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Posh banking for connected people

If you think about a bank, it’s basically a system for connecting people with money. You give the bank money to look after because you trust it, and they give you money on loan if you check out.

Traditional banks work on the basis of a bricks-n-mortar network. The manager guy sits in his office, checking out people looking for loans, and the saver puts his money in because it seems like a ‘solid’ institution. Traditionally the manager keeps an eye on the whole business environment of the place through a network of business contacts. (More recently though, the bank manager has become less influential, as electronic credit scoring becomes more important.)

With social networking applications, it may not be as important any longer to have the bricks and mortar in place. a manager could get to know a lot of people through his extended social network. Everybody he dealt with could be either known to him or somehow introduced to him, so there would be a level of trust from the beginning.

There is something like this in the UK, called St. James’s Bank. This bank is aimed at people with reasonable incomes, who are likely to need a sizeable loan to buy property. If you are a customer, you do all your transactions on-line. But you can’t just ring up and get an account; you have to be ‘facilitated’ by a financial adviser who is a member of the St. James’s Place Partnership. Typically, you would be introduced to one of these independent financial advisers by a friend or colleague. In this way, the Halifax (which owns St. James’s Place Bank) is building up closer relationships with its well-off customers through its advisers than it might if it made them go to a hectic branch to see their bank managers. As a result, the bank is more likely to be responsive to customers needs, and is more likely to hold on to the business.

It’s banking without branches. Social networking, especially online social networks have the potential to give banks a new way to reach out to savers and investors.

Would you move all your bank accounts to an anonymous bank on the Internet?

Maybe not, but maybe you would bank with a person who was introduced to you by a friend of a friend.

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