It took nearly 20 years for the Internet to bring traditional news to its knees - and in the next five, many physical newspapers might be extinct. But only now has this shakeup hit the mainstream consciousness. So what industry has been experiencing a similar, quickly escalating transformation that will very soon destroy fundamental assumptions and long-accepted business models? Financial Services.
Since the first banks began to utilize the Internet as an additional channel, this new, digital form of communication has quickly grown its power to substantially augment the old, stodgy traditions of finance. But the recent credit crisis and bank-driven economic meltdown has finally opened the door to new and yet unestablished entrants to successfully compete. No longer are Bank of America or Morgan Stanley perceived to be any more reputable than new Internet-based startups.
The past year has seen the rise of numerous new companies which now offer competitive and very innovative financial services products:
- Savings. This foundational component of banking is now offered by specialized startups such as SmartyPig - added is a touch of social networking and collective encouragement
- Personal Lending. Credit cards and banks now must compete with the crowd. Peer-to-peer lending platforms such as Prosper and Lending Club give private individuals the ability to lend to other private individuals
- Student Lending. Individuals can also utilize People Capital to pool their money and fund loans for students
- Money/Investment Management. Companies such as Mint and Wesabe aggregate one's financial activities and provide an added layer of oversight and simplicity. Covestor has just launched a new form of investment management that promises transparency and democracy.
These and many other examples depict an industry quickly approaching the same tipping point that traditional news is now struggling with. After all, as Fred Wilson likes to say, money is just information. We no longer trust the established system with our information any more than we trust innovative entrepreneurs. Change is quickly coming to an industry that is finally ripe for a tectonic shift.