Over the past year, I’ve been exploring the many examples out there of communities forming peer-to-peer networks in order to rebuild local economies, resilience and trust. These range from gift economies to barter groups, from loyalty programs to mutual credit systems. The latter, mutual credit systems, is the focus of this post.

The oldest mutual credit system still in operation today (of which I am aware) is the WIR, based in Switzerland, which was created in 1934 due to currency shortages after the stock market crash of 1929. The WIR is managed by the WIR-bank, a cooperative owned by the businesses using it. They currently have about 75,000 Swiss businesses as members, representing about 25% of all businesses in the country.

It’s essentially just a bookkeeping system that enables transactions to happen, and is generated directly among the businesses. So, business A sells a good or service and receives a WIR Credit, while Business B, the buyer, gets a corresponding debit. Business A can go use their Credit elsewhere, while Businesss B has to eventually sell a good or service to offset the debit and remain in good standing with the community of business members. No interest is charged, and the ledger always balanced to zero. It’s been observed over the years that during times of recession, participation in the WIR system increases, meaning the financial needs of businesses continue to be met uninterrupted despite what’s going on in the global economy.

I thought this was a pretty cool thing, both in terms of creating a mechanism for businesses to engage in trade without the use of traditional money, and as a complementary currency that acts as a “spontaneous counter-cyclical shock-absorber for the Swiss economy,” in the words of Bernard Lietaer.

I wondered if there was anything similar going on in the US, and was excited to discover the Vermont Businesses for Social Responsibility Marketplace, an “innovative peer-to-peer mutual credit system embedded within the largest green business association in the US.” Businesses pool the credit they issue to each other into a common marketplace where local goods and services are bought and sold, credit lines are issued to willing entrepreneurs, and the cost of doing business is lowered by consolidating expenses and buying power. They currently have 160 businesses actively trading, with a goal of getting 1000 Vermont businesses as members by 2015.

I reached out to its founder, Amy Kirschner, to find out more about how it works. Continue reading →

I came across an article yesterday on GigaOm – Dreams of mobile payments lead telco to try banking – notifying us that Rogers, a Canadian mobile carrier, has filed to become a bank.

It makes sense, as we see various iterations of mobile wallets coming into existence, and carriers looking for a new revenue stream. Of course, it’s yet to be seen if ‘ease and convenience’ will be enough of an impetus for consumers to make the switch from the physical medium of paper and plastic to a virtual form that may still seem foreign or less secure.

This does bring me back to a question posed earlier this year about the potential of Facebook becoming a bank. I’m reminded of an interview we conducted for the Future of Facebook Project with JP Rangaswami, the chief scientist at salesforce.com and Venture Partner at Anthemis Group, who said:

“Facebook is the new new telco.  It is the natural logical extension of what telcos were.  I don’t think of it as anything more than taking the concept of what a telephone company used to be and drive it forward.”

He went on to describe what he meant by that, saying that essentially Facebook had brought the 5 basic components of a telco into a 21st century context. These components were:

1. a population of people you put in a directory
2. ways of reducing search costs by grouping people alphabetically/functionally/regionally/etc
3. a number of ways of communicating between people (1-to-1, groups, audio, mail, text)
4. ways to change details associated with those people, via updates to the raw data of what people are doing
5. scheduling

So now you have a ‘social network’ that operates on the basic model of a telco, with the added functionality of mapping and extracting value from the social graph, and building open APIs across a developer platform to expose the graph to other services.

So where does the potential of becoming a bank come in?

As Rangaswami pointed out, we’re making the move to smart mobile devices, and we have the capacity to link the SIM card with one aspect of authentication. We have Facebook Connect. We have near field communication that enables us to transfer virtual value out into the real world. We have virtual currencies that can be implemented across any number of community contexts – local, regional, by industry, etc. And we’re not just talking about Facebook Credits or digitized money, but any number of complementary currencies used by particular groups to enable more frictionless transactions.

Facebook then also has the potential to draw in the unbanked or the underbanked around the world, where the entire infrastructure of having physical money and a place to store it can be leapfrogged in place of a virtual system and marketplace.

I still haven’t really wrapped my head around the big picture… curious to see how it will unfold and how mobile carriers are going to convince consumers they can be trusted as financial institutions.

What does this mean for banks? Do they get disintermediated?