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Monday, 22 December 2008

Models for next generation financial businesses

How does next generation value chain for finance actually look like?

Umair Haque gave a glimpse of that in one of his remarkable posts:
The App Store is radical, ultimately, because it atomizes the value chain: where once a handful of scale-driven players could produce and distribute mobile apps, today, any number of players can enter. What was once monolithic is shattered into a million pieces. If the market can coordinate those millions of pieces effectively, the new value chain is hyperefficient.

Today, we are seeing startups that are 'breaking up' the functions of banks and distributing them to anyone who has a desire to enter into the market. Who are these players?

Prosper, Zopa, Kiva: Peer to peer lending models shatter the lending functions of banks. Anyone can be a lender in these networks. However, they are still not mainstream. What are the hurdles that preventing these models to scale? Is the Ripple model the answer?

Receivables Exchange: They shatter the bridging loan functions of banks. By selling outstanding receivables, much needed financing is available without resorting to vulture financing. If you are a startup, how do you add value to these new forms of markets? What kind of feeder businesses can be built on top of them?

Sellaband, Slice the Pie : New kinds of equity that invests directly in the creative capital of people. I think this is a massive innvovation. Will this will evolve into markets for human equity contracts?

Covestor: Breaks up the asset management business and allows anyone to participate in the trading business.

StockTwits: Allows anyone to be an real time research analyst.

I am not sure how successful these players will be in 5 years time although they are definitely interesting cases to watch. What I am sure of is that the finance sector will go through the same disruption we have seen in media. If you have more examples of next gen finance play, do leave them in the comments.

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