Transforming Finance: innovation, scale and diversity
Julia Groves, a panellist at the premier of Transforming Finance shares her view on the next steps to making change happen.
My first reaction to the Transforming Finance film was a common one at anything the Finance Innovation Lab produces, it’s the feeling that I am not alone. It’s knowing that there is a supportive, coalition of like-minded people, passionate about changing the finance system.
I am not really a finance person (you may have spotted that already), more an eCommerce person that has always been fascinated by that inflexion point where a business grows so big it becomes an institution, and stops serving our interests to serve its own.
As John Kay puts it in the film “What we have is a financial system that has evolved in ways in which it very largely serves itself rather than the needs of he non-financial economy”
We have achieved transparency and disintermediation in almost every other aspect of our lives; in sectors such as travel, music, publishing, even insurance; but investment remains the last walled garden. It is an area of finance preserved for the already wealthy in an industry where the barriers to entry can seem insurmountable to new players. In this context I would argue that regulation protects the incumbents as much as it protects consumers.
The ‘too big to fail too big to jail’ issue that Andy Haldane (Executive Director, Financial Stability – Bank of England) and others refer to in the film can seem insurmountable, but we really have no choice but to strive for more diversity in the sector. As Haldane states so succinctly “Reform is not a nice to have, it’s a have to have”
Disruptive technologies and models such as crowdfunding definitely have a role to play in driving this change. Not just in bringing new alternatives to the market, but in enabling innovation on products and services, offering transparency and control to early adopters even on a small percentage of their money. This will motivate consumers to start demanding the same elsewhere.
Simplistically any major change requires:
1. Sufficient dissatisfaction with the status quo;
2. Real alternatives; and
3. Minimum pain for us all to make the change
I think for many of us, the financial crisis of 2008 ticked off number one on the list. The wave of new, direct finance platforms (more than sixty in crowdfunding and peer to peer lending alone) are fast becoming real alternatives. The challenge here is not the innovation, it’s the scale – we can’t be a real alternative without reaching scale and sustainable critical mass.
So that is where I think the government has to step in and sort out number three. Maybe not positive discrimination, but at least a level playing field on tax; a separation between the consumer facing banks and a common infrastructure; and really removing as many barriers to competition as possible. Actively creating the conditions so that we can have both a more diverse financial services industry and one that reflects us as people so that we put our money where our mouth is. Because the principle of crowdfunding is that people invest in what they know and love.
Money really is part of our impact on the world, whether we want to save the planet or make as much money out of it as possible from selling arms. It’s not about dictating values, its about having transparency in order that we know where our money is and what it is doing.
The challenge really is finding a way for us all to prosper and for new finance businesses to prosper without the absurd scale of ‘too big to fail’ that Andy Haldane talks about in Transforming Finance.
I genuinely think the demand for change is there. I would argue that the alternative finance businesses are just facilitating a change being driven by society.
Effective competition is the only solution. So I hope the FCA remember that this is now part of their Charter when they finalise the crowdfunding regulations early in 2014.
Julia is Chair of the UK Crowdfunding Association and Managing Director of Trillion Fund. Julia is an investor in and non-executive director of a small portfolio of early-stage businesses including Move Your Money.
Read what others are saying about the film:
Why we need a more diverse banking system by Tony Greenham, Head of Finance and Business, New Economics Foundation