The Savings and Investment Function
Commercial banks recycle deposits by agglomerating them into larger loan contracts. Unbundling these two functions, crowd funding substitutes for the investment and saving function of banks, and also perhaps the risk management function. P2P lenders are websites that directly match borrowers with savers, often in specific sectors such as residential or commercial real estate (CrowdStreet Inc and Sharestates LLC) and movie productions (Junction Investments Inc) .
Risk Management Function
Pooling of risk across the network will enable large established insurance firms to survive and provide standard risk management contracts. The larger the risk pool, the greater the diversification across different risk categories so the negative outcomes associated with individual events are mitigated. Risk itself is not eliminated.
With the trajectory of labor markets moving in the direction of independent workers and independent contractors, as opposed to salaried employees, risk sharing contracts are likely to be replaced by more granular hedging arrangements. There is a market here for the introduction of job and disability related insurance arrangements and retirement savings plans. We are already witnessing granularity in health insurance under the Patient Protection and Affordable Care Act (ACA), which need not be purchased under the aegis of an employer.
Traditional financial intermediaries, such as banks, may be forced to reinvent their function in light of these digitally enabled developments. A single, well-known digital platform, such as Bitcoin, could overcome the coordination problem and not require compatibility between multiple digital currencies. During times of economic stability such a disintermediation could be sustained. However, an economy shocked by an external event cannot be resuscitated without government intervention (as we saw in the Bear Stearns case). The mere possibility of such an event, I believe, threatens the viability of a digital platform.