'Innovative finance' are not the kinds of words that sit comfortably together and, arguably, they should not either.
There is nothing 'innovative' about finance or money. It has been around for literally thousands of years, and the only thing that changes are the means of exchange: wheat and gold in ancient times; paper money in the last few hundred years; and maybe bitcoin and other crypto-currencies going forward.
More confusingly, the expression 'innovative finance' is being applied to the categories of peer-to-peer lending and crowdfunding - which are frankly not that new.
The bit that I find bizarre is there are now Innovative Finance ISAs. Let us hope Mrs Miggins is not encouraged to put this year's ISA allowance into something like peer-to-peer lending. Surely these kinds of investments should remain the domain of so-called professional investors, just as hedge funds are?
I have no problem with P2P, other than it being a lazy catch-all expression for forms of lending and investing ranging from invoice financing through to buy-to-let.
Crowdfunding includes things as interesting and potentially profitable as a new brewer/brewery, to my mate who raised money to make a horror film.
I am no fan of some of the so-called challenger banks either, which are apparently 'innovative'. Many of them, like Virgin Money, are just someone else's branches rebranded and the only innovative thing as far as I can see is Richard Branson knocking on the window at you as you walk by.
Metro Bank has majored on US-style service and a different environment, but what is innovative about service?
One or two, such as online-only bank Atom, can lay claim to innovation and this is surely the point. Innovation is not in the product - lending or investing are as old as the hills - it is the means of access that can be innovative. And, importantly, the innovation needs to be sufficiently interesting to attract 'new' customers into the industry.
There are still something like five million people in this country who do not have bank accounts. When was the last time someone under the age of 25 asked you to help them open an ISA?
The so-called millennials - you know all those young people who spend their lives gawping at a smartphone - do not want innovation. They just want to be able to do 'finance things' on their phones in between Facebook.
If finance is to be innovative it needs to use technology to allow consumers to invest small amounts of money in the same amount of time as it takes them to buy a pair of shorts for their holidays. Is there anyone out there doing that?
Lawrence Gosling is the founding editor of Investment Week. His views are his own. Send any comments to him at [email protected]
