Banking 2.0

Image Credit: from 401(K) on Flickr

Image Credit: from 401(K) on Flickr

Since the financial crash in 2008, I’ve been thinking a lot about how to do a disruptive startup in the finance sector.  It’s much better karma to work on how to make existing players irrelevant, than it is to just moan “that’s not fair”.  This is the nature of entrepreneurship, you look for opportunities to disrupt existing markets, because as the small guy you rarely get to compete fairly within the existing rule-set.

While the banks are a very suitable Goliath to play David against, it’s hard to achieve disruption because of their Unfair Advantage.  If you’re not aware, banks have been employing something known as Fractional Reserve banking, which in the UK we’ve been using since we left the Gold Standard in 1931.

In a nutshell, Fractional Reserve allows the bank to lend out more to borrowers, than they have in reserves – often a lot more.  At the moment this is around 8-9x more.  So for every £1 they have in a saver’s account, they can lend out £9 to borrowers. [Read more...]

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