Digital social platforms are emerging in nearly every sector of the banking industry, driving innovation and popularising the concept of the socialisation of finance.
I was recently asked to address a conference with a mix of banks from all sectors, and to give examples of innovation in each of these different banking sectors. The examples I picked had one common theme: social finance.
Starting with payments innovation at a peer-to-peer level, there are numerous examples: iZettle, Payatrader, mPowa, SumUp, Payleven, Gopayment, Square and PayPal. Then looking at banking in a more general space there are many other examples including Moven, Simple, Alior and Fidor, as well as those in specific areas such as:
- Peer-to-peer lending and peer-to-peer saving (Zopa, Ratesetter, Smava, Prosper, Boober, Smava, Lending Club, RateSetter and Cashare)
- Peer-to-peer insurance (German firm Friendsurance seems to be first in this space)
- Payday lending (Wonga, Cash America and Advance America)
- Goalsetting and gamification (SmartyPig is the main player in this space)
- Crowd-funding (Funding Circle, Kickstarter, Indiegogo, Crowdrise, Razoo)
And the list could go on. These are all person-to-person and peer-to-peer. As soon as you make those connections, you are social.
In wealth management and investment markets, firms such as StockTwits, eToro and Nutmeg immediately come to mind. All of these new companies are using social media to leverage knowledge to improve returns.
Finally, the commercial banking markets with transaction banking are also being disrupted by everything from Bitcoin to crowd-funding and more. It goes further than this, though, with asset-based finance platforms such as Marketinvoice, Platform Black, the Receivables Exchange and Urica offering their receivables for financing online.
Kick-starting innovation
The latter areas were the focus of a UK government report in 2012 on boosting finance for business. The UK government is devising policies to encourage new forms of finance. As The Independent newspaper reports, Whitehall announced in December that four peer-to-peer lenders will be given a total of £55m ($83m) in taxpayers' money, an amount to be matched from private sources. The £110m fund is part of the £1.5bn Business Finance Partnership, part of the UK government's drive to diversify sources of finance to business.
In this context, peer-to-peer lender Zopa has lent £250m since being founded in 2005, while Funding Circle has lent £66m. Crowdcube, the crowd-funding website, has lent £4.5m since being set up in 2010 and has 25,000 registered investors. In total, it is estimated the peer-to-peer industry has already advanced £300m to individuals and small businesses this year, and some economists believe up to £30bn could be raised from the public for alternative methods of financing such as crowd-funding.
More mainstream
The sector’s lending and borrowing activities are now overseen by the UK's new market regulator, the Financial Conduct Authority, and there is an industry trade body, the Peer-to-Peer Finance Association.
We are steadily witnessing these fledgling new models of finance rapidly evolving into more formal and mainstream markets. In fact, some of these markets may even replace our traditional structures.
As Andy Haldane, director for financial stability at the Bank of England, stated in December 2012: “The mono-banking culture we have had since the 1990s is on its way out. Instead, we are seeing a much more diverse eco-system emerging, with the growth of new non-bank groups offering peer-to peer lending and crowd-funding which are operating directly with a wider public.”
This shows that the socialisation of finance, augmented by personalisation, virtualisation and gamification, has already transformed the world of money today.
