Few weeks ago the news came out that ATB Financial, a Canadian bank, has joined the crowdfunding market, launching a reward-based crowdfunding platform called Alberta BoostR. The platform, focused on local economy and targeted to local small business, has already hosted a successful $10.000 project for custom-made handcrafted heeled boots and has got another 4 projects published on the site. They don’t take any commission on the projects, and they consider this initiative as “an entry door into the space of crowdfunding”, a potentially disruptive business opportunity.
The arrival of banks in the realm of crowdfunding has been happening slowly in the past couple of years, but it’s definitely happening, and it’s a trend to carefully observe.
We can add a few other examples from Europe.
Angel.me, a Belgian equity and reward-based crowdfunding platform, gained support from Belgian bank Belfius. The bank organises events with Angel.me and directs entrepreneurs to the platform. In this case, therefore, there is not a direct involvement, but rather a partnership with mutual benefits: Angel.me gets more credibility from being associated with a traditional financial institution, and for Belfius it is an opportunity to position itself as a modern bank, targeted for starting entrepreneurs.
The online platform Seeds.nl invited interested parties to invest a minimum of 50 euros in five companies. The companies selected – GreenGraffiti, Greenjoy, On The Ground Reporter, We Beat The Mountain and Yuno – all seek to contribute positively to society in terms of their social, educational and environmental impact. Seeds facilitated the conclusion of an agreement between the company and its investors. The four-month pilot saw 3 companies out of 5 being successful and the initiative is probably set to continue.
The final example comes from Germany: Fidor Bank AG, a licensed, internet bank based in Germany which is geared towards “Social Banking”. Fidor Bank offers a wide range of services including Crowdfunding directly to their customers on their website. It establishes a dialogue between customers, allowing individual members to complete financial transactions of different types (lending, financing, trading) with one another by using FidorPay account.
Innovation in the financial industry can be difficult, and banks and financial institution are understandably cautious relying very much on their established market position. The financial crisis and the capital requirements placed on them has made it difficult for them to offer loans and funding to many individuals and business, and this has the result of blocking innovation and economic development at a global level.
However, the emergence of innovation in finance as a product of the expansion and ubiquity of social technologies presents both challenges and opportunities for banks and financial institutions, and it’s important that banks look at these new trends and the different business models originating from them. Crowdfunding is one of them, and its development as a potential alternative supply of capital, particularly for startups and personal loans. P2P lending is popular not only in Western countries, but also in new economic powerhouses like China, where more than 2000 such websites are reported to be operating.
As highlighted in an interesting report released by US bank BBVA, “there is a real risk that banks stop being the primary source for personal and small businesses loans”. And as shown in the examples above, some banks are already engaging in this market place and placing social and crowd-based products and services next to their more traditional offer. It’s not about a total change and replacement of the old, but rather a plan for mutually beneficial co-existence. What is certain is that the mono-banking culture is being challenged. As said above, the “crowd” is finding other solutions where banks are evidently failing.