Why are fintech companies and crowdfunding such good bedfellows? After the economic crisis of 2008, a chasm opened up in financial markets, created by a profound lack of trust. We have heard the outcome of this narrative before: banks had to change their ways, new entrants came along. But 10 years later, it is the novel relationship between these new players and consumers that, I believe, gives us a glimpse of a future where any business-to-consumer company sees sharing ownership with its customers as inherent to long-term success. This is the cooperative movement of the twenty-first century, and it is driven by technology.
The world’s leading fintechs are using crowdfunding to cement and enhance their relationship with their customers. Making consumers owners and giving them a say has become integral to how these companies run. Looking just at the UK alone, Crowdcube, the crowdfunding platform I co-founded, saw fundraising volumes for fintechs jump from £10.2m in 2017 to £52.8m in 2018. Savings app Chip raised £3.8m, pocket-money card gohenry raised £6m, but the data is skewed by a phenomenal example of building a business around the consumer.
In December of last year, digital bank Monzo raised £20m from retail investors. This is not something it needed, from a cash perspective, to do. In October, the bank had closed an £85m round led by VC firm Accel. And raising £20m is no mean feat: it means, for example, writing a prospectus, which is a lengthy and expensive process. Moreover, Monzo’s crowdfunding raise capped all investments at £2,000.
This is a business that, like fellow fintechs such as Nutmeg and Freetrade, wants as many as possible to profit from its success. By giving people skin in the game, it secures a base of customers, and champions. From a commercial perspective, this significantly enhances each customer’s lifetime value. As shareholders are asked about new products and improvements, and treated like a member of the “Monzo Community”, they are less likely to move providers, more likely to refer friends and family, and more likely to buy more products and services.
And now, fintechs have evolved the way they run crowdfunding campaigns, with many building their own platforms to manage ownership. This gives us a fascinating glimpse of the future. Here are businesses offering equity – not simply because they need the money, and not so they become publicly listed companies, but to build enduring affinity with their customers. Of course, there used to be greater elements of this in financial services. The cooperative movement in financial services waned in the 1970s and 1980s, when big-bang banking enabled institutions to grow faster and harder. Offering more products quickly was easier under a joint stock structure, not with hundreds of members.
But technology is changing what is possible. And I for one do not believe this shift to consumer empowerment stops with finance. In fact, I think finance is simply the vanguard. There are already non-tech sectors that have leapfrogged traditional ownership structures. Food and beverage, traditionally been underserved by finance, was an early adopter of crowdfunding, with companies capitalising on loyal customer bases to grow. Brewdog is a five-time crowdfunded brewery. It has almost 96,000 investors who, in its words, kick-started the craft beer revolution and, presumably, drink its beer. And cleantech is the fastest to fund sector on Crowdcube, as consumers vote with their feet on energy provision and customer service.
Every sector traditionally associated with consumer exploitation is becoming a hotbed for innovative companies building products premised on purpose. Clever startups like Brolly and Cuvva are reinventing insurance. SeedLegals and Farewill are demystifying the legal system. LendInvest and Habito are throwing open access to property. How long before ownership models, which can so acutely tie a customer to a service, change, too?
Meanwhile, It is not just the existence of the right technology that is enabling this world: it is our appetite for using it, too. Even five years ago, it would have been difficult to predict the extent to which consumers are comfortable with using numerous apps to access different services that solve their problems. It is not a one-stop shop that is desired; it is a menu of products and services that are easier than ever before to use, and priced as sensitively as possible. They are also, increasingly, ones you own.
Envisioning a future close at hand where a local high street will be populated predominantly by businesses that have hundreds, or thousands, of owners, customers and advocates is not difficult. The twenty-first century will see a redefining of ownership as the customer is put front-and-centre in terms of business strategy, product and funding. Welcome to the Age of the Consumer.