Restoring Trust to Banking

My grandpa Carl managed The Farmer's Trust & Savings Bank in Lakota, Iowa (population 304). Carl served his neighbors, sometimes to a fault. (My "summer vacations" often included walking beans under the hot Iowa July sun). Hard work, discipline and accountability drove my grandfather and when he passed away, hundreds of people from the surrounding farms came to his funeral. Like many local bankers of his era, Carl had earned the greatest asset in banking — the trust and respect of his community.

Sadly, there is little room in today's banking industry for a man like Carl. Thirty years of consolidation has left nearly forty percent of our nation's deposits in the hands of four banks in three U.S. cities. This efficiency hasn't come without cost. Trust, the very lubricant of our financial system has declined by 58 percent in three years in our data surveyed from BrandAsset Valuator. Today's pursuit of profitability comes with words like 'robo-signers', technical foreclosures, and complex derivatives. And in exchange for lowering the costs of transactions, finance has lost its human connection — the relationships that engender trust.

Yet in the post-crisis landscape a new crop of outsiders is emerging to restore trust in the financial system.

Venmo is a social-payments platform based on peer-to-peer transactions. The Philadelphia start-up, which appeared on Inc.'s 30 under 30 list this year, makes it easy for friends to exchange money using their phones, such as paying for drinks, a fantasy football wager, or a communal gift. What is fascinating about Venmo is it offers a level of trust for close friends, which enables payments to be made without authorization (and no charge from Venmo). This takes the transaction cost between trusted parties to zero. Venmo is small and unproven, but it is rewiring the channels we use to allocate trust, while doing it more efficiently.

Another entrant rethinking the banking model is BankSimple, a company that proclaims "We're not a bank. We're better." BankSimple's premise is to advocate for customers in ways that a traditional bank cannot. Traditional banks earn money on deposits. BankSimple builds new interfaces to make interacting with your money simpler and easier, and uses the scale of its customer base to influence deposit-taking institutions to be more transparent and efficient. (Think of BankSimple like an AARP that's also part FDIC). BankSimple's next mission is make accessing your money free in 300,000 ATMs throughout the U.S. Given that GroupOn is arguably the fastest-growing company in history, BankSimple might be on to something.

Or what about PayPal's bump app. With this app, you transfer money by literally bumping iPhones or android phones with one another. The financial exchange is just like currency and a new manifestation of trust. Now you can go up to your landlord and pay her with a quick bump of your phone and the money is transferred. PayPal is offering a physical connection to payment in a digital world.

Likewise, Blippy and Swypely publish a user's purchase trails for all to see and evaluate. Now your network can interrogate your purchase stream and learn from your shopping strategies while alerting you to better prices or better service elsewhere. Conceivably a company might look at your purchase history and offer you a better deal too. Once again, we see elements that constitute financial trust being localized and remade in forms that our current banking system does not.

What I find fascinating is that these organizations are attacking the established system of financial transactions and creating new trust networks that have the potential to revolutionize our markets and our commerce. They could dis-aggregate the financial system. Or better yet, a prescient company might utilize these tools to advocate for their customers and bring about a return to the corner-bank system of trust to American customers. In the aftermath of the "too big to fail" financial crisis, it makes a lot of sense to try to get back to that place — and to remake America for 21st century success.

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