PassFort’s mission is to bring compliance processes into the 21st century. In our last blog post we made that clear. Big words for a small company… We argued that existing credit bureaus were a product of our economic past and made the claim that we held the key to a brighter future. Our founding team are computer scientists and economists at heart, so we thought it pretty important that we lay out the foundation of our thinking over a series of blog posts…
The Technology First Firm
Esko Kilpi recently published an insightful blog piece, The Future of Firms. Is There an App for That, on what he felt the rise of technological innovation meant for the structure of firms in the digital economy and we think it aligns pretty well with our belief of why PassFort will lead the wave of innovation in compliance technology.
The theme of Kilpi’s article for those of you with the “tl;dr” mentality is that technology is empowering the individual (and smaller organisations) and in doing so lowering transaction costs to a point where more efficient economic outcomes are possible if technology automates some functions previously performed by the corporation. So far, so standard.
But Kilpi goes deeper. He touches on an argument put forward by Ronald Coase, a Nobel Laureate and economist, who first theorised as far back as 1932 that were transaction costs low (or non-existent) there would be little need for the firm. Indeed, he surmised the existence of firms was so as to minimise the cost of using the pricing mechanism (that’s market to those of you without and economics degree).
Sounds sensible right, but what relevance does Coase’s Theorem have for PassFort?
Specifically, extend Coase’s logic to the provision of credit and verification services. Credit bureaus as we know them today were formed for exactly the above purpose. By collecting and then making available credit and identity information to multiple agents in the economy credit bureaus reduced costs associated with information useful in combatting fraud, identity theft and money laundering.
This is of course good for the economy (and society at large) and therefore these firms continue to operate at profit. But today’s credit bureaus were formed before the internet, before software ate the world and could be used in ways to further lower transaction costs. They are thus inherently costly.
What really matters now is the reverse side of the Coasean argumentation. If the (transaction) costs of exchanging value in the society at large go down drastically as is happening today, the form and logic of economic entities necessarily need to change! Coase’s insight turned around is the number one driver of change today! The traditional firm is the more expensive alternative almost by default. This is something that he did not see coming.
- Kilpi, The Future of Firms. Is There an App for That
At PassFort we argue that the costs associated with the market exchange of credit and identity verification services is non-optimally high because of the traditional organisational structure of credit bureaus. Legacy infrastructure, bespoke contracts, bloated management hierarchies, customer relationships bounced between individuals with limited responsibility and accountability leads to a lot of wasted resource and — most importantly in modern business— time.
Time to negotiate access to dated API’s, time to build system logic and storage infrastructure around dated API’s and then the substantial fixed cost of negotiated contracts are particularly problematic for the growing numbers of start-ups and SMEs in regulated markets choosing to onboard their customers online. Time spent on this stuff is time that could be spent on developing your core product and crushing your competition.
Start-ups, SMEs and incumbent firms alike all face intense competition. Competition for the attention of their customers; on product, pricing and increasingly on customer experience. So in a world where every second matters and your competitors are evolving at rapid pace — customer experience becomes a key sustainable competitive advantage.
At PassFort we focus on delivering the best customer onboarding experience for customers and regulated businesses alike. Our turnkey solution for customer onboarding enables compliance with complex regulation with no up front costs, no lengthy integration processes and no painful negotiations.
We’re lowering transaction costs for regulated businesses in the same way the credit bureaus did at the start of the 19th century — just this time we’re doing it with technology from a coffee shop instead of with people from a board room.
