Bernard Ginns: first supermarkets, now banks are facing big shake-up

Readers will know they are experiencing varying degrees of success in their efforts to adjust as the market shifts away from old certainties towards new unknowns.

I wonder if the same will happen to banking. Reading Liberum Capital’s report on peer-to-peer (P2P) lending I am convinced that it will. The question is when.

According to the boutique investment bank, every household in Britain would be £10 better off every week if they rejected traditional banking.

It estimates that mass adoption of P2P lending could inject £32bn a year into the UK economy.

P2P lending works by cutting out the middle man to connect savers and borrowers via online lending platforms.

Liberum claims that the process - which is known as disintermediation - is ten times as efficient as banking.

Britain’s big banking groups, which dominate the financial services industry in the same way as Tesco, Asda, Morrisons and Sainsbury’s dominate the grocery sector, have heavy fixed costs with big branch networks, large headcounts, legacy IT infrastructure and hefty capital requirements to support.

It is really not in their interests to make banking cheaper to businesses and households.

Cormac Leech, a financial analyst at Liberum, told me that P2P lending can offer better returns to savers and lower charges to borrowers.

He said: “The banking industry is no more efficient today than it was in the early 1900s.”

He argued that the lack of economies of scale in the industry points to an oligopoly.

Widespread use of P2P - and the automation it would entail - would make the millions of people currently working in the financial services industry available to work elsewhere in more socially useful professions like teaching and healthcare, argued Mr Leech.

That may be so, but the tax receipts from Britain’s banking sector happen to pay for quite a lot of schools and hospitals.

But I take his point. Banking is not particularly socially useful, a claim supported by successive mis-selling and rate-rigging scandals.

Imagine if the fine minds that are sucked into the City every year were more usefully deployed elsewhere in the UK’s public and private sectors.

Instead of rocket science graduates becoming quantitative analysts at investment banks, they could actually became rocket scientists.

This is all conjecture. At present, not many people know about P2P lending. Liberum’s latest consumer sentiment survey hows that 65 per cent of UK adults are still unaware of the model and only two per cent have actively invested to date.

But the bank expects public participation to increase once P2P loans become included in tax-free ISAs, a move expected over the coming year.

Liberum estimates that participation rates could increase from 2 per cent to 20 per cent over the next decade based on current rates for cash and equity ISAs.

The Government is desperate to inject some competition into the banking sector. Better growth would follow.

P2P lending could provide the answer.

* If Scotland, why not Yorkshire?

Assuming the Scots vote No, they have been promised a package of devolution measures to die for.

If they vote Yes, they will have freedoms that Yorkshire’s local government sectors can only dream of.

Yorkshire’s lack of decision-making powers is harming its economy.

The China deal reported elsewhere in The Yorkshire Post is sadly an exception to the rule that Yorkshire struggles to attract foreign investors.

The region’s politicians should be banging the drum for greater devolved powers.