At the start of March, a crowdfunded project took 96 seconds to meet its £1 million funding target. There are a few reasons why this is significant. Firstly, this is a record for any equity-based crowdfunding project – a campaign where all investors receive a portion of shares in the company they’ve backed. Secondly, the business in question is a new online bank, Mondo, which had received previous venture capital investment and has already been valued at £30 million, despite not yet being given an official banking license.
Already on track to overtake traditional venture capital by the end of 2016, does this mean that crowdfunding one possible future for the ever-evolving banking sector?
How crowdfunding is impacting banking
It’s no coincidence that crowdfunding rose to prominence around the time of the global financial crisis. Loans were becoming harder for startups to acquire, so looking for investment through other sources became essential. One writer has noted that crowdfunding’s inherent transparency – keeping backers in the loop about a project’s developments – is already having a knock-on effect to the way banks have started to operate.
The main predicted outcome on banks regarding crowdfunding will impact traditional loans; one investment banker has written that equity crowdfunding streamlines the loan process, reducing overheads and passing the savings on to the investors. He goes on to say that, while this is beneficial to customers, with less money going to the banks themselves, “more jobs will be shuttered.”
From branches to apps
Mondo’s app-based banking system has grand aspirations: “In the next two or three years a bank will be launched that will become the scale of Google or Facebook,” its founder Tom Blomfeld told the Guardian last year. Yet, with bank branches continuing to close at an accelerating frequency, Mondo are not the only people trying to find new alternatives to traditional banking.
Recent financial platforms like Regent FE and HiFX are online-only banks which seek to reduce overheads and provide 24-hour service for customers. Similarly, there has been a rise in technology to improve the ever-vulnerable security of online banking platforms; GOTPass, for example, is replacing PINs and passwords with image recognition, and has so far achieved impressive results.
Specialist contractor accountants 3 Wise Bears recommend use of cloud technologies like Xero and FreeAgent because of their on-the-go access options. The success of this accountancy software further highlights the demand for app-based finances and banking.
So whether crowdfunding is forcing banks to change the way they operate, or even bringing new banking systems into existence, it would seem that, for the time being, there will be some mild competition between the financial establishment and crowdfunding upstarts. An economist recently told Inc.com his views on the benefits of the latter, at least until the banks can integrate some of the Kickstarter model into their operations: “The combination of no physical location and limited regulatory costs allows crowdfunding firms to keep operating costs low and offer better terms to their clients.”