There is a reason that Britain's banks have faced a seemingly endless round of competition inquiries and regulatory interventions over the past two decades. In a market dominated by a handful of large players, where the barriers to entry are high, the banks have generally been able to get away with the type of behaviour that in more competitive industries would have resulted in companies heading for the exit doors.
Small and medium-sized enterprises, rarely afforded the same sort of protection as consumers, have suffered particularly at the hands of this cartel. But the good news – unless you're a bank, that is – is that those barriers to entry are finally beginning to come down.
Even in conventional banking, new players in SME services such as Aldermore and Shawbrook (see Small Businessman of the Week, right) have begun to make inroads into the high street giants' business. But it is online where the competition is really hotting up: in niche markets, technology is making it ever more easier for new entrants to take on the incumbents. The peer-to-peer lending market is one of the best-known examples of this. Companies such as Funding Circle and Squirrl, which use web platforms to offer finance to SMEs directly from consumers, are growing rapidly.
They have been joined by businesses such as Seedrs, which are capitalising on the new Seed Enterprise Investment Scheme tax relief, and offering small businesses access to equity funding sourced from internet-based investors.
Then there is Market Invoice, the business that enables small businesses to auction their invoices online, improving their cashflow dramatically. All of these ventures are incursions on to the territory traditionally inhabited almost entirely by our largest banks. And peer-to-peer lending is far from the only cottage industry that threatens the big players.
The foreign exchange market, for instance, has seen the entrance of a number of small players using the web to harness the power of the many in order to undercut the banks in what has traditionally been a high-margin business.
New ventures such as TransferWise and the Currency Cloud offer foreign exchange platforms that often enable SMEs to substantially reduce the cost of transferring money internationally, which has been a headache for many British exporters.
Nor are the banks' traditional services safe from this new threat. CashFlows, for example, is a new online competitor in business and merchant services. It is targeting a market in which small businesses handed the banks £2.3bn of fees last year.
Each of these businesses is small, especially in the context of the large banks with which they are competing, but in totality they are beginning to represent a threat. And the fact that they exist at all represents a breakthrough for SMEs who until now have had very little choice.
Moreover, these businesses stand every chance of succeeding. In many cases, the banks are driving customers directly to their doors with their own reluctance to transact with SMEs, particularly at the micro end.
And SMEs, fed up with the way banks have treated them in the past, are only too happy to go elsewhere. Whisper it quietly, but the banks might finally have some competition.
ERT is all set to barge ahead
Aim-listed Environmental Recycling Technologies will today announce a new deal with a US barge company.
ERT owns the rights to a technology that enables it to convert waste plastic into new products, and is licensing the process to Brownwater Plastics of Kentucky, a subsidiary of James Marine. It will pay the British business royalties on the barge covers it sells using the technology.
The deal could be very lucrative: 28,000 barges sail on US inland waterways, transporting 800m tonnes of raw materials a year. The news will please analysts at Allenby Capital, who said of the company earlier this year: "A strong order book suggests a useful royalty stream will be generated in coming months – although ERT needs to add licensees and carefully monitor its £1.77m of outstanding borrowings, it has no further R&D requirement and seems set to benefit from a process with an almost endless number of possible applications."
WH Ireland rates the stock, currently priced at 1.73p, as a buy with a target of 3.34p.
RAM goes for the big picture
RAM Active Media, the Aim-listed technology business, has high hopes for its autostereoscopic 3D screen products (that's 3D telly you can watch without glasses). It has spent the Olympics demonstrating the product on a vast screen in the foyer at the BBC.
It is relatively early days for this product roll-out, but the company has been hoovering up deals for large 3D screen installations around the country. It is already the biggest player in screens in shopping centres.
Analysts at Hybridan pointed out earlier this month: "RAM [has] announced further advertising sales and installation contract wins with property owner Capital & Regional.
"The new five-year contracts are for an additional three iconic landscape screens to be installed across three new sites, and have been scheduled to be installed in time for the important fourth-quarter 2012 trading period."
Small businessman of the week: Philip George, chief executive, Shawbrook Bank
A new bank that is user friendly for the SMEs
"We're very proud and pleased to say this week that we've reached break-even point less than a year after launching – we've got total assets of £850m, four times what we had when we got started last October.
"The idea was to make it easier and more straightforward for small and medium-sized enterprises to grow – our customers are very varied but what unites them is that they're very creditworthy and cannot believe they can't get the finance they need from traditional high street banks.
"The smaller SMEs in particular are still finding it difficult – they're coming to us having had their overdrafts cut back, and there is no long-term finance available.
"Emotionally, many SMEs feel disenfranchised and disenchanted with the main banks – they're very keen to deal with a challenger bank that is British like us.
"We haven't struggled to attract retail savers either. There too there's a feeling of frustration with the way many banks are competing for business through complicated, short-term deals. We need to keep our retail savers for the long term because they're our lifeblood – they're where the funding comes from."Reuse content