Open Finance

The global financial crisis destroyed long-term confidence in the financial services industry in the U.S. and other industrialized nations. But while many people are calling for policymakers to update regulations and even break-up the big banks, we’re convinced that restoring confidence will require more than government intervention and new rules. What’s needed is an entirely new modus operandi for the financial services industry, one where all of the key players (banks, insurers, investment brokers, rating agencies and regulators) embrace the web, transparency and other wikinomics principles in order to develop credible practices and policies that will act as preventative measures to ensure that similar crises do not reoccur.

Zopa, which claims to have been the first social-banking platform, describes social lending as a process “where people lend and borrow money with each other, sidestepping the banks.” Loan rates are determined by a bid and ask process, sort of like eBay, which offers lower interest rates of borrowing. Zopa offers transparency for in the finance process: Lenders can see where their money is going, and borrowers, where their money has come from.

New models based on openness, transparency and participation are already changing many parts of the financial industry—from venture capital to mutual funds and even lending. So why not deploy a digital response involving collaboration on a mass scale to properly evaluate and assess the value and risk of new financial instruments as they are produced. Exposing complex financial instruments to the scrutiny of the thousands of experts who have the knowledge to vet the underlying assumptions could restore trust in banks, kick start venture capital, unfreeze the paralysis of lending markets and lay a foundation for a financial service industry that continues to underpin the growth and prosperity of the world’s economies.