“My job as an entrepreneur is to turn a no into a yes,” says David Fishwick, summing up his attitude towards lending people money, as well as life in general.
Fishwick is the star of the Channel 4 programme Bank of Dave (pictured above), showing how a man who became a millionaire from selling minibuses has been fighting to open a “tiny bank” in Burnley to provide local businesses with loans.
The show charts his difficulties, mainly with the people who say “no” to him opening a bank, including the Financial Services Authority, which refuses to meet with him.
Eventually he starts an outfit called Burnley Savings and Loans, using the line “Bank on Dave”, and is now lending out about £25,000 a week and taking in about the same in savings.
He realised there was a gap in the market for his finance business because his minibus customers were suddenly having difficulty getting loans from their banks to buy new vehicles.
“Previously, all they had to do was fill in the form and take it to the bank for an answer,” he told Marketing Week. “Almost overnight that stopped, one after another. I thought perhaps they had not paid their credit card bills but people were saying they had done nothing wrong. The problem lay at the door of the banks. The banks stopped lending.”
So he started to lend his customers the money himself. “Then I realised there is money to be made in lending money.” But he claims the set-up is not solely to line his pockets, he wants to have a community bank in every high street in the UK and Ireland so that businesses can keep afloat.
Fishwick is the embodiment of the little guy up against the big high street banks – he has even written a book about the subject – and his business is now becoming one of the most high-profile alternative ways for small businesses to get loans, among a raft of new finance models that are set to benefit businesses and consumers as questions are being asked about the service levels and ethics of high street banks.
While Barclays and others are implicated in a rate-fixing scandal and RBS-owned NatWest let customers down after a technical glitch left people unable to make payments for several days, fresh financial faces are giving the industry a welcome boost.
The peer-to-peer lending business Zopa is purposely not a bank – which involves a costly licence – but has dished out about £220m since launching in 2005. It works by bringing together people who want to fund projects and get a good return on their investments, and those who need to borrow money.
Lenders can state the interest rate they want to earn and Zopa will advise them on whether that rate is achievable and how fast they will be able to loan their money out.
When a borrower applies they are put into broad risk categories. A low risk A* graded person will be able to get a lower rate than someone who is considered high risk. Lenders can state the rate of interest they are willing to lend at. Typically, investors get a 5.5 per cent rate of return a year, and invest for an average of three years. This compares with an average of 3.37 per cent on a three year fixed rate bond, according to Moneyfacts.
Zopa founder and chief executive Giles Andrews says: “Lenders get a better deal than they would in a savings account and borrowers pay less for their loans than they would with a bank, so everybody wins.”
But from a marketing point of view, Andrews has a job to do to explain how the system works and what benefits it brings. “We have only been going for seven years and we are not yet very well known. Our task gets easier every year, but the difficulty for every challenger brand like ours is how you build trust without huge marketing budgets.”
Zopa has grown through PR, word of mouth, being talked about on price comparison websites such as MoneySupermarket and through winning awards. “If we were to market cold to people who may have a few thousand pounds, the proposition doesn’t necessarily resonate, but if it is mentioned to you by a friend, that is rather more powerful,” says Andrews. It has also grown because of dissatisfaction with banks, which has now reached an all-time high level, he adds.
As with many financial products, the greater the risk, the greater the potential return – with a service like Zopa it is possible for a lender to lose money but Andrews claims that in the seven years it has operated, lenders have lost less than 0.9% of the £220m loaned out.
“The challenge is in building trust, which we have done by demonstrating a good track record. The fact that mainstream banks have lost so much trust has been a bit of a benefit,” he says.
There are also companies that have set themselves up as banks, but which work differently to the likes of RBS or HSBC in that they only lend money to ethical businesses. Triodos Bank has seen new customer accounts go up 83 per cent during the first week in July compared with the same week in June and website visits have gone up 50 per cent in the last six months (see box, below).
Lisa Stanley, head of communications at Triodos in the UK, says that Triodos doesn’t offer the highest rate of interest but has improved the rate recently. “We have made a conscious effort over the last two years to offer fair rates. We wouldn’t consider it sustainable to offer a table-topping rate to get the numbers in quickly, it is hard to give the good level of service if we are churning business in that way.”
Charity Bank, which only finances social enterprises, charities and community organisations, tells a similar story. The bank only has about £85m on its balance sheet and 2,500 depositors, but it wants to grow to about £250m in the next five years and its head of marketing Mark Howland claims it will benefit from a shift in consumer behaviour.
“The UK has been gripped for too long by apathy banking, but things are changing,” he believes. “Dissatisfaction with the high street banks is driving people to take action and we’ve seen the number of new depositors treble in the last six months.
“From a depositor’s perspective, they get a reasonable rate of return on their savings or ISA and can see that their money is benefiting society. It is not just about where the money goes, it is how we treat our customers. We know them by name, we don’t use call centres and we don’t reduce the rate of our savings accounts six months after a customer joins us.”
Big-name banks know they must improve their images, which is why Barclays appointed ex-Vodafone marketer David Wheldon in February as head of brand, reputation and citizenship. However, with a raft of high street stores opening banks, including Marks & Spencer and Asda, the future of banking looks like it will be very different, with room for the retailer as well as someone like Dave to bank on.
Case study: Triodos Bank
Ethical bank Triodos was set up in the Netherlands in 1980, only lending to companies that show a positive ethical, social or environmental impact, and has about 250,000 customers there on top of the 40,000 UK accounts it has notched up since opening here in 1995.
But now a new momentum is being generated among consumers and business people who are looking for alternatives to retail banks, following the Libor rate-fixing scandal that resulted in chief executive Bob Diamond leaving Barclays.
This movement has resulted in a “startling” number of people enquiring about Triodos’ services, claims head of communications Lisa Stanley.
She likens the change in consumer feeling to the Arab spring last year or the shareholder spring, where shareholders voted against chief executives’ pay at companies including WPP, Aviva and Credit Suisse.
Indeed, Triodos has seen customer account openings go up 56 per cent in the last six months and phone enquiries go up 78 per cent over the last month, in direct response to dissatisfaction with the main high street banks, says Stanley.
It has bought last-minute advertising in the national press to encourage people to switch, using the line ‘If not now, when’, which ran earlier this month. “We don’t have massive ad budgets but those [ads] together with unprecedented levels of media coverage upped the ante in terms of people calling and finding out about us,” she adds.
Triodos does not offer current accounts to consumers as they are too expensive for it to run at the moment, but UK managing director Charles Middleton says that people will have a greater effect on banks if it is their savings they switch out of the high street giants.
“If people moved their savings away from banks which say very little about what happens to their money once invested, to banks that make a virtue of telling depositors how their savings are being used, UK banks would have to sit up and take notice.
“They would no longer have the financial support to be able to do all these things that have got them into the mess they are now in.”