Whenever the digital gun has been shot, a whole industry has radically changed. It just requires one shot. Nevertheless, not everybody risks a danger of total disruption. Some might be safe (and could even strengthen!).
We always speak about being more efficient. Yes, since I can remember. Now P2P models have pointed out very precise inefficiencies in our system that could be easily solved through technology and connected citizens. These models are based on standards generated and promoted by the people, not the corporate world, which feels threatened and heavily lobbies to survive. What is happening and how shall it affect everyone?
In the system we deal with, intermediaries have become the main business actor. They 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. Intermediaries.
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 these intermediaries 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 2016 they basically take part in each important decision in all companies.
Intermediaries started as a meeting point of offer and demand and now define what is offered to what demand, getting from both, manipulating healthy market conditions and making the system inefficient. Let us not forget that now the biggest intermediaries have been recently swallowed by hedge funds worldwide, so now returns have to be bigger in less time. The tarantula (intermediares) has been stung by the Tarantula Hawk (hedge funds) and has become its prisoner. Isn’t everything incredible in the industrial world?
Banks kidnapped by hedge funds? No wonder people prefer the sharing economy!
Banks have not been really 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, even paying for that.
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 (for 30 years!!). The 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 really 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. Now people prefer P2P business substitutes, with little presence of intermediation in the process and a healthier competition.
We loved music but we did not want the CDs. What happens to removal companies?
The digital bullet is transforming industries that act as intermediary of something, providing a great deal of power to communities as never seen before. The members of those communities have decided that it is better when it is more flexible and when they can chose from different options. We are not willing to pay €20 for a song anymore, when we were forced to buy the whole CD. It was the song we wanted and we could live without the CD. It is the same with hotels. We want to enjoy the local experience, but not necessarily in a hotel that we might book for another occasion, but not this one. And naturally in 2016 we want to be quickly transported across the city, but why can we only chose between taxis or taxis? Until now, the sharing economy initiatives have improved the product, pointing out that the old system was not that efficient, after all. The taxi industry does not really provide that much wealth to the system and it could easily be improved through a technology that meets people’s real demands. Furthermore, the sharing economy initiativesare based on trust.
The key point in all this is to show that you can meet people’s real demands. What would I want from a removal company? Do I only require a “harmless” transportation of “my things” from “careful” workers? Is there a way to guarantee total safety (when accidents happen and insurance companies have made an industry from it)?
What if I could choose from two removal companies, one providing a guarantee and the other stimulating my trust? Since I feel that a simple guarantee not always works and can even potentially mean a fight with an insurance company if anything happens, I would probably chose a company that has the insurance, of course, but also the ability to empathize with me.
I would choose a company that can provide a good service to the members of a community. Those members interact among themselves and with the company and are able to rate the services, obtaining the company a digital reputation, the new standard that allows people to trust you. Members rate the level of trust, not forgetting that trust can be regarded as an economic lubricant.
Trust reduces the cost of transactions between parties and enables new forms of business activities. It is widely accepted that a higher level of social trust is positively correlated with economic development, while a low one inhibits economic growth.
Big Data and Trust will be 21st century’s oil and gold. We’ll see 🙂