The world faced profound challenges during 2020’s roller coaster ride. Fortunately for our industry, Fintech’s emphasis on digital infrastructure left it well positioned for a stay-at-home world. Bored during lockdowns, many consumers took the opportunity to contemplate their financial plans and learn about new investing technologies. The trend toward a more digital and more democratic investing world dramatically accelerated in 2020, and I expect that to continue this year.
Modern Investing Portfolio: The world’s top institutional and ultra high net worth investors utilize alternatives, which have previously only been available to them. It is time for retail investors to rethink their 60/40 portfolio and modernize it. I believe access to investments beyond stocks and bonds will become increasingly important in 2021. Traditional assets proved resilient during the pandemic. However, low interest rates and expensive stock valuations make the path forward more challenging. Alternatives are going mainstream. Companies like Yieldstreet, RallyRoad and Fundrise should continue to accelerate alternatives adoption as investors seek new ways to diversify.
Digital currency and blockchain: Their importance will only increase. Bitcoin’s price reached an all time high in early January this year. A global, years-long trend toward mistrust in social institutions — in economic policy, political contests, and especially public health amid the pandemic — should provide a tailwind for digital currencies, because in many ways they exist outside these institutions. While we don’t know the timing of reemergence from the pandemic, the digital infrastructure built around blockchain technology will likely become increasingly critical as economies and supply chains reconfigure following last year’s recession.
COVID-19 was the top story of 2020, shutting down the global economy. A vaccine is a good sign we’ll return to normal, but the pandemic has accelerated a few trends that were already underway in finance and banking. Those trends should continue this year.
Open Banking Adoption: Fintech has supported the digitization of the finance and banking experience, making socially distant transactions easier. Challenger banks or neobanks such as Chime, Revoult and Moneylion are expected to continue to benefit from a decreased emphasis on brick-and-mortar, in-person banking. COVID has revealed to many consumers that face-to-face isn’t the most critical aspect when it comes to managing a pocketbook.
Advice will also go digital. Information flow has expanded tremendously in the consumer space and this trend will likely spill over to the saving and investing space as well. Consumers can now access investment advice digitally but the key difference may be the adoption of even non-traditional sources from finance sites and blogs such as Seeking Alpha and Reddit. It’s likely that investment firms also look to heighten their influence in the digital advice game by offering allocation and investment analysis advice.
I believe fintech will trend stronger in 2021. A lot of fundraising in 2020 will provide “dry powder” capital to fund new innovations this year. Meanwhile, the IPO and SPAC markets could bring a host of fintech companies public — companies like Affirm, Robinhood, Better, SoFi, Marquette. This should help increase transparency and visibility for the industry.
More consumers become investors: Looking for silver linings after a historically difficult year, the overwhelming positive from 2020 is that consumers became investors. Apps like Robinhood, Stash and Yieldstreet made it easy for everyday people to learn about and participate in investment markets. Lockdowns, while painful, gave people more time at home to review their financial positions and begin exploring investing in stocks, funds and alternatives. This is critical in the effort to close the income and opportunity gap.
Self Driving Money: My “hot take” about the future centers on a potential pivot point within the financial industry: Technology is increasingly facilitating “self driving money” and futuristic wallets. Meanwhile, the financial industry is still dominated by one-on-one, personal relationships — “handshakes” are still in many ways the coin of the realm. Think about how self-driving cars could upend the auto and transportation industry. In finance, software may similarly reduce barriers and frictions for investors. A lot of companies are going to have to reckon with a new reality where relatively inexpensive apps and technology start to take the place of traditional banking, advice, and asset allocation.
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