Is crowdfunding creating a threat to banks or they can work hand in hand?

In 2015, crowdfunding accounted for
around $16bn around the world, according to Crowdsourcing. And that number has
been steadily rising ever since. With banks still not willing to help finance
small business as much as they should, crowdfunding is taking more of a
foothold. Questions need to be asked, for example, does crowdfunding pose any
kind of threat to big banks? Or can banks get onboard and share the rewards?
Crowdfunding is a relatively new concept when compared to the long history of
banking, so, is this merely a question of banks falling behind in the times, or
crowdfunding being a step into the future? This is what we are to try and find
out.

What threat does Crowdfunding pose to banks?

The reality is, that crowdfunding
alone poses no real threats to banks. Banks have a solid foundation and history
which people know. And whilst society may not always trust banks, less is
known, in today’s market, about crowdfunding for it to be a genuine threat
right now.

On the other hand, the rise of
“Challenger Banks” which offer better exchange rates and international payments
can be a plausible threat. If crowdfunding could make the most of these
emerging banks, then real banks could come under threat by crowdfunding.

Furthermore, crowdfunding is giving
businesses a gateway into the ecosystem for more than just to seek finance.
Many platforms are also offering additional services such as incubators or
affiliate schemes alongside the benefits of marketing and publicity they
already provide.

The European Commission has
recognised that crowdfunding is a great way to help SME business and investors,
where banks haven’t helped or won’t help.

How can banks get involved?

For a bank to get involved with
crowdfunding, it would not require much. A bank already has the clients, the
infrastructures, the capabilities, and the business model is not a complicated
one, so implicating it would not be a problem. However, one issue would be
brand mistrust. Why? Because crowdfunding was and is an anti-establishment way
of getting funds. It is a response to strict bank regulations and how
complicated it can be to get any sort of support from the bank you have been a
customer of all your life.

To overcome this initial mistrust, there are several options banks can consider. According to Bart Vanhaeren, the managing director at KBC Securities/Bolero banks can “inform their clients about it, refer to another platform or they can engage themselves”. Looking at how banks could possibly engage themselves in the world of crowdfunding, you are looking at two options. One option is pairing up with an existing platform. This would help diminish the initial insecurities people may have by working alongside a trusted crowdfunding platform. Another option is for the bank to create a separate entity or subsidiary with a completely different branding and marketing objectives.

Vanhaeren seems to believe that
banks have an advantage when it comes to sorting deals and investor database.
He further explains that a bank can find better potential opportunities through
a deep involvement with organisations, alongside a good branch network. In
addition, they can easily find investors through their retail and clientele
databases.

What banks can do for crowdfunding

This is not a case of first come
first serve, but a case of global reach. Imagine a UK based crowdfunding
platform pairing up with an international banking powerhouse such as HSBC or
Santander? The number of potential investors for the crowdfunding campaigns has
all of a sudden been multiplied by millions. Large banks have the
infrastructure and the knowledge to help crowdfunding platforms take the step
to becoming an international phenomenon.

While it can be argued that the bank
would then have a large hold over the platform they have helped expand, it is
still a good move for the platform. It could take years, possibly decades for a
platform to reach that kind of scale, while a bank already has everything in
place. It could be labelled as a new enterprise that the banks can offer the
customers. While the bank may hold an advantage over the platform, it would not
necessarily be a complete take over.

Banks falling behind or crowdfunding is a step into the future?

There is no simple answer to this
question. It is common knowledge that crowdfunding platforms and banks are both
here to stay. Digitalisation is key for both enterprises, and we can see banks
keeping up to date every day, with mobile banking apps, contactless payments
and much more. But banks are traditional, built on a long history or rules and
regulations. In contrast, crowdfunding was made to help the little guy who
couldn’t rely on traditional banking to get his business off the ground.

In modern times, you can see the
distance between banks and crowdfunding platforms shrinking. As banks get more
accustomed to the idea of crowdfunding platforms being here to stay and they
try to get on board.

Can banks and crowdfunding platforms work hand in hand?

Based on the evidence and studies
that have been done, the answer is yes. It won’t happen in a day, as banks
would have to undergo serious changes in order to avoid mistrust, but a
partnership is possible and is not too far away. For the banks, it is about
having a good reward and exit strategy. Because crowdfunding has an emotional
attachment, that is something a bank would need to tackle and understand very
well. It is because of this that a pairing between an established platform and
an established bank would be the best solution. While the bank would need to
perform the rebranding or create a separate entity to advertise the
crowdfunding aspect, the platform could benefit from more potential investors
and a larger scale market to operate in.

Whether or not this all happens, it
is still an interesting thought and possibility. Without a doubt, the merging
of a bank and a crowdfunding platform could potentially change the future of
both.

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