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NEWS: 05/06/15

5/06/15 – The Uber-ization of Financial Services
Article from LinkedIn

Only two kinds of executives work in financial services today:  Those who believe a cataclysmic disruption of their business model is imminent, and those who haven’t been paying attention.
What is the future of branch banking, for instance? This is a question frequently put to me by anxious bankers. I tell them branch banking’s future today appears every bit as bright as Blockbuster Video’s future looked around, say, the year 2004.  
But I digress.

One big disruption that will almost certainly rock the financial services category is what we could call “Uber-ization.”  Uber, of course, is the well-known taxi-service disruptor, under constant attack from regulatory authorities, who mostly appear to be watching out for the established taxi industry while professing that they are protecting consumer safety. Uber is a classic example of a platform play – that is, it benefits by connecting a network of buyers and sellers, and the more of each it serves, the more value it creates for all of them. 

Uber’s platform works primarily through the combined informational inputs of riders (who rate drivers) and drivers (who rate riders). Platform plays depend on a structure that serves mutual interests, and they often involve appealing to people’s natural desire to contribute, give back, or share, as well.  Airbnb, Waze, and BlaBlaCar (in Europe), for instance, all depend for their success on the good intentions of most of their members, as policed by reviews and ratings. And every day some new venture applies the "Uber" model to some additional task, from cooking or cleaning to shopping or shipping.  

The first wave of Uber-ization in financial services is probably what’s come to be known as peer-to-peer lending (ProsperLending Club, and Zopa are examples).  Peer-to-peer investing, on the other hand, is illegal in many countries. Syndicated investing is a highly regulated activity, and very few peer-to-peer investment vehicles have been able to clear that hurdle. 

A few weeks ago, however, I received an email from Andrei Cherny, who seems to have launched the next best thing. His new and rapidly growing financial advisory firm, Aspiration, may not rely on peers investing in peers, but it’s definitely based on investors showing their good intentions. Targeted at meeting the investment needs of middle-class people (many of whom don’t even have their own yachts!), the company accepts investments of at least $500 but no more than $100,000. And while most financial advisory services will apply management fees that are significantly more onerous on these kinds of small investment portfolios, Aspiration’s policy is “pay what you think is fair.”
Yep. Pay us whatever you think is right. That's Aspiration's model. Moreover, just in case this isn’t sufficient to appeal to everyone's good intentions, the firm also donates 10% of its revenues to charity. Seriously.

And so far, this seems to be paying off. In just the first two months of money management, Aspiration has already accumulated some $2 million in investor funds, and according to TechCrunch the firm has about 700 customers for its premier product, a portfolio of mutual funds managed by Emerald Assets. But while this makes Aspiration one of the fastest growing online investment vehicles ever, it remains to be seen whether Cherny’s venture will eventually become (gulp) profitable.

So why did Aspiration's founder email me? Well now it’s my turn to brag. Andrei wrote that he had contacted Martha Rogers and me simply because the concept for his company “was in many ways inspired by Extreme Trust” (the book Martha and I co-authored a couple of years ago). In our book, we chronicle the increasingly important role that person-to-person trust plays in a highly interactive society, and we even suggest that as we all get wired together more and more, trusting people to "do the right thing" is going to become an increasingly common business model.
Welcome to the e-social world, where people help each other in mutually beneficial networks based on trust, and good intentions can sometimes be harnessed to create genuine economic value.

"If I accept you as you are, I will make you worse; however if I treat you as though you are what you are capable of becoming, I help you become that"

- Johann Wolfgang von Goethe