How fintech will change your relationship with banks and brokers in the next 10 years

It’s been a decade since a wave of innovation started to push fintech into the mainstream. Banking on smartphones, sending cash through peer-to-peer payment services, and using automated portfolio managers were once peculiar and relatively niche services at the time, but are now commonplace.

What will change in the next 10 years? Fasten your seat belts as we take you on your trip tomorrow.

Broader access to alternative investments

“Alternative” investments – a broad category that includes collectibles such as wine, cars, art, stamps, coins and even baseball cards, as well as real estate, natural resources and infrastructure projects – have become increasingly popular over the past decade Popular, although the minimum investment rules keep many small investors on the sidelines.

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New fintech companies can help the investment category truly go mainstream by offering the ability to invest in some of the alternatives and bring about three changes in the number of people investing.

First, direct access to alternative investments may become more common among large financial services firms. Today, investors looking for alternatives often have to open accounts with professional services such as art investment platforms or real estate crowdfunding companies. Fintech can allow investors to buy and sell alternatives under the same login as their prime brokerage account.

ocean: Should you try alternative investments? Here’s what the experts say, how much to invest, and what to watch out for.

Stock Tips from Robots

Second, robo-advisors—only online financial advisory services that manage clients’ portfolios with little human interaction—may start incorporating alternatives into their robo-portfolios.

The current wall separating alternative and traditionally managed portfolios appears to be about to come down and automated advisors will cover the entire investment universe. One sign of this trend is the recent acquisition of a crypto portfolio manager by robo-advisor Betterment.

At the same time, a growing number of jurisdictions are likely to remove at least some of the rules that determine who qualifies as an “accredited investor” authorized to access certain types of alternative investment products.

While these rules vary by country, they generally require individuals to have a high annual income ($200,000 for an individual or $300,000 for a couple in the U.S.), significant net worth ($1 million, excluding major residence) or a professional certificate (such as a Series 7 or Series 65 license).

According to the latest data from the SEC, about 13 percent of U.S. households had accredited investor status in 2016. Critics argue that such rules unduly restrict access to certain types of products.

Alternative investment promoters expect that within the next decade, some jurisdictions will remove many restrictions (for example, replacing net worth requirements with online financial literacy tests) or phase them out entirely.

“In the next decade, alternative investing will go mainstream and[lead to]move away from the classic 60/40 investing philosophy,” said Milind Mehere, founder and CEO of YieldStreet, an online marketplace for alternative investments, referring to a common strategy, Invest 60% of one’s portfolio in stocks and 40% in bonds.

“In 2032,” Mehere added, “I see my personal portfolio as a mix of stocks, alternatives, cryptocurrencies, commodities, cash, taxes and trusts, all in a seamless experience through the super app. Provided. Alternative investments will be part of a standard investor’s portfolio.”

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DeFi is small but poised to grow

Outside of the traditional financial industry, advances in cryptography are promoting decentralized versions of financial products (“DeFi” for short). DeFi protocols such as Aave, Compound, and Uniswap use software to provide cryptocurrency users with different financial services, such as lending, trading, and insurance.

DeFi protocols are different from traditional large banks or fintech companies. Major changes to DeFi protocols typically only happen when a majority of the community votes for the change, rather than being led by a board and CEO.

DeFi is currently mainly used for transactions performed entirely on the blockchain, such as trading cryptocurrencies. Most other financial products require real-world verification. Mortgage loans, for example, require credit checks and income verification, while insurance requires a process to deal with fraud allegations that end up in protracted, multi-year legal battles.

Over the next decade, look for DeFi to be more competitive with traditional financial services. It can go mainstream by improving the overall user experience and the blockchain’s ability to handle real-world assets.

MarketWatch crypto reporter Frances Yue interviews Rachel Chu of Sushiswap and Nicolo Stewen of Aave about decentralized finance — how it works, what the benefits and risks are.

Centrifuge, Etherisc, and MakerDAO are three DeFi protocols working to bridge the gap between blockchain and the real world, but the total value of assets on DeFi protocols involving real-world interactions is still relatively small.

Innovation beyond imagination

However, over the next decade, DeFi advocates expect it to be more competitive with traditional financial services and real-world products — and allow for entirely new products to emerge.

“The real innovation that will benefit consumers over the next decade will not come from dragging traditional business models onto the blockchain, but from the growth of new crypto-native DeFi solutions that address your real-life financial needs, ” said Lex Sokolin, global financial analyst. Co-Head of FinTech at ConsenSys, a blockchain software technology company.

“As with all transitions to new technologies in the past, there will undoubtedly be challenges as we explore the frontier,” he added. “But decentralized finance offers a novel and potentially superior architecture for making financial products.”

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Key to Success: Simplification

To expand its mainstream adoption, DeFi needs to be more accessible to consumers. Interacting with it today often involves the use of dense financial jargon and a platform that offers few instructions and limited help and lacks features such as detailed transaction confirmation screens. Learning how to use DeFi products safely and how to navigate the industry jargon can be very daunting for newbies in cryptocurrency.

How will consumers benefit if DeFi overcomes these two challenges in the next decade? In developing countries, DeFi could provide billions of people with an independent alternative to institutions run by authoritarian governments that can confiscate citizens’ assets without due process, crumbling local banks and volatile currency.

The value of DeFi to people in emerging economies is evident in Chainalysis’ global ranking of consumer cryptocurrency adoption, which is dominated by developing countries.

a change is coming

Advanced economies generally do not face the same instability challenges. There are many opinions on how (and how fast) DeFi will transform the developed world over the next decade, but most of the tech pioneers and executives interviewed for this article agreed that it could potentially create innovative financial products and experiences.

“Throughout my career in financial services, I have seen firsthand the constraints that traditional railroads impose on the industry,” said Jarrett Lilien, president and chief operating officer of fund manager WisdomTree Investments. , DeFi and blockchain technology have the potential to redefine the infrastructure of financial services — innovation that the industry needs.”

For example, Lilien said, blockchain could allow people to use gold or U.S. Treasuries the same way they use cash today—without having to carry the assets themselves.

The growth of user-friendly DeFi services over the next decade could create a new kind of competition for traditional finance.

Where is the future of fintech?

“Ten years from now, if your company doesn’t interact with the DeFi ecosystem — or cryptocurrency and blockchain more broadly — then your company won’t be considered a fintech company,” said CommonBond founder and CEO CEO David Klein said the company is a solar project for consumers and solar installers.

The four trends we discuss—AI-based advanced assistants, automation of everyday financial needs, mainstreaming of alternative investments, and competition from DeFi services—represent only the biggest changes facing financial services. Many more are on the way.

The next decade is likely to see more embedded finance, where retailers and other non-banking companies offer bank-like services such as deferred payment plans; central banks issue digital currencies; and better integrate government benefits into your finances in the account.

Your relationship with money will evolve with each such change.

“If you think of the first decade of fintech as fintech 1.0,” said Adam Nash, co-founder and CEO of Daffy, “then the next decade of fintech 2.0 will go beyond creating traditional online versions of financial services. , and a whole new way to interact with your money and finances.”

Grant Easterbrook is a longtime fintech consultant. His work in the industry has been cited over 150 times by the media. Easterbrook also co-founded fintech startup Dream Forward, which was acquired by retired consulting firm Expand Financial in 2020.

This is the second of two articles marking the tenth anniversary of fintech. This article is reproduced with permission© 2022 Twin Cities Public Television, Inc. All rights reserved.

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