Simon and I went to see Giles Zopa a few days ago to get insights into Zopa. This is an extrapolated view of a part of our conversation.
Looking at […] traditional retail banking. The “dominant idea” (to use some Built to Thrive terminology) of the retail outlet in banking is to connect the fund provider and deposit maker (that expects a return) with the need for funds as the recipient (that expects to pay for having access to funds). This obviously is only one pillar of the overall retail experience; the need to transact daily for the moment is not covered in this reasoning. So, the need for a loan is satisfied in many ways. Recipients of the loan, as the receivers of funds, need to expose information about their situation and about themselves.
The large bank uses a disconnected model; clearly separating the provider of funds from the receiver of funds. Then proceeds to create risk and credit processes to manage this disconnect in complex ways, resulting in expensive processes and operating models.
Zopa presents an alternate perspective […] in connecting the lender with borrower. Removing the “secrecy of information” mindset results in an efficient connection between provider and recipient. It might seem that initial interactions between various elements in the connected network favor certain outcomes, the longer term implications are that the right provider with eventually find the right receiver.
Speaking to Giles you get the clear impression that he understands the ecosystem of the efficient interactions that are developed over time. The longer term provider will find the benefits they seek as they enhance their understanding of the behaviors of the borrowers. Allowing the network of interactions to remain messy, fuel the growth of the network. By “messy” I mean; you need shortages and scarcity in the network to fuel interest and focus across the social graph, you also need holes in connectivity to fuel interest in closing these holes.
Scarcity in the network refers to the need for more lenders or borrowers over time. Waves of scarcity will determine the behavior of the network organizer, in this case Zopa, to invest energy in closing the gap. Holes in connectivity result in opportunity seekers searching for returns in places where most will not look. The network of connectivity is made efficient by this shifting of behavior and entrepreneurial spirit of the network participant.
Facebook, to look at one of many, social networking automation platforms has a specific take on the social graph. This “take” is to focus on the generic nature of the platform of interconnectivity and solve the “specialization problem” through allowing plug-ins to be developed on top of the platform. There is a complex interplay between these various plug-ins and the platform as the human component determines the use of the platform for it’s own purposes. Having millions of people connecting, using and spreading messages and transactions across the graph allow for an “efficiency scenario” to develop.
The “efficiency scenario” develops as the number of interactions increase across platform, platform extensions, and as human behavior over time adopt. Connecting the information provider with the information consumer has a sense of historical importance. Humans trade, share and commercialize these abilities to connect people in innovative ways. Probably the most important component of the scenario is that people get educated that technology can play a major role in making the network efficient.
Using the efficiency scenario in the social graph allows for the connecting of provider and recipient to happen much more efficiently as technology innovation allows for more efficient connections to form.
Zopa is becoming and driving a new language in social connectivity for personal financial wellbeing. Could this business be replaced by Facebook? Would the participants in the network find more efficient interactions in the public networks, or will the trusted nature of Zopa keep a niche in the world of money? Can you really trust the generic social connectivity and trading platforms to handle your investments? Will the traditional bank shift it behavior in connecting provider with requirer and move from thousands of people managing a proprietary process to a handful people managing it all with the assistance of technology?
Human mash-ups, a term I’ve used to show how technology gets integrated with humans, can be used to explain the Zopa story. Money, a human invention; banking, another human invention; intersect with technology, yet another human invention. We are only at the beginning of the era of using technology in connected ways. Language invented some 10,000 years ago (just to make the point) intersect with a public global network that uses technology only invented some 16 years ago.