The Great Train Robbery

Anyone who commutes to work is well aware that it's much cheaper to buy an annual ticket than a monthly or a weekly one. But why should that be the case? Sure, if train companies have your money in the bank up front, they can earn interest on it. But the amount they could make in a world where interest rates have been at rock bottom for over 5 years would be fairly minimal.

If they're lucky, they might get 1.5% or 2% in the bank. Instead, however, train companies charge around 15% more for people who pay monthly, and 30% more if you choose to pay weekly. If you convert this into an APR, it works out at just over 30% for those who pay monthly, and more like 65% for those who pay weekly.

Faced with these sums, you'd be much better off borrowing the money to buy an annual ticket, rather than ever paying weekly or monthly. Train firms are getting away with daylight, rush hour robbery.

The problem is that borrowing the money just doesn't suit most people. Taking out a loan or even a credit card is a hassle, and there's no guarantee you'll be accepted - especially if your credit profile is anything less than typical. 

Light at the end of the tunnel

This was the conundrum that start-up venture Commuter Club looked to tackle, when it came to market earlier this year. Through some fairly simple financing, it offers annual season tickets to London commuters at much lower prices, and allows you to pay in monthly installments. It also builds in easy flexibility to cancel and not be left out of pocket if you move job or house during the year.

Commuter Club's model is fairly simple. It borrows the money through peer to peer lending platforms, and lends it out to commuters - charging them 5.6%. That still leaves customers the chance to pocket savings of 10% or more. And better still, just about everyone is accepted for the scheme - regardless of their credit worthiness - as Commuter Club only works with Oyster cards, so can have your card canceled if you stop your payments. That means it doesn't take on the same risk that a bank would if they were to lend you the money.

The real value for a scheme such as this will come when it's rolled out nationally. Commuting from Brighton to London costs just under £4,000 a year if you pay annually - but over £5,000 a year if you pay weekly - so there are very serious savings to be offered on larger rail fares.

The banks' new challengers

Commuter Club is part of a new generation of finance companies to be challenging the banks. Peer to peer lenders - where savers are matched up with borrowers, cutting out the middle man - have been gaining some traction over the past few years. While in the world of investment, crowd funding has quickly grown in popularity for new businesses looking to raise money. Even payday lenders could be counted as part of this revolution.

Together, this movement creates a clear and present threat to the banks' share of the non-mortgage lending market. And these concepts are popular with customers as they like the fact that they do not have to deal with banks, whose motives they're often suspicious of.

It's an exciting time, and this phase of innovation on the edges of the financial services market may only just be beginning.