With inspiration from The Simple Dollar, I thought of a concept for a new kind of banking. I’m still playing with this, but I’m calling it “Open Source Banking”. Sadly, a quick Google search revealed this idea was not new. It looks like the idea was first coined with globalideasbank.org. On the other hand, there is already a community built around this concept that I can work with. By skimming some articles, a few sub-categories have been uncovered in the name of open source banking.
Before we get started, I’m not taking credit for any of these ideas. Something might be originally mine, while others are tweaks of current business ventures. Give me credit for compiling and I’ll be happy:
Social Lending:
Also called “Peer-to-Peer Lending”. Have you ever loaned a friend $100? Why not make it official? Loan it through a service. You set the terms (interest rate, duration, etc). The service would take a cut and you take a cut. Your friend gets the loan he needs and you have a contract to back it all up. Now, graduate the scale a bit. What if you wanted to borrow $10,000 for a car? You could gather funds pooled from dozens of lenders. Some might loan $1,000 for a year, while someone else is willing to wait 3 years to get their $1,000 back. Some genius programming would be needed to add up what everyone will get paid and when, but there is very little overhead. If you’ve sold something on Amazon or eBay, you can probably picture how this works.
There are some concerns. How do you guarantee someone will pay back the loan? How far up can this scale (30 year mortgage)? What happens if an investor needs their money back sooner? The first two will require some pondering; but the 3rd is easy. Like any other fixed income security, it can be sold off at a discount. LendingCircle.com is a well established group that has a lot of this figured out. Check out their FAQS for additional info.
Community Fund Raising:
Local YMCA having a fund raiser? Make it easy to track donations and total amount raised. Of course not everyone uses the Internet, so they can still write a check the old fashioned way. In the format of Facebook or Myspace the YMCA could create a page explaining the purpose for the fund raising. It saves paper, contests can be organized for the top donors, and email lists can be maintenanced. Fancy graphics and charts would be automated and allow anyone to see the status towards the common goal. Like a social network, the operator of the website would serve ads to make their own money, or maybe charge a small fee for holding the funds. This would make for a great non-profit.
Social Saving:
This is my favorite idea. Behavioral finance is a big research interest of mine. I’m studying the psychology of how we treat dollars differently. Anyway, instead of trying to treat every dollar the same way, why not embrace the way our mind already works? Would you be more inclined to save for something if it was in a separate account where others can watch your progress? Example: I want to buy a car and am saving for the down payment. If my friends and family could watch me save or even throw in a few bucks, that would motivate me. Think of the possibilities. Set up college savings for your kids. The kids can watch the progress, see other people make contributions and learn how money can grow. Again, fancy charts and graphics can go a long way.
Of course it doesn’t have to be publicized. If you use Mint.com to track your finances, you will understand what I’m getting at. This would be a great project for existing banks looking to branch out.
I think these are great ideas that need some fine tuning. It would be a fun project to work on at an established bank. Entrepreneurs with some venture capital would go crazy over these business ideas. Social networks like Facebook and Myspace already know and understand the appeal of bringing people together. This may be the next logical step.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. |
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