The UK public still spends a good deal of time complaining about its high street banks. This makes complete sense: they are mainly rubbish. But the fact that they aren't getting any better doesn't mean that things aren't changing.
Consider the rise of 'democratic finance': the many ways in which companies and people can lend and borrow money without using traditional methods of doing so.
Zopa, the online lending exchange, fits neatly into this category as, to a degree, do payday lenders such as Wonga (which is not to say I approve of them). There are also various organisations set up to provide peer-to-peer lending to small companies. Think www.thincats.com.
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More interesting still has been the rise in the number of companies taking their fundraisings directly to their customers.
John Lewis launched a direct investment bond last year. So did Hotel Chocolat, online travel company Mr & Mrs Smith, and Caxton FX. All of these made their offerings work partly by being very trusted and friendly brands (this is absolutely vital), and partly by setting interest rates high relative to savings rates as well as offering vouchers and products as part of the return.
Now, quality fast-food company Leon has become the latest to launch such a bond. It's an interesting one. The firm is to raise £1.5m by issuing bonds to customers for a minimum three-year term. Having invested, customers will get paid in Leon pounds' at a rate of 10% for £1,500 invested, rising to 15% for £5,000 invested. These Leon pounds can only be spent at Leon.
This is clever. It works for customers who go to Leon a lot: if you visited twice a week for 46 weeks of the year and spent, say, £15 a week you'd get through the 15% on £5,000 pretty fast but feel like you'd got a good return, even after tax.
It works for Leon, too: the deal not only locks in customers, but brings cheap finance too. Once you factor in the margins on their products, the cost of capital comes in a lot lower than 10-15% and, at a guess, much lower than taking the traditional route.
Of course, the downside for an investor is that you are locking your money up for three years. Also, companies raise money when expanding or changing strategy and Leon is both expanding and beginning to sell franchises. That could make those three years dangerous.
If Leon's managers make a mess of it, the fact that your loan is unsecured and made to a company with other debts but not much in the way of tangible assets could mean you lose more than £600-worth of superfood salad and gluten-free brownies. That said, if I worked near a Leon I might well put in £1,500. It would put an end to agonising over lunchtime choices and, unless Leon vanished, reduce my net costs, too.
However, I am even more interested in a launch that has had rather less attention: that of the Cambridge & Counties (C&C) Bank, two weeks ago. This bank has been set up by Trinity Hall, one of the Cambridge university colleges, in cahoots with the city's council-controlled pension fund and the idea is to attract cash to lend to small and medium-sized businesses (SMEs).
C&C says it will focus on personal relationships with customers, something that should differentiate it from the high street. Note that one of the reasons Leon's Henry Dimbleby gives for going direct to his customers for money is the fact that, every time he calls his bank, he finds he has a new "relationship manager".
In addition, the bank plans to differentiate itself by actually offering loans to SMEs rather than just talking about it, as seems to be the norm for high street banks and politicians. Its target is to lend £100m in the next four years. C&C is also offering a deposit service to small companies and most intriguingly of all intends to launch retail customer accounts next year. I've looked at its website (www.ccbank.co.uk). It is clear, straightforward and welcoming another departure from the norm.
All this should be seen as the good part of our unfolding financial difficulties. Crises should disrupt business sectors, chuck new competition into mix and take out old-fashioned oligopolistic failures.
All the businesses I have mentioned here are disruptive. New competition is arriving thick and fast. Note that in the same week that C&C launched, America's Silicon Valley Bank also launched in the UK, with a view to plucking the financing of our tech industry from the floppy hands of the traditional banks. I have since heard murmurs of several other companies issuing retail bonds directly to their customers.
Add it all up and it seems that, in UK banking, only the last bit taking out the old-fashioned oligopolistic failures remains to be done. If you were thinking that now might be a good time to pick up shares in say, Lloyds for the long term, you might want to consider the disruption in the market...and think again.
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