Subscribe to read:

What crowdfunding is really about

Upgrade your account to read:

What crowdfunding is really about

Digital or Premium Digital

You can also subscribe to the FT Digital or Premium Digital with Google

Crowdfunding

What crowdfunding is really about

Imagine you’re a small, fast-growing business. You attract £20m from a single, institutional investor. Suddenly, there’s a public relations crisis. You hire a specialist to deal with the fallout. The institutional investor is concerned, but they don’t really get involved. Their expertise lies in risk and return, not reputation.

Now, imagine that the same investor gets thousands of its employees to continuously defend your reputation on social media. Imagine they include it as a condition of the investment, for free.

You’ve just imagined crowdfunding.

Monzo, the digital bank (which is actually more of a price comparison website), is this week carrying out the largest-ever crowdfunding round for a UK fintech, expecting to raise £20m. Most of the focus on crowdfunding in the UK has focused on its role in raising money. But the process has just as much to do with the problem of reputation in a fragmented world of online information.

One rarely discussed part of Monzo’s business is its Community Forum. It has 35,000 active users — an amount comparable to a small online media organisation. Only 7,000 people have invested in the company's previous crowdfunding rounds.

The reputational power of this forum was in evidence late last week, when The Times published an article pointing out that Monzo customers can buy equity, via the crowdfunding, through an overdraft from Monzo. This article, which was entitled “Monzo attacked for lending customers money to buy its shares”, included quotes from the Financial Conduct Authority.

Monzo's chief executive, Tom Blomfield, wrote a blog post criticising the article. In the forum, a new thread was created address it specifically. This thread became a vehicle to mobilise support for the company on social media platforms, especially Twitter. Users also pointed to The Times comment section:

There are 78 comments on The Times article, and many of them are critical. It is impossible to say exactly what proportion of those comments come from Monzo users, or from indifferent commenters with no previous interest or stake in the company. (This is one of the consequences of widespread anonymity in online comment sections).

In the past, a small number of print and broadcast media organisations dominated the market for reputation. For most companies, the best strategy was to hire public relations specialists, who marketed themselves on the strength of their relationships with the journalists that staffed those organisations.

By turning themselves into two-way platforms, where readers participate at the end of the article, newspapers have surrendered some part of their control over reputation to their readership. If an article has negative implications for someone or something’s reputation, anonymous commenters (especially those with a financial stake in the discussion) can attempt to mitigate that effect by casting doubt on the credibility or reputation of the media organisation itself. Commenters can also be easily mobilised, whether by a foreign government, or from the community forum of a digital business. For readers who are otherwise indifferent, particularly well-written or well-researched comments can have a very significant impact on an article's weight.

Social media platforms like Twitter and Facebook, similarly, mitigate the extent to which custodians of news and information control reputation -- as is particularly apparent in "populist" politics. They are also platforms with readerships that can outweigh that of any given news publication, many times over. In this way, refutations of a particular angle can receive a wider readership than the original angle. Finally, these platforms dramatically weaken the value proposition of the traditional PR specialist, because you cannot possibly build a relationship with the hypothetical participants in a viral tweet or blog post (at most, you sell expertise in digital reputation management, but this is more easily replicated than long-term relationships, and it is anyway unclear what it would look like).

How does crowdfunding fit into this? It multiplies the size of the online community willing to participate (which in the case of Monzo is already bigger than those with investments). The £20m the company aims to raise this week could easily add well over 10,000 equity investors in its business (the investment limit is £2,000 per person). Instead of trying to control reputation through relationships with a small number of custodians, the sheer volume of support has the capacity to swamp critical voices.

This post is not intending to argue that Monzo has deliberately constructed a way of managing its reputation online, but instead that crowdfunding has almost accidentally emerged as a powerful marketing tool. We asked chief executive Tom Blomfield about the forum and its role in online reputation, and he said:

I think it’s a side effect ... it’s not something we intentionally did. Our community ... is very, very passionate about Monzo. I think when we do stuff wrong, they’re very quick to tell us, and when we do stuff right, they’re very quick to defend us.

Monzo is a small business. Part of what is happening to online reputation is a chronological mis-match between the size of a company now and when it started. Newer companies tend to be more involved in the digital sphere, and so their users and stakeholders are digitally active. Large, older companies might have many more stakeholders, but those stakeholders are less likely to participate in the reputational battleground that is Twitter, or the comments section of a newspaper (with the possible exception of the recently retired).

If people defended their financial stakes (including indirect holdings, via pensions) online on the same scale that those investing in crowdfunding do, the entire infrastructure for reputation would be transformed.

Obviously this is subject to many caveats: people do not necessarily value their stake highly enough to defend it; it is easy to replicate human comment activity online; the major social media platforms might not remain an open forum for anonymous discussion; newspapers might rethink their comment sections.

But for now, a large volume of default supporters in the digital public sphere has an intangible value that probably exceeds any other form of marketing investment. This is what crowdfunding gets you, for free.

Related links:
Monzo vies for grant to launch business banking service - Financial Times
When is a bank not a bank - FT Alphaville
The Digital Chicago Plan - FT Alphaville

Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.