New economy: The End of the Middle Man

Asset sharing (lending) and investing

Peer-to-peer lending eliminates some of the complexity and high cost of traditional lending by eliminating administrative and infrastructure costs. Borrowers are often able to secure funding at a lower rate than through traditional sources. Innovators in this sector include:

• LendingClub sources funds from individuals and institutions and allows its customers to borrow based on creditworthiness determined by a scoring system. The company has so far funded US$38bn in loans to 2.5 million customers.
• Kickstarter launched in 2009 as a way for entrepreneurs to receive funding for projects. As of today, US$4bn in funding has been pledged from 15 million people for more than 152,000 projects.
• Prosper was founded in 2005. It has funded over US$13bn in loans to-date. Using various financial metrics, the credit quality of each borrower is decided and corresponding interest rates are proposed.

Ecommerce and social shopping

More attractive online selections and faster delivery times mean that ecommerce is now growing at the expense of the high street.

In 2017, the UK saw 5,855 shops close, more than in any year since 2010, largely because of the rise in ecommerce. The trend has continued in 2018 with well-known brands such as Marks & Spencer and Debenhams closing branches and brands like Toys R Us closing down entirely.

In 2017, in a much-noted development, Amazon acquired the more than 400 shops and 15 distribution centres of Whole Foods. Amazon has stated that it will use Whole Foods locations to offer online ordering and in-store pickup, and will experiment with using locations as mini-centres for local grocery delivery.

Social shopping

People like to buy what their friends recommend. Traditional search-led online shopping lacks social interaction and therefore social influence plays less of a role in people’s shopping decisions. Social commerce leverages social channels to add this missing social element to the shopping experience.

While social networking sites have captured strong advertiser interest, they have had minimal success as shopping platforms. But Facebook, Instagram, Snapchat and Pinterest, are increasingly looking for ways to monetise users and their engagement through shopping features.

• Facebook has been involved in building the online shopping platform Marketplace.
• Pinterest launched Lens, a visual search shopping tool, in 2017, which is now being used to make 600 million searches every month (140% growth on last year).
• Snapchat has partnered with Amazon to introduce Visual Search, which will allow users to buy items on Amazon by taking pictures of whatever catches their eye.

The end of intermediaries

The rise of the sharing economy shows how technology is changing the paradigm in key sectors. Already, traditional retailing has been turned upside down and financial services look set to follow shortly. Increasingly companies that have a traditional intermediary role are challenged in their business models as technology opens up new channels for producers to reach out directly to their market.

And investment itself may yet come under pressure from these same forces. We’re only scratching at the surface of the potential applications for blockchain technology, for example. This could include the eventual elimination of conventional stock markets in favour of blockchain-driven market places.

While we’re unlikely to see stock markets disappear overnight, in the longer term we can’t ignore the possibility that the traditional distribution networks for capital – stock markets, lenders, the people that manage them – could go the way of DVDs and CD players.