The Financial Social Enterprise

A couple of months ago a friend of mine, said he was starting a business targeted at helping Social Enterprises.

Pause

Good – a new term. Curiosity lights up –

“What’s a Social Enterprise Ben?”

“It’s a business that doesn’t have shareholders and exists to support a more community or collective based set of values.”

What? Like a charity or Not for Profit?”

No, Charities and NFPs don’t make a profit and are founded on fundraising or sponsorship models whereby people support a good cause, usually because the market won’t. Social Enterprises create value in exchange for money, and often want to make a profit so they can grow in many ways but use that money for the good of the collective upon which they’re based”

“Cool – Sounds very old school and highly relevant mate!”

Yesterday morning I was in Melbourne having breakfast with Joel Hanna from Xero and lead songwriter from The Wilds who suggested we go to KinFolk – a Social Enterprise Café opposite Spencer Street station.  Kinfolk is a social enterprise serving up coffee and a seasonal menu crafted from local and sustainable produce, driven by a dedicated team of volunteers. The profits are redistributed to partner charities oriented around social inclusion.

With these two experiences in the back of my mind, I was in Melbourne was to meet with a selection of CEOs and executives from a lesser known group of Australian banks – Credit Unions and Mutual Funds. These banks, also known as building societies, operate under the same regulations as the major “for Profit” banks and compete with them for customers but are owned by their customers, not investors. Hhmmm, Sounds like a Social Enterprise.

The term "building society" first arose in the 18th century in Great Britain from cooperative savings groups. In the UK today, building societies actively compete with banks for most consumer banking services, especially mortgage lending and savings accounts. There are 45 of this style of bank in the UK, 8 in New Zealand, over 100 in Australia including the imaginatively titled “The Sweeter Banana Co-operative” and approximately 7000 of them in the United States with 95 million members comprising 45.4 percent of the economically active population. Bigger and older than I thought is this Social Enterprise thing.

The Greek crisis is filling the news and providing another global example of how people’s trust in banks, currencies and political systems is being eroded and social enterprises, those that place community members at their heart, rise in popularity with parallel financial and political systems evolving.

While the Eurozone and IMF heads think about what they do with the currencies and other structures the people are taking action, setting up IOU based currency systems, free kindergartens so some can work while others take care of the children and so on. In their minds they are done. Disappointed with money they worked hard for and invested with trust into pensions that have eroded, they are creating new social enterprises regardless of what the bureaucrats chose to do.

In Australia Average savings at retirement is $130,000, household debt at record levels and Australians owe a massive $48.9 billion in credit card debt, which at an average APR of 17%  equates to $7.3bn in interest per annum above the base rate that Australians are handing over in credit card fees when they could be using this money to buy houses and get ahead financially. These numbers are echoed around the world.

We suspect that increasing consumer choice will create a new lens through which consumers’ select financial products. Banks that join their customers on their journey to success and do this digitally will secure more sustainable, and larger liquidity based businesses than those that pervade the cut and thrust of Net Interest Income.

As digital lowers barriers and connect us, I foresee a world where the banking market will separate into two:

• Those that increasingly think about high volume low margin back office services that are presented as a set of APIs.
• Those that deeply connect to their customers success individually and collectively to offer low volume high margin solutions that go beyond a discussion on price but play to a broader set of needs.

Whether this is as clear cut as the big and the small and how the continual consolidation of the industry plays out is unclear. Amazingly only 20-30% of customers don’t realise that Bank of Melbourne and St George are rebranded Westpac services which demonstrates there is plenty of mileage in “going local” even for the big guys.

Maybe Will I Am had some insights for us

Help each other, make these changes
Brother, sister, rearrange this
The way I'm thinking
That we can change this bad condition

Wait, use you mind and not your greed
Let's connect and then proceed
This is something I believe
We are one, we're all just people

One tribe y'all, one tribe y'all
One tribe y'all, we are one people

Black Eyed Peas - One Tribe Lyrics