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Could we crowdsource a financial institution?

So this is a bit off the wall I’ll admit but I’ll throw it out there anyway. If you want to call it crazy, do :) I’ve deliberately not analysed this in depth as just throwing the idea around is making me smile.

We know banks here in Ireland are basically fucked and as both the effective owners and the customers we’re getting a raw deal. Even without the banking crisis the service we get is poor. The banks haven’t really been about banking as a retail service for a long time. It’s one of the reasons we see so much disruptive movement in the payment space these days (obligatory nod to Stripe :) ) – it’s just one of the functions of a bank that can be done better and the banks simply haven’t bothered. Services like Kickstarter and Fund it show that you can crowdsource money for useful and interesting projects. Credit Unions are basically operated on the same principle :

The Credit Union Act 1997 has:

Conditions for registration as a credit union. 6.—(1) A society may be registered under this Act as a credit union if the Registrar is satisfied that each of the following conditions is fulfilled—
(a) the society is formed for the objects specified in paragraphs (a) to (c) of subsection (2) and for no other purposes beyond those specified in paragraphs (d) to (g) of that subsection;
(b) admission to membership of the society is restricted to persons each of whom has, in relation to all the other members, at least one of the common bonds specified insubsection (3);
(c) it has at least 15 members who are of full age;
(d) its rules comply with section 13 ;
(e) the place which under those rules is, or is to be, the society’s registered office is in the State;
(f) if registered, it will participate in a savings protection scheme approved under section 46 (1); and
(g) it has in force (or will have in force if registered) such a policy of insurance as is required by section 47 .
(2) The objects referred to in subsection (1)(a) are—
(a) the promotion of thrift among its members by the accumulation of their savings;
(b) the creation of sources of credit for the mutual benefit of its members at a fair and reasonable rate of interest;
(c) the use and control of members’ savings for their mutual benefit;
(d) the training and education of its members in the wise use of money;
(e) the education of its members in their economic, social and cultural well-being as members of the community;
(f) the improvement of the well-being and spirit of the members’ community; and
(g) subject to section 48 , the provision to its members of such additional services as are for their mutual benefit.
(3) The common bonds referred to in subsection (1)(b) are—
(a) following a particular occupation;
(b) residing or being employed in a particular locality;
(c) being employed by a particular employer or having retired from employment with a particular employer;
(d) being a member of a bona fide organisation or being otherwise associated with other members of the society for a purpose other than that of forming a society to be registered as a credit union;
(e) any other common bond approved by the Registrar.
(4) In ascertaining whether a common bond exists between the members of a society, the Registrar—
(a) shall have regard to the qualifications which are stated in the rules to be required for admission to membership of the society, and
(b) may, if he considers it proper in the circumstances of the case, treat the fact that admission to membership is restricted as mentioned in subsection (1)(b) as sufficient evidence of the existence of a common bond.
(5) For the purposes of this Act, if the rules of a credit union so provide, a person shall be treated as having the qualification required for admission to membership stated in those rules if he is a member of the same household as, and is a member of the family of, another person who is a member of the credit union and who has a direct common bond with those other members.

A Common Bond in the case of an online community is a little more interesting but perhaps can be established. Let’s face it; there’s surely “the improvement of the well-being and spirit of the members’ community” in abundance.

How would it operate? I just see this as something very basic:

  • Somewhere for your salary to be paid
  • Somewhere to pay your bills from
  • Somewhere to manage your cash
  • Somewhere to get cash
  • Somewhere to put cash

The Irish League of Credit Unions talk about payment services (i.e. EFT) via a CUSO for sending and receiving payments and eventually extending to debit cards. Most of the features you need for banking domestically and abroad. Your ‘back office’ doesn’t need to be particularly sophisticated to support any of that. In fact, with a lightweight accounting setup at the back you could actually do proper APIs for the multitude of budgeting and cash management services out there instead of the crappy, rigid, archaic, half-arsedly implemented export offerings currently. Yes, the topics of data privacy and security are significant but there are people, willing and able, out there (a big assumption perhaps).

With a lightweight implementation like this you then have the problem of branch coverage. Something which is probably an issue with credit unions today. I’d wonder if the deals AIB and NIB have with An Post are prohibitively expensive?

I’ve left off a discussion on lending from this as that needs to be carefully handled. Of course, that closes off revenue generation for running costs and dividends which you have to think about. Regulation and compliance does tend to cost money.

Anyway, just letting that loose from my head.

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