Finance for the People

Over at The Freeman, I take a look at how technology has been democratizing access to capital, bringing news ways of raising money to people who need it but don’t have it. I outline some of the many tools people now have for accepting, raising, or borrowing funds.

Of course, there has to be a problem with so much innovation. It’s the regulators:

The trouble is that these innovations are now attracting the attention of regulators. The Department of Justice is targeting payment processors in a regulatory crackdown known as Operation Choke Point, on the supposed justification that they have been used by unscrupulous merchants to channel funds defrauded from victims. As a result, banks are dropping relationships with payment processors in order to avoid the extra expense that increased regulatory supervision brings. This will make payment processing more expensive, harder to obtain, or both.

Congress allowed the creation of equity crowdfunding platforms that allow investing in a new venture when it passed the Jumpstart Our Business Startups (JOBS) Act in 2012. However, the Securities and Exchange Commission (SEC) has adopted a narrow interpretation of the act. Under the SEC’s interpretation, “accredited investors” can buy a piece of a company through crowdfunding, but for the rest of us it’s going to be difficult. Worse, companies will find using this financing route difficult, given the likely reporting requirements.

This regulation seems strange considering that one can buy an entire company on eBay, but not a part of one through a portal.

Yet, as I note, innovators do tend to stay one step ahead of regulators. The cat-and-mouse game Uber is playing with over-eager regulators is a case in point. Yet if financial innovation is allowed to be choked off, all sorts of other innovations will never happen. Access to capital, just like access to energy, is fundamental to the “sharing economy.”