In our business system, intermediaries are now playing the main role, with distressing consequences which might strangle several industries.
Intermediaries can be easily identified by their balance sheets, which show a high proportion of financial to tangible assets and of indirect debt to equity. Their income statements report high ratios of income from interest and dividends to total income and of expense for interest and dividends to total expense. We call them financial institutions, or to be more precise banks, building societies, insurance companies, investment banks or pension funds. They are contributing to strangle the system as we know it.
From “how can I help you” to “you can do this or that, if it’s in my interest”
At the beginning of the nineteenth century in the US, commercial banks were created to help an individual/firm to save or borrow money. Their objective was to facilitate the different needs of lenders and borrowers. By 1880 they grew to become mortgage companies. In the 1920s, pension funds and various centralized lending agencies were generated. In the 1940s they became international. They merged in the 1970s and 1980s, becoming “a power”. In the 1990s, they already provided all kind of financial services to all kind of publics and became a key decision maker. With the 2007 crisis they were “saved” with public money, in order to avoid a global collapse of the system. In 2015, banks and other financial institutions basically take part in all important decisions in all companies. Intermediaries started as a meeting point between offer and demand and now define what is offered to what demand, getting from both, manipulating healthy market conditions and making the system inefficient.
Banks have not been hit by the digital bullet (yet). They rely on liquidity and confidence. To be profitable, they may only keep reserves of 1% of their total deposits. If people lose confidence in the banking system, there may be a run on the bank as depositors ask for their money back. If it happens, banks don’t have sufficient liquidity because they can’t recall all their long-term loans. People from all generations have seen a few cases of banks going bankrupt, with desperate savers becoming ruined and companies suffering shocks. If a bank bankrupts, the rest follows. We have all seen enormous corporations fall. Nobody is safe and banks can also become insolvent. We all fear that. What do banks do to deserve such important role in society? They create ways to make you dependent for life, and even pay for it!
“We sign in 2015, so put that chain in your ankle until you pay off in 2045!”
A great example of the bank dependence and its ghastly consequences is the taxi industry, now threatened by Uber. How come no taxi drivers ever become rich after working a million hours in an overpaid service? In our system, the client overpays a service to a taxi driver that works all his life to pay the bank loan interests. The banks wins.
In our system, a bank is needed to pay a license that could really pay a home. The license is provided by a public administration under “public service” criteria, though workers are not public servants, little qualification is asked and a poor service is provided. Those private workers buy and sell the right to execute a “public service”, which really belongs to the bank until it is paid off. The bank dependence creates monsters and at this point, Uber, being much more than a taxi substitute, makes sense.
More people now get more with less intermediation from others.
Now people prefer P2P business substitutes, with less presence of intermediation in the process and much healthier competition habits. We all win. Only one might lose (the industry), but it is not really part of us.
Let us face it, banks are not our friends and never were. We do not share the same interests. Corporate objectives are pure capital and people’s objectives are purely emotional. Does it mean we cannot meet in a common place? It probably means that technology shall force OFFER (banks and other unfriendly financial institutions) to adapt to DEMAND (the people, who were before your clients and now shall become your community).
That already happens with crowdfunding. In Spain, more and more people are seeing the need to change the nature/attitude/personality of financial institutions towards the people. From the offer, the CEOs of Spain’s biggest banks (Santander and BBVA) clearly see the need of radical change, towards less dictatorship and more connected communities. From the demand, TwoMuch has recently released their latest analysis of crowdfunding in Spain, with shocking results. It seems that banks have rejected many clients who later on successfully promoted those same projects through crowdfunding, being less costly and more transparent. Some people have realized that banks are not that necessary and now regard them as evil. Financial institutions shall react when they realize one day that crowdfunding is just money with a human touch.