The sharing economy

GLOBAL INVESTOR 2.15 — 48
Fork in the road
To share,
or to automate?
Banks are now facing a decision: either more peer-to-peer
interactions or automation. This not only affects lending and
payment transactions – highly specialized revenue generating
services in the asset and wealth management business will
also face intense competition.
The face of banking is changing dramatically,
and is likely to continue at
an unprecedented rate as a result of
automation and peer-to-peer (P2P)
models, which integrate aspects of the sharing
economy into banking services. While we
do not examine automation in depth here,
recent trends are nevertheless worth highlighting:
robo-advice, an automated algorithmbased
financial service, is a very dynamic field
in banking. Blackrock just acquired Future-
Advisor in late August 2015 and National
Australia Bank launched its own robo-advice
model in September. These examples highlight
that the asset management and advice value
proposition is under attack from digital disruption
across the entire value chain. As a result,
we expect the high-touch advice models to
come under even more cost pressure.
Chasing zero costs and no time friction
The concept of the Zero Marginal Cost Society
introduced by Jeremy Rifkin highlights
this trend. According to his thesis, automation
and sharing will replace traditional means of
production, driving the marginal cost of a
product and service to zero, while providing
instant access to a solution. To compete in
this race toward no cost and/or no time friction,
banks need to position themselves with
relevant service offerings, or with their own
“disrupters.”
The sharing economy is also reshaping
the banking industry, particularly as P2P models
gain traction. P2P trends help empower
bank clients, particularly investors and borrowers.
Instead of looking to financial corporations
to tell investors what to do, or borrowers
asking for loans, clients perform these
services themselves, particularly in lending
and increasingly in the investment and advisory
space. In Europe, customers already
conduct 50% of all service interactions and
around 30% of the more complex advisory
services themselves. The Nordic countries
and the Netherlands are leaders in this respect.
As a result, banking is transforming
from something you go to – a branch office
or a meeting with a relationship manager – to
something you as a client do yourself, or offer
directly to other (former) banking clients.
P2P business models allow participants
to generate an income stream, making them
even more powerful. Four other attributes are
relevant for the success of sharing economy
applications in banking:
They address an investor or borrower need:
Address in a transparent manner the need to
invest or the need to borrow money to start
a business.
They simplify banking services: All models
simplify the banking offering, for example, by
reducing a user’s dependence on branch
opening hours as well as reducing the paperwork
and time used to complete their business.
Create a marketplace: P2P banking solutions
offer a single source for a considerable
number of users and create large, transparent
marketplaces.
Use the wisdom of the crowd: Solutions
must offer the ability to scale the model quickly,
and to take advantage of participants’ expertise.
P2P solutions harness the power of
the crowd economy, which is also a main
driver of change for banks. The crowd economy
combines aspects of the sharing economy
such as open innovation, mass collaboration
and particularly “crowd intelligence.”
Such expertise comes at a much lower cost
or even for free, while staff and IT costs at a
typical bank account for around 40%–70% of
all expenses.
Disrupting the value chain in investments
Wikifolio, a social platform that allows investors
to post their own trading strategies, is a
very interesting example with respect to
costs. Any investor can post a wikifolio on the
platform, which is basically a selection of
stocks. The basket is launched and can be
traded if it receives sufficient interest from
real-money investors over a two-week period.
The investment specialist that launched the
idea is paid only if the basket is a success in
terms of performance and assets invested.
These costs are fully transparent and available
at all times.
Wikifolio is serving to disrupt the banks’
value chain in the structured products space.
The platform gains access to investment
professionals’ expertise for free, as it only
matches trading ideas with investors, and
pays only if the trades are successful, through
revenue sharing. This allows investors to track
the performance of the individual investment
professionals as well as their own invest-