Re-inventing finance with a technology platform

Why don't people spontaneously create banks and credit unions as needed, then dissolve them when the needs are no longer present? And why are these the only choices for financial institutions?

I was talking to my coach, Leigh, earlier today about the difficulty for "older" folks to really understand and use these strange new tools like blogs and social networks.

"But, Leigh, think of Thomas Paine's 'Common Sense'. What was that? How did people get it?"

"What do you mean?"

"It was a pamphlet. Printed at his expense and handed out on the street or sold cheaply in shops. It was one of thousands of pamphlets vying for attention, just like the Federalist Papers. The individual pushing his ideas into the public space like that was the norm! It was only through the massive newspaper consolidation activity at the end of the 19th century that we came to see a merely consuming information from a few, large outlets as standard. Blogs are a return to the raucous marketplace of ideas present at the creation of the country!"

That diverse marketplace simply couldn't scale fast enough or far enough using the technology of the time: paper, ink, the printing press, people handing out pamphlets on street corners. Consolidation to achieve scale was inevitable. Now, though, technology is offering the possibility for diversity and efficiency.

Returning to the credit unions, they are consolidating because they are using 18th century technology in a 21st century world. But is the answer simply the same old credit unions, however much they might focus on their members, with new technology? The laws and regulations that define what it is to be a credit union or a bank are as much artifacts of hundreds of years in the past.

At the heart of the problem I think we will find transaction costs: when you have nothing but pen, ink, and paper the barriers to creating new institutions is enormous. Credit unions and banks are simply part of the universe of possible configurations, just as Zopa is.

Our platform will allow exploration and exploitation of the rest of that universe.

A group of people comes together to form what looks like a credit union. Their focus is on pooling their money, lending it out among the members so that they can achieve more together than they could alone. Disaster strikes, a hurricane perhaps, and the small group is overwhelmed. They join together with other groups impacted by the disaster or simply reaching out to help those now in need. Their resource pool grows, they draw on it to rebuild, they repay the other groups, and the larger group of groups now disbands, its purpose complete.

This story cannot happen over and over, sustainably, with either current tools or current mindsets. Credit unions can't do this because they are too constrained by history and regulation. Zopa can't do this because they foster no real community and serve no purpose beyond their own enrichment.

The platform we build will support credit unions and things like Zopa, but to be successful it must free us to explore the rest of the universe of possible organizations. It must do more than simply allow creation of endless permutations of financial products.

The platform must support the creation of amazing, new organizational forms. Forms we never even considered, and that perfectly serve the needs of the community that creates them. This freedom is inconceivable to most and will define our success.