Crowd funding and Banking

There has been a consistent growth in the number of Crowd-funding platforms all around the world. This is quite understandable given that they address a niche segment of the market that no other financial system has been able to address well. 

Some of these crowd funding platforms are now moving from crowd-funding (in lieu of kind & merchandise) to becoming crowd investing platform (in lieu of equity). 

What surprises me is the fact that banking institutions have not led the way and adopted this model so far but look at these as competition or threat. 

If I were leading a digital channel for a banking institution, I would have already launched my own version of the crowd-funding platform. 

As a bank, I already have access to

• Customers who have cash and could be potential investors (depositors)
• Prospective customers who want money (Seeking loans)
• I have access to a lot of cash which i could invest as well. 

By launching the crowd-funding or crowd investing platform, some of the things that the bank could do are: 

• Use the platform for all lending below a specific thresh-hold. 
• Open up the non-secure lending market by routing all such requests via this platform.
  • The bank could either use the "Wisdom of crowds" to decide which projects get funded and which don't.
  • We could even go to the extent that the bank commits to fund an amount equal to the amount that the project secures from the other investors.

This could potentially spread the risk on such investments and open up a new large market for the bank.

• As a bank, it would be easier for us in terms of regulatory approvals in place, so that the entire model could scale much faster than it has so far.

I am sure that the first bank that is able to introduce this and scale fast would definitely enjoy the first mover advantage and open up a big market.

The precedence is already set by Volksbank Bühl, one of the 1,100 cooperative Raiffeisen banks, when it became the first German bank to offer their customers a regional crowd-funding platform.

Now the question is if any of the larger banks would take this up and launch their own crowd-funding platforms or acquire any of the existing platforms.

What do you think? Would you go ahead on this route if you were heading the digital channel of a large bank? I am very much interested to know your thoughts. Please share them by commenting below or by tweeting them to me @rmukeshgupta.