Democratization of money
Online and mobile banking platforms do more than create efficiencies; such innovations are also helping small businesses access capital. In the wake of the recession, banks tightened their lending practices, prompting some entrepreneurs to seek out “crowd funding”: an Internet appeal asking potential investors to pool money to help finance a project.
Although Brooklyn-based Kickstarter is the largest crowd-funding platform, Crowd Supply, a Portland startup, offers a more comprehensive approach, says CEO and director of projects Josh Lifton. He says his company offers more than Kickstarter by working with entrepreneurs on preorders and sales, and connecting them with manufacturers and other services to get their products to market. This gives supporters a better sense of the project’s feasibility.
“Why make the same mistakes that literally everyone before you has made as a first-time product developer?” Lifton asks.
So far Crowd Supply has launched more than 50 projects, including a French press coffee maker, a set of laptop cases and a mini synthesizer. Lifton says successful campaigns have raised half a million dollars through its website since going live last year.
In 2012 President Barack Obama signed the JOBS Act, which contained a provision intended to make crowd funding more mainstream. Although that has yet to happen, crowd funding does allow businesses to raise funds when banks are tightfisted, and a previously successful campaign could help an entrepreneur convince a reluctant lender.
The next stage may be leveraging mobile and online technology to benefit people on the economic margin. “What we need to do with tech is not just come up with new, sexy ways for rich people to buy lattes,” says David Wolman, the Portland-based author of The End of Money, a book that argues physical money will go the way of the pay phone. Cash hurts the poor because it’s more difficult to save, it makes them vulnerable to theft and fraud, Wolman says. It also costs money to cash checks.
Aiming to correct these problems, the Seattle based Bill & Melinda Gates Foundation has made it a goal to make financial services more accessible in the developing world. One project involves M-Pesa, a service used by millions of people in Africa and Asia who lack money and access to banks. M-Pesa allows users to transfer, receive and deposit money using mobile phones for relatively small transaction costs.
The system been praised for helping the world’s poor better manage money — and for making people more productive. One study found that rural Kenyan households that adopted M-Pesa increased their income by 5% to 30%.
Conceivably, that kind of technology could also benefit the poor in the U.S. According to a 2011 FDIC study, one in 12 U.S. households do not have a bank account. Why? The most common reason is they don’t have enough money.