by: jouko ahvenainen
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Mahatma Gandhi said “First they ignore you, then they laugh at you, then they fight you, then you win.”

Steve Jobs held the now famous speech and TV ad in 1983, how incumbent companies always struggle to adopt new innovations and technologies.  Herb Kelleher (Southwest Airlines) and Michael O’Leary (Ryanair) have fought against local monopolies and authorities in the aviation industry and their work has had an important impact in enabling practically anyone to fly today. When e-commerce started to emerge Borders didn’t see online book sales as important, but continued to expand its store chain e.g. to the UK and Singapore, and now they are almost bankrupt and Amazon dominates book sales and many other categories as well.

In the finance sector we have seen the first wave of the Internet revolution. It has mainly consisted of the offer of new access channels to traditional services. You can wire money, pay bills and even buy fund shares online. But it hasn’t yet had too much impact on the traditional structures and business models. Fund management fees are still high, it is expensive and slow to transfer money cross borders and investment banks take huge fees. In 2008 many financial institutions were forced to start streamlining their operations, but there is still a lot of work to do. And we still await the real breakthrough of new models. For many ordinary people this means that they must pay high fees for banking services, services are often poor, investment instruments’ real ROI is low or negative, and many services are still very old fashioned, for example how to invest globally or transfer money.

There are several early phase companies in the finance sector that develop the new web 2.0 era (or whatever the right name is). Why can’t it be as easy as with PayPal to open a bank account and transfer money? Why don’t we have a lot of direct investment markets on the Internet without high management fees? Why couldn’t we build an investment group online with our friends and work like an e-fund and diversify our investments?

Southwest Airlines revolutionizing the aviation industry - is the finance sector next?

Often the answer is, because the regulators and incumbent finance companies want to keep the old models and protect them. They say it is better and safer for ordinary people; they don’t trust that ordinary people actually can be responsible or smart. It was the same before the French revolution, the establishment saw democracy as dangerous when ordinary people could not be trusted to make the right decisions. IBM didn’t believe ordinary people would ever need a computer, they thought a few computers for professionals is enough. And aviation authorities supported local monopolies and stated that state-owned-airlines offer enough options and are safer.

We are now starting to see this change coming to the finance sector. The traditional finance sector is really struggling. Yet it is not only about money, it is also about how people perceive banks, funds and finance consultants. People are losing their trust. Crowd funding plays a part in this development. The foundation is constantly being built, but the revolution doesn’t happen over night. We as a community, have got a good start and step by step also regulators and traditional finance companies start to understand our journey. It is important to develop the startup funding market to work well. But at the same time, it is as important that the investment market works well.

People need cost effective solutions to diversify their portfolios and instruments. Aren’t they also entitled to a decent ROI? The healthy investment market is a key element of each economy and while the old solutions are not sustainable, that’s why we want to work with all of you to build the future. You can start today by making a micro investment into a startup in Grow VC.

 


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About the author

jouko ahvenainen Jouko Ahvenainen is a serial-entrepreneur, e.g. co-founder of Grow VC Group, a pioneer in new funding solutions, including equity p2p investments. He participated in changing US finance regulation, getting the Senate and President to allow crowdfunding and has worked with EU finance regulation. Jouko started his work with crowdfunding models in 2008. Jouko has been listed Top 100 Influencer in Digital Industry and Top 100 Of The Most Influential Thought Leaders In Crowdfunding.

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This entry was posted on Monday, August 29th, 2011 at 1:56 pm and is filed under How to invest in startups, Online Startup Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.