Sharing Economy- Banking of Things

Samar Singla 8th October 2014

One of the most important economic invention has been banking because of the multiplier effect it has on the money supply of a country. Simply put, most of the money just sits in some vault most of the time rather than being used for a transaction. Now banks started lending most of the money sitting in vaults to people so they could do transactions and be a part of the economy. So at any given point the effective money supply is more than the actual money supply in the economy.

Now, sharing economy is doing the exact same thing for everything- houses, cars, cameras and almost every perceivable good or service. Lets take an example of an average car, it is generally driven less than 10 percent of total time of the day. So, in theory, the multiplier is 10, that is, 10 people can own the car completely while being able to use it as they would use their cars. In practice, goods are not as simple as money because many people might need the car at specific time and location. This means that the multiplier effect can be achieved only if specific people are matched whose needs are completely complimentary for the same resource.

This is exactly what all sharing economy marketplaces do- Airbnb, Lyft, Getaround to name a few. The higher the number of people in the marketplaces, the better the efficiency of matching and higher the multiplier. The theoretical multiplier for any commodity is the inverse of the utilization ratio of anything and can be as high as 20 in case of sparsely used but high value things. Imagine the positive impact it can have on the economy, environment by lowering the need of production of stuff without compromising the standards of living.

If you are thinking of how revolutionary your sharing economy idea can be, shoot me an email or comment below and I would love to help you do a multiplier analysis to estimate the potential market disruption and positive impact on economy and environment.

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