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Alternative Finance: Power to the people?

Posted By E. Alex Floate, Friday, August 30, 2019

Alex Floate, a member of our Emerging Fellows program devotes his eighth blog post to the possibility of establishing an alternative finance. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

Access to information creates an informed populace, makes people’s lives better and democratizes society. That was the idea behind the public library, and the mantra of idealists in the early days of the internet. Twenty plus years into that era we are still waiting on the full promise of a connected world. In the area of personal finance, we have seen small successes as banking, credit scoring, money and investment management have moved online. Increased access and information have been realized in these areas, and in some cases has brought investing and money management opportunities to people who never considered anything but savings account. However, these improvements have not brought life-changing experiences to most, and the economic paradigm we operate under appears to be more of the same, but with apps!

 

Where the most success has been achieved is with those who previously did not have access to mainstream banking or financial systems. Some of the early players, such as PayPal and Alipay created the means for moving money from one entity to another. Doing so allowed many who did not have conventional accounts to participate in the broader economy by having a cost effective alternative. Personal investing companies like Acorns are bringing saving and investing to the masses by stealthily increasing every transaction you make with your debit or credit card to the nearest dollar, then investing those extra pennies into exchange-traded index funds. The appification of finance is the first and most obvious sign that personal finance is changing, but there are bigger movements ahead.

 

Open banking is a new concept that relies on networks and the sharing of both personal and financial institution data across these networks. The goal is providing consumers with better information as institutions provide data about their services that conform to an unbiased and transparent standard. This allows for better competition between participating banks and institutions resulting in lower fees and borrowing costs for consumers. Conversely, institutions have access to the history of potential customers and allow them to more accurately configure and offer products based on the risk profile as seen through transactions, and not through 3rd party credit agencies.  

 

As the world becomes a global marketplace for finance, blockchain will be the technology that will facilitate it. Blockchain will be the means by which transactions are secured, trust is established, and value is traded. Currently we use intermediaries to reduce the risk of transacting with third parties, especially when crossing jurisdictions or borders. This raises the cost and complexity of those transactions which blockchain promises to reduce. This may even result in a complete remake of retail import/export chains as people are able to transact directly across borders. Additionally, blockchain coupled with open banking will elevate peer-to-peer lending to a level where nearly anyone with assets can participate in the capital income economy.

 

Empowering individuals is the promise and goal of personal fintech and alternative finance. However, as with any economic system there are issues and areas that the promise may not cover. How will the average person create value that can be leveraged across fintech and the web? Those with assets, products or services that are in demand will be poised to take the most advantage; those whose only asset is non-skilled labor will be left out. Although technology is just a tool, those tools enable humans to create and build better lives for the creator, owner and user of those tools. There is never any promise that a tool will bring universal prosperity, but we should be aware of the potential effects of any new technology. For these new financial tools and systems, we need to understand will they truly help the greater good, or just create another seemingly insurmountable divide in our society?

 

© 2019 E Alex Floate

Tags:  banking  Blockchain  finance 

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March 13, 2030

Posted By E. Alex Floate, Tuesday, July 2, 2019

Alex Floate, a member of our Emerging Fellows program travels into the future and envisions the coming finance system his sixth blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

Late in the last century, the movie “Wall Street” introduced us to a world of men in three-piece suits vying for domination in the world of finance. ‘Greed is good’ was their motto and Wall Street was the magnet for the unending supply of MBA’s from elite American universities. With financial knowledge and a thirst for success, they became corporate raiders and white knights keen on dismantling what was left of American industry. They spawned dramatizations in the personas of Gordon Gecko and Edward Lewis in the movies “Wall Street” and “Pretty Woman”. Just like Hollywood at the height of the silver screen, this was a place where dreams come true, even if it was at the expense of blue-collar workers or lesser investors.

 

By the late 1990’s however, magazines were asking ‘where have the raiders gone’, and the internet was the new kid in town. Tech stocks were the rage and most of the action had moved west to Silicon Valley. It was inevitable, but not widely acknowledged that much of Wall Street would soon be run by computers and algorithms, and the big personalities that formerly would have been leading raids would diminish in size and importance.

 

MBA mills multiplied during the early part of the 21st Century, but the real action by 2020 was with quantitative analysts, or “quants” as they were called. Blending an understanding of finance with deep knowledge of mathematics and computer science, they were the minds behind the complex models that drove most of the pricing and trading of securities. Even though the suits with MBAs still held the top jobs, the people in white collars felt them slowly tightening around their necks.

 

The new digital collar belonged to a Millennial or GenWebster (someone born after the internet became widespread) wearing a t-shirt or hoodie, but fully versed in the internet and its ever-evolving abilities and culture. They were quants, cybersecurity experts, app developers, data specialists, and refugees from the banking industry. They had connections and financial knowledge to take on the task before them; bring financial applications and products to their generations without the costs of brokers, agents or physical storefronts.

 

New words describing finance were entering the lexicon – fintech, blockchain, appification and others that this time did not originate from Wall Street. Finance technology start-ups began popping up in areas such as the Silicon Fen in the U.K., Israeli’s Silicon Wadi, Bangalore India, and Shenzhen in China. Some were being bought up by larger traditional finance and bank companies as they wanted to position themselves for the digital future everyone was predicting. Usually the business siphoned some of the best ideas but neglected to further the primary idea behind it; lower cost, easy access with speed and efficiency.

 

At first the conventional finance organizations counted on their position in finance system as storehouses of money and trust, with the emphasis on Trust. The men and women with the digital collars kept at it though and advanced the technologies of blockchain and cryptocurrency. As the GenWebsters began to gain in financial clout they embraced the new finance products and eschewed traditional banks, brokerages and insurance companies. The white collars tightened again.

 

© 2019 E Alex Floate

Tags:  banking  economics  finance 

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