The Rise of Fintech and the Struggles of Traditional Banks
Generation Y, often referred to as millennials, has shown a strong inclination towards fintech platforms such as Revolut, Wise, Monzo, Robinhood, and Nutmeg (now part of Chase). This trend is largely attributed to their tech-savvy nature. However, there’s more to this shift than just convenience. These new financial providers, alongside online banks like Atom and Shawbrook, offer a digital alternative to traditional banking institutions that many consumers have come to distrust.
Britain has faced numerous financial mis-selling scandals for over 25 years. Some of the most notable include endowment policies, improperly sold private pensions, payment protection insurance (PPI), and, more recently, car finance fraud. These issues have had significant corporate and economic repercussions.
The endowment scandal of the 1980s and 1990s cost life insurers up to £40 billion. It contributed to the downfall of Equitable Life, the transformation of Prudential into an Asian-focused company, and the consolidation of most life providers into Resolution and Phoenix, which later rebranded as Standard Life.
As an economic phenomenon, the financial sector has been offering its own form of quantitative easing or “helicopter money.” PPI alone returned £53 billion to consumers. In comparison, the estimated £11 billion payout to car buyers affected by unfair practices seems relatively modest. Hidden commissions were paid by financial suppliers like Lloyds Bank and Close Brothers, who should have known better.
Once the process starts, it’s hard to predict where the final bill will land. Initially, FTSE investors responded with a minor relief rally, marking up shares of Lloyds, Barclays, and others. However, the sums involved do not seem existential compared to past incidents.
Despite this, there is a growing erosion of confidence in high street banks. Branch closures are a major point of frustration. Many customers complain about the impact of these closures on themselves, local businesses, and the overall high street. One customer wrote to Paul Thwaite, CEO of NatWest, in August requesting a stay of execution for the historic Abingdon branch, which closed last month. There was no response from Thwaite and only a minimal explanation from a junior executive.
A scandal involving car finance should not have surprised anyone. Second-hand car dealers are often associated with financial misconduct. Buying a new car is complex, with leasing deals, deposits that disappear, and re-leasing that increases monthly charges. A clean-up has long been necessary, and vulnerable customers—such as first-time buyers, the elderly, and those less financially literate—have been easy targets.
Even those who dislike the compensation culture can understand the plight of victims who signed up to 14.2 million bad deals between 2007 and 2024. Fortunately, new ways of buying and selling second-hand cars, like ‘We Buy Any Car’ owned by Constellation, provide a more transparent option.
If regulated credit suppliers cannot be trusted to be honest with customers, then the nation is truly in trouble. There will be economic consequences. Giving £700 to affected individuals could boost consumer spending similarly to how Trump’s cheques helped US taxpayers during the pandemic.
Banks have been heavily campaigning against increasing the current profit levy from 2% to a higher rate, such as 5%, in the upcoming Budget. Their main argument is that this could hinder their ability to lend at a time when Chancellor Rachel Reeves is focused on economic growth.
The counterargument is that banks, through their poor treatment of car buyers, have already betrayed public trust. If they can afford to buy back their own shares with generous profits, it should be a moment for them to give back to working people.
