MYC4

I don’t know whether you have been following the signing of the JOBS Act (Jumpstart Our Business Startups Act) in the United States over the last couple of months? On the surface it looks like P2P nerdy stuff, but, seen with my lens, this is a game changer within the financial sector with far ranging effects.

It is truly a complex area they are deciding upon over there now, but let me give you a glance of what I have picked up the last couple of weeks (I am only focusing on the crowdfunding part in the JOBS Act which, in total, is a small businesses reform package);

The JOBS Act is a law that embraces crowd funding by reducing many of the regulatory barriers, federal restrictions and red tape that currently functions as a nightmare for American start-ups wanting to raise capital from investors. The aim with JOBS Act is simply to create a meaningful way for start-ups to raise funding to develop, create jobs,… jumpstart growth!

The law requires start-ups seeking funding to provide information such as business plans, financial status, and shareholder risks. Basically the Act is structured as follows:

• Start-ups seeking up to $100,000 must provide tax returns and a financial statement certified by a company principal.
• Between $100,000 and $500,000 start-ups must obtain independent accounts to review these statements.
• Amounts exceeding $500,000, requires audited financial statements.

The maximum a start-up will be able to raise is $1 million per year and it must be via an SEC-registered crowd funding portal. I fancy the stair case model they have chosen; the higher the amount the more information/security the entrepreneur must put forward to the investors in order to make their decision.

On the other side of the model, now every American, regardless of income level, is able to get in on the ground floor of a great business idea by pitching in a small amount (it might be that the JOBS Act now is a reality, due to resemblance with the way political campaigns raise money?).

This is MASSIVE news not least for America, but I also strongly predict that this is a tipping point for the P2P sector in general as many (online) ventures and structures has its hearth in the U.S. In fact I believe this will impact the traditional bank sector… ooooh!

The U.S. has one of the worlds most regulated bank sectors and seen from my perspective the Act is an important indicator in a must-take-place development I have chosen to name: “Bye Bye Banks. Hello Banking!!” – or as Bill Gates puts it: ”Banking is necessary, banks are not”.

Banking is fundamental in developing society in general. Period. If banks do not wake up and smell the sunshine, it might be over sooner than later. I know I am dancing with the giants with my bold statement here, but banks must reinvent themselves and be more congruent with the time that they regulate instead of fighting development.

Banking services are not being developed from within banks, but by businesses outside of this sphere, often with the ’garage’ approach (lean, no legacy, digital savvy, etc.), and they are introducing services with a blazing speed. Take the American company; Square as just one garage business supporting this point. Take a look at their impressive numbers: Processing $5B In Payments Per Year; Volume Up 25 Percent Since March.

Yes, I would be rather scared if I was a bank (with a ‘glass and steel tower cost structure’, a whole lot of legacy, so-so digital savvy, etc.)!! I mean, banks where I come from believe that it is good enough just bringing an iPad version of their online bank to the market or it is good enough just to engage customers in idea generation via Facebook – sorry, but in my outlook they simply do not capture the essence of the situation they are facing and simply just continue the path they have done for decades!

But are banks doomed then? No! I actually think Sir Richard Branson is a good example of how it can be done in a complete different manner. Besides being an investor in Square – clever move – it is going to be very interesting to follow how he will transform his acquisition of Northern Rock and how he will navigate in a regulated, financial world as mentioned in my Philanthrocapitalism post here.

Also, how liberalization of the P2P sector will affect funding and growth of African businesses (and in the developing world in general) is going to be very interesting to follow…