How do we change the financial system - Part 1: Two Loops Theory)

The silent frictions between banks and their clients not only produce an erosion in the trust between them, but also generates financial losses for banks, for customers and for society.

Changing a living system is not about retooling or adding lines of code to one program, it is about bringing perspectives through innovative alternatives, connecting, and protecting these alternatives for them to emerge and be adopted.

The peak of a system is characterized by instability. Turbulences lead to the exit of some system participants who create isolated alternatives. The transition from the old system to the new one means a growth of the seeds planted by the innovators and a transition of parts of the old system to the emerging one. After all the elements are integrated, the new system will start working and producing new, better results.

Nowadays many feels the financial system is eroded. People become more aware of the value their actions create as well as their own value as clients and expect the banks to be fair with them when it comes to this value. On the other side, banks have never found a way to quantify this value at scale and therefore don’t do much effort to maintain and improve their relationship with their clients. They rather put their energy into streamlining this relation to reduce the cost of serving it.

These silent frictions between banks and their clients not only produce an erosion in the trust that has to be the main pillar in the bank-customer relationship, but also generates financial losses for banks, for customers and for society.

Changing the banking system can create a series of chain reactions that will transform today’s enclosed system into a more democratic, inclusive, accessible, fair, responsible, and sustainable one. Here, we talk about extended access to financial solutions for population, including the individuals that now are not bankable, better financial choices made by customers, increased financial resilience and, overall, a better financial life. We have an entire article on the benefits of an inclusive financial system.

But how can such a strong and pervasive system can be changed? We present in this article in two parts the theories of living system change.

PURPOSE AND LIFECYCLE OF A SYSTEM

Living systems differ from machine driven systems because unlike machines, humans can either be rendered blind by the purpose of the system or lose faith in the purpose. Consequently, living systems are not causal, linear, or predictable. Driven by each participant’s interest, living systems thrive due to what we name nowadays a network effect. Then they peak when interests consolidate too importantly, and systems become insufficiently inclusive. They finally decline when participants lose faith and alternatives become available.

Therefore, changing a living system is not about retooling or adding lines of code to the program, it is about bringing perspectives through innovative alternatives, connecting, and protecting these alternatives for them to emerge and be adopted.

HOW SYTEMS ARE CHANGED

Changing a system is not an easy task, no matter how brave, determined, and hardworking an entity or a group of people is. Nevertheless, some theories can enlighten us on how this change can take place

Part 1: The Berkana Institute Two Loops Theory

The Berkana Institute has researched how systems change, from directly observing practitioners who are trying to change them. They have found that:

The peak of system is characterized by instability. In turn, turbulences lead to the exit of some system participants to create isolated alternatives. Just look at the outburst of financial innovation outside of the system following the 2007-2010 financial crisis: blockchain with crypto-currencies leading the entire decentralized finance, payment tech, p2p finance and so much more.
In any given system, both the old system and the seeds of the new exist at the same time and that transition is a tense, dynamic process of resistance of the old and breakthroughs of the new. In the last 10 years in finance, these two worlds are coexisting, and the most striking part of this cohabitation is that the mainstream financial system is financing through its struggles (Central banks quantitative easings) the development of the new system.
4 profiles of key players arise: the trailblazers who create the seed of the alternative. Yet the alternative will only be achieved if these efforts successfully to be connected. For that the protectors that are part of the old system and help foster this innovation by enabling it from within, and the illuminators who will relentlessly spread the word and shine light on the emerging alternative are the necessary enablers. Finally, hospice workers will help transition the dying system participants into the new one. Trailblazers and illuminators are today fairly publicized, but protectors mostly remain in the shadow. They work for the banking regulators, in financial institutions, as investors or for the governments and they create the necessary safe harbour for the trailblazers’ initiatives to be proven. Especially in finance, a sector in which regulation is more often than not a formidable barrier to entry, this safe harbour is required to experiment, market test and grow.
The alternative is created locally and emerges from the roots – up. Take the parallel of agriculture. The intensive agriculture system has gained the world since the 1950s. Increased in yields per hectare is the key to sustain the important investments required in this system. To keep this race to yields going, chemical fertilizers and other technological innovations are now part of the system and some since the 70s, exited the system as they saw it as the system manufacturing toxic food. Today the organic and reasoned farming is a strong alternative. These trailblazers were local farmers, local shops, even individuals that turned their back to the system. They managed to inter-connect themselves and grow a new system embraced everyday by more and more people.

22TRUST VENTURE IS CHANGING THE SYSTEM

22Trust Venture is leading a real-world experiment – named the Early Access Program – to prove the benefits for all, of a new inclusive and mutually beneficial way of doing banking. In Romania 72% of all the personal banking savings are in the saving accounts of only 5% of such account holders. 22Trust Venture is changing that by driving positive financial behaviors in our everyday life.

If you recognize yourself as a trailblazer, a protector, an illuminator or and hospice worker, and you demand a 21st Century financial system that is fair, inclusive, sustainable. A system which enables every citizen to benefit from their actions then join us in the Early Access Program.