As new ideas and businesses enter the market, their influence within their own respective industries decreases. However, conservatives often re-assure themselves by believing that successful innovations are ‘fads’.
They believe that innovations are only popular due to speculation, and they’ll die out as quickly as they entered. The taxi industry is probably praying for a change in the wind to blow away Uber and other ride-sharing apps. Banks and investment companies are waiting for the next ‘recession’ to come in, and demonstrate that peer to peer lending, aka P2P lending is, again, a fad.
This way of thinking isn’t unique to the 21st century. I’m sure that the radio industry believed that television was a fad; I’m sure people believed that computers were a fad, and the list goes on. Often, industry conservatives sit on the wrong side of history. Personally, I don’t believe their insecurity is unwarranted; no executive wants to believe that they are becoming irrelevant. However, the dismissive rhetoric that these conservatives spread is dangerous.
Innovation is a corner-stone to our society. It has consistently increased our standard of living and continues to do so. However, it is fragile and must be nurtured. High barriers to entry dissuade start-ups. Some industries seem impossible to penetrate, until they are penetrated. The taxi and financial industry share this commonality; it seems impossible to change something as established as the taxi industry or the financial industry.
But it has happened. P2P lending is offering something that banks aren’t able to offer; they are cutting out the middle-man. But reducing the complexity of the banking system, investors and borrowers are able to safely interact with each other. This is not something pinned to economic success; it isn’t something that will simply fade away in the next recession.
Many financial conservatives have brought this point up, that P2P lending will until the next recession. However, often people forget that almost every financial intermediary is under-fire within a recession. Something of the largest financial institutions, Fannie Mae and Lehmann brothers, have crumbled in a recession. It is often greed and risk that destroy financial intermediaries within a recession, and these are not exclusive to P2P lending.
As we enter an age where financial technology becomes increasingly relevant, we must remember that the core failings of financial intermediaries are not necessarily based on their processes. We must avoid dismissive rhetoric, and ensure that we continue to encourage innovation rather than shun it.
Innovation is about making our lives easier, we don’t use the internet to bank because we think it is trendy, we do it because it is easier and save money. Initially it may be cool to use Uber or get a peer to peer loan but you are not going to keep doing it if it doesn’t make things easier and saves money.
Recently I used a P2P currency provider and I admit it was very cumbersome, however I did so with the hope that going forward it will save me money and make it easier. It actually did.
It was unfortunate they could not make it easier first time, and maybe in the future we will see that part solved through innovative solutions and more competitors.
This brings me back to what the Government might want to consider when promoting its innovative policy, that is the reduction of complexity and making it easier for the target, SMEs to access the funds and support they need.
For example, there is no reason to make the process of gaining a grant so cumbersome that the only business who apply are those with time on their hands to do so.
When you talk to SMEs they will tell you that is the biggest issue they have, they have no time.