Wise Buddha

I have been keeping an eye on the increasing coverage of start up’s like Zopa who are in the so called social lending space. In a nutshell Zopa “..is the marketplace for Social Lending. People lend and borrow money with each other, sidestepping the banks.” The BBC has an interesting piece about social lending and Zopa here.

This seems to be a perfect example of harnessing the web to innovate within a space i.e. banking that is crying out for change and fresh thinking. It raises some interesting questions though not so much for the banks as their scale, multinational status, regulatory environment and investment by pension funds make them pretty much immune from big changes within their sector. It’s Credit Unions (CU) who should take note of this kind of innovation, as their reason for being used to be servicing sections of society for whom the traditional banks were not available or appropriate. I am thinking the less financially solvent, the poor, new immigrants etc.

I am not suggesting that companies like Zopa are in the same business as a CU what I am saying though is that in the dash for scale and the rush to become more bank like perhaps some of the biggest credit unions have lost sight of what makes them different. In particular, what can continue to make them different versus the banks. Perhaps instead of scratching their heads and looking puzzled as to how they can differentiate themselves in an increasingly commoditized sector perhaps the answer is to focus on what gave rise to them in the first place.

Having said that, for the largest CU’s they are now in a structural pickle as they are all now chasing the same mortgages, chequing accounts, loans, insurance services, RSP’s, and business accounts as their bank competitors. Their focus will have to be to cross sell more efficiently to their members in order to support the scale they have created. I think CU’s are at a cross roads particularly the large ones, it will be interesting to check back in 3-5 years in order to see how many are left and how they have manged to stay relevant and profitable and whether co’s like Zopa have had any impact.

I hope so as the banking sector in Canada needs a big shake up. Coming from the UK and spending time in Canada it has become evident that the FI’s here get away with things that simply would not be acceptable to UK consumers e.g. paying monthly fees on a chequing account! In the 5 years I have been here there has been little if any innovation in the banking space, of course there are some regional initiatives from the likes of Vancity and Coast Capital, no nonsense and no frills from Presdent’s Choice but I am really trying hard to think of ANYTHING that has caught my eye or imagination. Which is a sad reflection on the sector.

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