How social media can break big banks

By Scot Herrick | Cube Rules Commentary

Mar 01

Banking isn’t something often heard about in social media circles. Unless one is complaining about big banks, of course. The frustration with banks and their fees, policies and risk mindset, however, has spawned a few upstart approaches to circumventing banks through social media methods.

There is a new way of moving money — via the cloud. Here’s what you need to have:

An Online Clearinghouse

This is a place that can hold your money in an account as well as simply transfer the money to people and companies as needed. That model has been in place quite a long while now — it’s called PayPal. I’ve used PayPal for quite a while because it gives me a way to accept payments for my products without having my customers disclose their financial information or for me to have to protect it.

Over the course of time, PayPal has improved in the services it provides. But, simply, you can still transfer money to someone via their e-mail address.

An Open API

PayPal, however, was a closed system. You simply used it, but could not interface with it. Recently, though, PayPal has started to open up access to services, just as Facebook opens up for other applications to use (and, no, I don’t like Farmville…).

What this means is that people who come up with cool ways to transfer money or pay bills can now concentrate on their product — and use PayPal as the conduit to send the money.

Enter Social Media

Open up a clearing house and social media will find a way to use it. Want to pay someone via Twitter? Use Twitpay and put in “p scotherrick” and money will come my way. Hundreds of applications are under development using PayPal as the platform:

Two months after PayPal opened its platform, 15,000 developers had used it to create new payment services, sending $15 million through the company’s pipes.

Now, $15 million is not a lot of money; big banks send that in less than ten minutes every day. But then, the Internet wasn’t very big that long ago either and few looked at it as if it would change the way they do business.

The interesting idea is this: people are ticked off at big banks and credit card companies for their high fees and interest rates and can now do something to completely bypass them. The companies flaunt their wealth and ignore the moral issues of what they are doing to consumers. Few have faith that the government will intervene and regulate the financial institutions in any way that will protect consumers.

So you create your own bank in the clouds. Let’s see how long it lasts before the big boys notice.