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
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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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