We kicked off the Semantic Wave series about creative destruction in major markets with the “mother of all markets”, financial services. You can see the three intro blogs here, here and here. This caught the eye of Frederic Baud an entrepreneur who is passionate about the disruptive possibilities of P2P (Peer To Peer) financing. Read on for our interview with Frederic:

Tell me about your background.

FB: I’m actually an entrepreneur that recently came to the financial services world. I created a couple of small businesses and had the opportunity of being part of the development of a high-growth startup in the software business, namely Business Objects. In all these experiences, I was confronted with the difficulty of financing a small business as an entrepreneur or the challenges associated with fueling a stellar development. I came to the conclusion that the traditional model of financing were not optimal and discovered with excitement in 2006 that social technologies were offering promises of making what I had in mind possible. I was, as many other innovators were, discovering the power of P2P finance.

Tell me about BarCampBank

BL: What is the mission? What results so far?

FB: BarCampBank is a movement that we co-founded precisely on Sep 16, 2006 during a regular BarCamp. Typical of the social approach, BarCamps are a formidable tool to let like-minded people meet; And in this case, we had several people imagining different facets of what bank 2.0 could become. In this kind of situations, the whole is greater than the sum of the parts, and we went on to create a BarCamp spin-off that would be dedicated to making our visions in the field of banking come true. We gave BarCampBank the mission of “fostering innovations and the creation of new business models in the world of banking and finance”. Since then, BarCampBanks have been organized on three continents, in five different countries and 14 cities, multiple times for most of them. The results are regular physical meetings across the world for innovators and disruptors that can share ideas on subjects like virtual currencies, social lending, personal finance management,.. and many other subjects relating to finance. It’s also a bound for an ecosystem of thought leaders that can constantly exchange via social medias like Twitter, Facebook or Google groups.

Is P2P Only Applicable To Consumer Lending?

BL: You focus on P2P finance. We normally associate that with retail banking, consumer lending. You are saying that it is also applicable to corporate or investment banking, or even on asset management. Can you explain?

FB: P2P Finance is actually a powerful concept that can be applied – at least intellectually – to almost all the compartments in financial services. We are still currently living in a model where financial institutions serve as black boxes between people who have excess saving capacities and people who have needs for funds to either consume or invest in production systems. Financial institutions, and in particular banks, developed internal capabilities and processes to perform the most efficiently as possible the allocation between the savers and the borrowers. But these intermediaries were built when information was costly to transfer. This is why it resulted in black boxes where aggregation of savings was done on one end, and distribution of investments was done on the other end based on risk profiles, with a strong culture of secrecy in the middle. The P2P model turns the model on its head. It postulates it is no longer necessary to aggregate savings in huge sum to serve several investment needs categorized by risks, but that you can directly connect the savers and the borrowers.

P2P In Corporate Banking

Concerning Corporate Banking, P2P lending services like Zopa, Prosper, or Lending Club started first with personal loans that are usually associated with pure retail banking, but these startups are rapidly moving to the professional loans segment that can be seen as mini corporate banking (even if currently served by retail banks). Kiva was actually operating from the onset on investments in entrepreneurial projects. We also have seen many sites offering alternatives to seed funding for investment in equities. All these examples belong to what we call P2P Venture. But we also have startups that are offering alternatives in trade finance to the traditional corporate banking model, like The Receivable Exchange does. All these initiatives are small, are eating on fringes that Corporate Banks do not serve, but this is a perfect scenario for disruption.

P2P In Investment Management

Investment Management is also seeing potential disrupters appearing on its horizon. Services like Zecco, Covestor or Vestopia are called social trading or social investing sites. They once again aim at disintermediating banks, by-passing their internal processes and number crunching added value, by directly connecting many people together that can now share their information and analysis capabilities to select the best investment opportunities.

While it may take more time for affecting Asset Management, P2P can also unleash strong disrupting forces there. Aggregation of savings, because of processing costs nicely disguised under the name of management fees, have lead to bigger and bigger funds and even created these strange beasts called funds of funds. The problem is that a lot of these savings are just consumed in the process of aggregating then slicing them again, with no particular added value associated. In addition to that, there is a strong desire of savers to see more transparency in the allocation of their money, they want to know what it is used for and are put off by the bulk figures provided by asset managers as a justification for their fees. I’m eagerly waiting for the appearance of a P2P Asset Management category of startups that will offer alternatives to the current actors.

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