Think of small nodes of economic activity, local economies, that are connected to each other through lines of information and communication and resource sharing. Rather than a large controlling center with outward thrusts of power and control, in a democratized economy both risk and reward is spread out over interconnecting economies. Multiply these same communicating local nodes across millions of economies around the world, and we become self-sustainable, interconnected, and provide structure and support for each other.

This economic model can be mapped out to look like the neural networks. With new technology of online platforms and apps for users, it is possible to exchange goods, services, data and money without any intermediaries. The democratization of economic opportunity needs both support and communication technologies. The new platforms bring together business values and practices to make new products with new technologies.

Lighter. Quicker. Smarter. This is what today’s consumer demands. We see this clearly in the meteoric rise of firms like Uber and Airbnb. The financial services consumer is no different. The more streamlined, mobile and autonomous the experience, the better. This is where “fintech” comes in. Short for “financial technology,” this group of startups is revolutionizing the financial sector. These firms are allowing consumers to sidestep banks almost entirely, yet still manage their finances, such as the transfer and receipt of funds, online payments for business and retail purchases.

This points to a trend overall: banks who fail to invest in the technological advances of the times will likely also fail to keep pace. The focus of Capgemini’s World Retail Banking Report 2016 points to the fact that fintech firms are winning the popularity contest, by a landslide. The report notes that banks not only underestimate just how sweeping the impact of fintech firms are, but also how their customers feel about them, with just over a quarter of banking institutions viewing fintechs as actual competition. 

For many banks the thought of integrating modern technologies feels like a minefield. The digital revolution has also given customers the option to seek other businesses if their current providers do not offer services on multiple channels. Banks are creating user-centric experiences for customers to differentiate each other from the competition. However, this is still a challenge for most financial institutions.  There is a lack of “human touch” between banks and their customers, and this is one of the reasons why people only visit a branch when they have to, and their relationship to banks is mostly transactional. Fintech companies like Venmo and Sqaure Cash are serious competition for banks. These platforms mimic the natural flow of people when it comes to sending money, which banks are unable to do because of legal regulations and obsolete IT structures.  However, these fintech companies can only provide bank-like services but not a complete holistic financial model.

In the insurance industry, insurance company Lemonade is the first of its kind. While other insurance companies have utilized Peer-to-Peer models, Lemonade is the first to do so as a carrier and not a broker. Traditionally, there is a pattern within the insurance industry to pay as few claims as possible due to the reality that fewer claims paid equates bigger financial gain for companies. But Lemonade’s method requires policy holders to form groups that pay premiums into a claim pool; at the end of the policy period, if money remains in the pool 20% of that amount is charged by Lemonade, and the rest goes back to the policy holders in the group.

As with all business models, there are risks to P2P insurance. Some, or all within the group can conspire to commit fraud. Hence the Gresham Law: the dishonest will drive away the honest. Conversely, a P2P insurance platform can more easily swindle from clients. The legal loopholes on both sides are many. However the P2P insurance business models and technology are both on the rise globally. It’s fair to forecast a trend on the horizon that will change the face of insurance companies as we know them, granting more agency for both the insured and the companies alike.

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