The future of finance - as imagined by Ryanair

No frills finance is taking off - and while many have an opinion on allocated seating, printing your own boarding pass and paying for food on-board, the model remains simple but thrilling.

When Easyjet, Ryanair and Jet2 launched they shook up an airline industry dominated by high prices and package holidays. They were able to offer a direct and simple way to get a better rate on your seat using the internet. They offered a new way to travel, giving people unprecedented access to air travel on a scale never seen before. While many have an opinion on allocated seating, printing your own boarding pass or paying for food on-board, the model was simple but thrilling – give the customer a low-cost, destination rich, frill-free option and see if it flies. It did, and became the new normal.

Fast forward 20 or so years, and something similar is happening in finance. While a few canny and charismatic entrepreneurs drove the adoption of low cost flying, it is a combination of people power and the latest technology that is revolutionising finance in this digital age - taking the frills out of finance but putting great rates back in. An example of this would be the peer-to-peer finance industry, which innovation specialists Nesta calculate to be currently worth a staggering £482 million in 2013 alone. Not enough to topple High Street banking yet, but certainly enough for mainstream customers to take notice. Peer-to-peer lending businesses have taken a very old model in banking, which is essentially lending and borrowing, and modernised it through online platforms to offer a more direct, open and transparent way to lend and borrow. It is a product that offers reward balanced against risk as platforms aim to diversify the risk, only lend to most credit worthy borrowers and some platforms even have safeguard funds in place in case of a default. There is also a social element as many lenders appreciate the community spirit involved as they are helping people finance a new car or home improvement or supporting a business to grow through a business loan. The return for enabling this is personal, and provides a financial incentive which currently offers returns two or three times higher than the rate of inflation. Meanwhile, high street banks offer savings rates so low that in real terms its costing people to save money.

In October 2013 the industry warmly welcomed the draft measure outlined by the Financial Conduct Authority (FCA) for regulating peer-to-peer lending. Put simply, regulation will help improve trust in an industry that is still growing and open it up to a whole new consumer audience. How they are regulated is one of the most common questions asked of peer-to-peer lending platforms, as there is an added level of perceived safety that regulation seems to bring to any industry. Some have speculated that regulation may stifle the creativity of those currently operating in the sector, but the majority believe it will normalise and legitimise these more democratic forms of finance.

With all businesses more accountable and connected to their customers than ever before, repairing the damage caused by the financial crisis is proving tough for traditional financial institutions. While there will always be a desire to have a transaction based relationship with banks, the increasing popularity of alternative finance options cannot be ignored. Startling growth rates of 200 per cent year-on-year have been predicted for the peer-to-peer lending platforms over the next few years, helped on by regulation and other benefits that this allows like tax free savings in ISAs. The take-off of peer-to-peer lending has been steep but it’s for many that regulation will bring about a smooth landing, with higher volumes of passenger numbers in 2014.

Giles Andrews is CEO and Co-Founder of Zopa

Could the principals of budget aviation be applied to finance? Photograph: Getty Images.
Giles Andrews is CEO and Co-Founder of Zopa
Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.