The Bankwatch

Tracking the consumer evolution of financial services

Banks role as middleman is under attack

David from INGBlogs builds on an essential point here in a comment that I thought worth amplifying into a post.

The bank is becoming less important in its role of middleman between demand and supply of money – at least, in the medieval bank model as set up by some rich Italian families hundreds of years ago.

A newer middleman function for a bank could be modelled after the eBay model. Let the expertise and decision making of demand and supply reside with these parties themselves. This would apply to retail banking but also to corporate banking. Toyota could lend money to IBM as could Vodafone to Singapore Airlines.

These companies have as much financial expertise for their specific needs as any bank – a new bank role could be to connect these people. Again, in the retail space we can follow and to see if a model like this works. As of now I would be surprised if it would not.


At the core, Banks are simply middlemen, that have become adept at adding additional services on to their services.  Part of that middleman role is removing the risk from depositors and lenders, and assuming that risk.

David’s point, if I have captured it accurately, is that the risk can be delegated and shared as in the eBay/ Prosper/ Zopa models, each with their own characteristics, but common in that everyone takes some risk.  Compare to a bank account holder who considers that risk free.


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Written by Colin Henderson

October 27, 2006 at 00:54

Posted in Banking Strategy

One Response

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  1. That is correct. It is yet another “Long Tail” story of the reversed 20-80 rule. By the sheer numbers it is of course with the 80% with whom we want to dilute risks. That is, if there is no connection with the financed matter, neither with borrowers nor lenders.

    Perhaps in an Amazon or eBay model, where strong communities emerge around topics of shared interest, I can also imagine that “members” will be willing to take on the bank role. Think of a community of, say, people that are passionate about model planes. There might be hundreds or thousands of model plane clubs around the world – all sharing the same passion. If one of the recognized members needs some extra cash to purchase, or build from scratch, a specific model of which all members (worldwide) agree that to be a “cool” thing to have in their hobby, members might want to provide the loan.

    There are millions of such interest communities worldwide (and more and more web enabled). Strong communities are self regulating and the shame factor of not repaying, including some other more official forms of reinforcements if the loan instalments indeed remain unpaid, should make such loans interestingly a “feel good” product – that could make it highly competitive to the clinical approach banks offer when it comes to accepting loan applications.

    If an Amazon or an eBay could facilitate members of their communities to move around with and focus their money directly to what they want to invest in, with lenders not necessarily providing loans to be making money, the floor under the pillars of banking will be trembling. In Web 2.0 it should not be underestimated that members are willing to do something without economic benefit: with Wikipedia as good example of the power of volunteers.

    As part of the answer to the question if banks understand the current web lifestyle, banks must realize that in Web 2.0 members are aspiring higher levels of Maslow’s need pyramid. From the height of the pyramid’s peak of so-called self-actualization and esteem, engaging in activities to make money might be regarded as rather vulgar. Now, banks, price this in your services …

    david garceran nieuwenburg

    October 31, 2006 at 03:41

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