Alternative finance can force historic change in UK financial services

In an excellent series of broadcasts from BBC Radio 4 called ‘Fixing Broken Banking’ the root causes of today’s mess were examined, with many pointing the finger at the rise of free banking for those with a current account in credit.

Because the bank accounts were free, the costs had to be recouped elsewhere, which gave rise to a targets culture and eventually to the wretched PPI situation, Libor fixing and complicated swaps that have put companies out of business.

The presenter recalled when decisions were made by people who valued their relationships with local businesses and bemoaned the switch to a transactional mentality brought about by the rise of global investment banks.

Switching banking back to a mutual-style model would be expensive, time consuming and something of a culture shock for anyone who has only experienced banking in the past 20 years, but it also needs motivation to see it through.

Right now the Government’s funding for lending scheme is effectively giving dysfunctional institutions money to lend out at discounted rates, while keeping their basic approach to business lending the same in an attempt to get a pulse out of the UK’s economy.

To force change, consumers need to demand change and vote with their feet. In the same programme, Andy Haldane, the Bank of England’s director for financial stability, expressed confusion over consumers’ apparent inability to shop around for financial services in the same way they do for insurance but said the rise of alternative finance in the last couple of years is a ‘manna from heaven’. “Because if it (change) comes from customers, it cannot be resisted. And banks being forced to compete on their customer proposition is the way in which this problem can solve itself.”

And couldn’t agree more.

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