious players in the market – responded with measures that, at the time, were revolutionary, such as paying interest on credit accounts.
However, smaller banks – such as Alliance & Leicester, HBoS and Abbey – saw an opportunity, and began to develop their offers to this marketplace. The activities of Bank of Scotland Corporate in the B2B sector have been well documented in the pages of B2B Marketing this year (see B2BM March 06) but other banks have also made waves. When Alliance & Leicester acquired Girobank from the Post Office it realised it had an major opportunity to relaunch itself as the bank of choice for the smallest businesses. Tim Bartlett, senior marketing manager at Alliance & Leicester Commercial Bank (ALCB), says, “About five per cent of businesses switch banks every year. That’s around 200,000 accounts. A further 10 per cent open an extra account. That’s another 400,000 accounts. So, this is a big market.”
He continues, “Furthermore, the way the Big Four were treating their small business customers meant there was a great opportunity for someone to enter the market. For example, they were charging businesses 50p for writing a cheque. We added up all the charges like that and estimated that businesses were over-paying for their banking by £502 million per year.”
So, ALCB, working with marketing agency TDA, relaunched its small business banking service as a value proposition. It is free for the first two years and there are few charges for basic services such as writing cheques. Bartlett also points out that, through its use of Post Office counters, it has more branches than the Big Four combined. The result has been dramatic growth. In 2003 the bank opened 13,000 business accounts, and last year it opened 24,000. Bartlett reports that its market share has grown from 1.5 per cent in 2003 to nearly three per cent now.
The Big Four’s response
John Davis, local business marketing director at Barclays, is unimpressed by this growth. He points out that while these new entrants might be growing rapidly, it is from a very small base. 85 per cent of business banking is still done through the Big Four. They continue to benefit from the fact that many start-ups – when considering who to use for their business account – choose the bank they use for their personal account. Davis says, “Barclays remains the market leader in the start-up business banking sector with 24 per cent of it. These new players have had some success, but it has been limited. It is, however, forcing us to focus more clearly on our points of difference.”
He goes on to explain what this has meant for Barclays. “Businesses want three things from us. They want us to perform our functions without error. They want us to provide support and advice. They want us to take an active interest in their businesses, so this is what we continue to give them. We give them a named local business manager, out-of-hours support through a range of media, a broad range of services and access to expert advice.”
While the proposition has remained broadly the same, the investment in marketing has risen. Barclays promotes its business services through radio and press ads, and Davis reports that in recent years the amount of advertising has risen. In September, HSBC unveiled a new UK advertising campaign for its commercial banking business. The print ads will appear in British news and business publications and websites, and are part of a £6 million global campaign to promote HSBC’s small business banking services.
Perhaps more than the other Big Four, HSBC is evolving those services in response to the new entrants such as ALCB and Bank of Scotland Corporate. In 2006, it launched BusinessDirect, an Internet and telephone-based business bank account. At the launch Alan Keir, general manager of HSBC Commercial Bank, said, “HSBC BusinessDirect caters for the needs of 21st century businesses that no longer use cheques and cash, rarely visit branches and quite rightly don’t see why they should have to pay for services they don’t use. We expect that almost half of Britain’s 1.7 million small and medium-sized companies will want to bank directly by 2010 and with 51 per cent of our customers already banking online, demand for this kind of service is clear.” The bank has already signed up 10,000 customers to this new account.
New channels
BusinessDirect shows that, as well as a greater focus on value, we are seeing a shift in the channels used to market and deliver banking services to small businesses. Amanda Rendle, head of business marketing at HSBC, says, “We’re using a broader mix of channels than in the past. While consumers tend to have a preferred channel, businesses usually want to be able to use all of them. So, alongside our traditional direct mail, we’re doing much more email marketing and SMS-based response advertising. In the future I expect we’ll be doing more member-get-member schemes.”
At the same time, there is a growing emphasis on face-to-face marketing. Over the next year, HSBC will be opening 80 business banking centres, where business customers will be able to meet their relationship managers, use a library and attend special events. Barclays is working with marketing and business expert, Robert Craven, on a roadshow at which business people can find out about an aspect of business management and learn about Barclays business banking services. It is being run in association with the National Federation of Enterprise Agencies and the Association of Chartered Certified Accountants, and is visiting 80 venues around the UK, offering over 6500 free places.
The future
This revolution is just beginning. In the coming years we can expect to see a growing shift towards value banking, as well as delivery and marketing through a wider range of channels. Looking further ahead, Robert Craven expects to see more segmentation by banks.
He says, “I’m not an SME. My business has very little in common with a dentist or a builder, so why do banks lump us all in together? In the next few years I expect banks to start targeting small businesses by sector. For instance, one bank could offer a package tailored to dentists and so become known as the bank of choice for that profession.”
Finally, Matt Hall, group account director at TDA, the agency that relaunched ALCB, believes that the emphasis for business banks will gradually shift away from customer acquisition and towards customer retention. He says, “Only around five per cent of the business banking market switches every year. I estimate that most banks spend around 80 per cent of their marketing budgets chasing that five per cent. The sums don’t seem to add up. I expect we’ll see banks beginning to focus their marketing efforts on what they can do to keep customers. It should make things even more interesting.”
