I’m sure you’ve played the following game:
Someone suggests a word and you have to answer in less than a second with another related word. For example, if you say the word ‘car’, I would probably answer with ‘wheel’ or ‘fast’ or any word related to ‘car’.
Now it’s my turn . Ready ? 3, 2, 1, … ‘ Banking ‘. What does this word suggest you? Is it with a positive or negative connotation ?
I wouldn’t be surprised if the word you thought would have a negative connotation: after years of exorbitant commissions, salaries and bonuses collected by executives, politization, credit crunch and big bailouts with taxpayer money.
The banking industry has evolved a lot since its beginnings and current complexity contrasts sharply with the simple concept exploited by the Greeks or the Romans. They received an interest for lending the money they held from their depositors. There were no CDFs nor Mortgage-Backed securities, nor other ‘ weapons of mass destruction”, as Warren Buffet called the majority of financial derivatives a few years ago.
Lending was a simple service, like most of the other establishments in the village or town. Nevertheless, it was of vital importance because it allowed farmer to buy seeds before the harvest, to pay the carpenter to fix the wagon wheel before receiving money from clients or for the carpenter himself to pay for his tools before collecting any payment.
Somewhere along the road the system has derailed, and those loans that once were given to maintain a strong and vibrant economy, were used for all sorts of other purposes to increase earnings for the bank and its shareholders, but to the detriment of the society. Banks will always have an important role in any advanced society, but maybe it is wrong they have always decided unilaterally where to invest or lend their depositors’ money.
Internet has been disrupting many industries, and internet will be a disruptive factor again. The bank’s main task is to intermediate between holders of cash with those in need of cash, encapsulated under a blanket of trust, and there is no reason why this intermediation could not be done through the internet. Why holding a long-term deposit at a bank at 2% when you could lend your money to a solvent company that is willing to pay 8% for financing their projects. That money would be used to build new infrastructures, to invest in projects or become more efficient. Guess who was the one who lent that money at 8% while being financed by you at 2%? Yes, you are right.
Imagine a platform where you could choose the projects you could invest in… Where all details are published, including the due diligence for every company and project… A site that would allow crowdfunding those tangible projects to people willing to invest in higher returns, at low risk, and that want to take control of their money… What if you could be your own banker ?