Blog
The purpose of money
Can finance rediscover its purpose? We went to Salt magazine’s Disrupting Finance conference in London to hear how new voices and new players are bringing purposeful, values-led and disruptive approaches to a sector that many see as the last bastion of dog-eat-dog, win-at-all-costs capitalism. We heard that:
#1: Finance is waking up to the importance of purpose
Money and finance are supposed to serve human needs and wants – call it ‘society’, the ‘common good’ or the ‘real economy’. Instead, banks have moved away from purposeful activity in favour of complex financial engineering. To rediscover the purpose of finance, banking brands will have to think more imaginatively about money and the role it plays in people’s lives.
Purpose is increasingly driving investment decisions. 65% of Millennials see investments as a way to express their values, not just about risk and return (and they are set to inherit $1 trillion in North America alone). This creates opportunities for banks, funds and financial advisors to help individuals find investments that meet a new set of needs.
#2 New players are seeking to reconnect people with their money
People are thinking more about what happens to their money after they deposit it. New players such as crowdfunding platforms Ethex and the Social Stock Exchange are reconnecting people with their money by allowing for transparent forms of investment. Banks are starting to respond to this too - Triodos, for example, publishes all of its investments online, explained CEO Charles Middleton.
Crucially, this greater connection is driving a shift among ethical investors from a passive “negative screening” approach (no tobacco, gambling, guns) to a positive “impact investing” approach, where individual investors actively seek out businesses with a social purpose.
The more that people think about where their money is ending up, argued Julia Groves of the Trillion Fund, the more that they are likely to favour purposeful investments in ‘real’ things that they can understand.
#3 True disruption will come from the “New New”
New market entrants are using technology to attack the flabby bits of the existing financial services activity chain and thus create a “new old”. The truly disruptive aspect, however, is where new players are able to bring whole new audiences into play through innovative business models. Within the “new new”, we are seeing:
- Projects getting funded that otherwise wouldn’t get funded
- Creating customers where there weren’t customers before
- More productivity and less dead capital as the friction of small-ticket investing reduces
- Bringing in ‘unbanked’ millennials who want digital-only solutions – people that banks can’t find
#4 Incumbents can play a huge role if they embrace purpose and bring their values to life
While the event focused on emerging players and new business models, incumbent banks can be a part of this new, purposeful future.
Education: The most conservative players in finance are often the customers. Reconnecting people with their money will require consumer education on a huge scale, a role that can only really be performed by incumbents – Barclays Bank is notable for their UK work in this area.
Innovation: Innovation can be more challenging for bigger players, but when done right it will reach more people. As Mark Elliott of software firm SwordApax argued, there is a tension between trust and innovation. Banks must seek to understand where customers want them to foster trust (i.e. stability, reassurance) and where they want innovation in services.
Culture: Large banks continue to face cultural challenges. Simon Lamb, a consultant who has led a far-reaching cultural change programme for a major global bank, argued that people tend to have good values - the problem is what happens when they walk through the door at work. People will abdicate their own values when they feel under pressure to fit in, look good and follow the rules. To counter this, he said, “you need to create belief systems in organisations.”