Will crowdfunding take on the banks?

Can crowdfunding obtain enough scale to challenge the dominance of the banks?

We need to consider the definition of crowdfunding and the role it plays and compare this to the role of banks. Obviously, there are several types of banks. If we start with retail banks, these are about savers and deposits; managing and safeguarding assets and giving money at a basic return. I don’t believe crowdfunding can take on that role and therefore represents no challenge to these sorts of institutions.

On the other hand, investment banks are about venture capital investing and taking more risk and getting more rewards. Crowdfunding essentially is an intermediation mechanism that could allocate risk capital more efficiently. So when crowdfunding grows in its various forms through rewards, donations, debt, equity, it could become an alternative to the traditional means of investments, venture capital and private equity.

But will it challenge the dominance of banks in this area?

I think banks or traditional institutional investors will learn from what crowdfunding can do and its impact on the cost of transaction, so this will hopefully be lowered across the industry. I think both will exist in the long run because at a certain level crowdfunding comes too complex to manage.