The Micro finance revolution
Are we entering a Golden era of small, agile businesses that can innovate quickly and disrupt the incumbent corporations of the 20th century? I certainly think this is possible in the banking and finance sector. The evidence for me is not the P2P lending markets but the online pay day loan platforms such as Wonga.
One thing the banks can’t do is flexibility. I can go onto Wonga’s website, do a quick online registration, ask for a £250 loan that I need until I get paid in a week’s time – its approved in real time, and the money appears in my bank account. From start to finish (with the money in my bank account…) this could have taken less than 5 minutes. That is flexible lending, a £250 loan for 7 days.
I’m not necessarily a huge fan of pay-day lenders and some of their sharp practices, but I do think that they have innovated where the banks have not. Having an overdraft approved can be quite a business, and probably has a similar charge to a 4000% APR on a 7 day loan. i.e. £50 arrangement fee for a £250 overdraft.
I can think of dozens of digital businesses started in the last 5 years or so that have successfully exploited this lack of agility in traditional banking and finance, but there should be a lot more of them. Generally these were all start-ups with less than 5 people, but to get to the stage where you have 5 people in an office with some clever technology developed and a small, but growing, client base, costs £200k at least, and that’s without a marketing budget or an expensive technology build. To get the point where you have a proof of concept and can actually raise money could easily cost you £500k, and where is that going to come from?! Unless you have an amazing network of high net friends or you’ve successfully started a business previously, you probably won’t be able to raise the money.
Forget the banks, unless you have a debt free £500k property that you fancy putting up as collateral.
I believe crowd funding could fill this gap.
Imagine a crowd funding site that has 2million potential micro investors worldwide who invest $2000 on average and in 10-15 business’ per year. Most of them would have tax incentives such as EIS in the UK. Even with a 95% failure rate you only need one Twitter to have been funded through Crowd funding and the whole investing world would be piling in. This is what needs to happen, because I can tell you from personal experience – it is nearly impossible to get funding for a business that is pre-revenue.
Bring on that bubble….