Why hasn’t the internet fundamentally changed the way banking is done? Here are some crazy ideas we came up with about how banks could take advantage of the affordances of the internet to change the way they do business.
Over dinner last night, my wife and I were discussing the most recent crisis in the U.S. financial markets (yes, really), and we got to wondering: why hasn’t the internet fundamentally changed the way banking is done?
Sure, the internet has sped up communications, which changes the rate at which banking business is done. But it doesn’t change the way banks borrow, loan, and invest money. So here are some crazy ideas we came up with about how banks could take advantage of the affordances of the internet to change the way they do business.
- Local micro-lending: find someone in your neighborhood/city who needs a small loan, or find someone to lend you money. This wouldn’t need to be significantly different from the old model of small business loans (on the lending side) and CDs (on the investment side). Let’s say you have $5000, and you want to invest it at a 4% interest rate — but you want to give it to some deserving entrepreneur in your local economy. So you go to your bank web site, look up people in your city who need a loan, and give it to them. The bank loans your money to the entrepreneur at 5% and handles all the loan servicing from there. You get a 4% return on your investment, and the bank scrapes a little off the top, plus any late fees if the entrepreneur misses a payment. The internet would be an ideal platform to support this kind of peer-to-peer communication. Borrowers could even work to achieve an Ebay-style star rating based on how reliably they pay off their loans.
- Crowdsource investing: put money in a savings account and let your bank know where you want them to invest that money. Banks could be reaping massive amounts of market research from their own customers if they would just use the technology available to listen to them. Customers could tell banks which industries, types of companies, and causes they’d prefer them to invest in. Banks wouldn’t have to actually agree to follow their customers’ advice, but they’d glean valuable information on what their customers care about.
- Locavore banking: bank local. Just as with the local food movement, where consumers are becoming hyper-aware of where their food comes from, customers are beginning to care where in the world their money comes from and goes. This is why credit unions have been doing so well in the past few years. And, now that the nation’s large banks are falling hard, small, nimble, conservative credit unions will look like far safer options. Well, what if the big banks started using the internet to keep customers’ money local? With social networking tools, banks could enable customers to locate and collaborate with like-minded investors, creating local ad hoc investment groups that could buy/sell stock in local companies, local real estate, local municipal bonds, and so on.
- Netflix-style ATM: the snail-mail cash machine. Why waste gas driving to the nearest bank branch to pick up cash? Just go to your bank’s web site and order up a regular disbursement of cash. Paying for a stamp is cheaper than the $2-$4 fee you’d get from the ATM at the convenience store. If you’re on a $40/week lunch budget, you could get your bank to mail you $40 every week. Banks could disguise the envelopes in a multitude of ways to foil mail thieves — as junk mail or as a letter from your fictional great-aunt Mildred.
Anyone care to out-crazy me? What could banks be doing to change the way they interact with customers? And would any of those changes prevent the kind of mess we’re in now?