In the current financial system, wealthy people can deploy large amounts of capital in ways that the average person cannot. Wealth gives them the capacity to invest in highly lucrative opportunities that are not available to the vast majority of people. This is the way it has always been and, as a result, as Percy Bysshe Shelley said, “The rich get richer and the poor get poorer.”
What Happened to Media and Retail will Happen to Finance
But it does not have to be this way. We have seen massive changes and democratization in other areas. Social media have given anyone with a phone and an internet connection the ability to create content – and people have done so in the millions. Marketplaces like Amazon and eBay have given everyday business people access to massive markets. Google has democratized the world’s information. Companies such as Coursera and Udemy have made world-class education available to everyone. The list goes on.
Financial Industry Not Yet Disrupted
The one area where this type of democratization has not happened to the same degree is finance. It is still true that the average person does not have access to the same financial tools or opportunities available to large banks, hedge funds, or enterprises. This is the new frontier of technology-enabled change that is happening this decade.
It’s More than FinTech
FinTech is the name for any new technology company that is operating in the financial sector. What I have in mind is a subset of FinTech that will change the entire financial landscape, take the power away from big banks and major financial institutions, and allow individuals to participate and be active in all areas of investing and finance, without the need to have huge capital or even an investment account with a major bank or firm. In many ways, this movement started first with no-fees trading and then with companies like Robinhood and Cryptocurrencies. But the real revolution in finance and investing has not yet really begun.
In the last decade, massive retail companies had to compete with the likes of the mom-and-pop sellers on Amazon and eBay. Some, like Sears, did not make it. In this decade, we will see a world where banks will have to compete with crowdfunding platforms that will offer retail investors and retail seekers of capital a better deal, both in terms of cost of capital and investor returns.
Crowdfunding Laws Will Have Massive Impact
The famous postmodern philosopher Derrida spoke about the postmodern age as one where the center becomes the periphery, and the periphery becomes the center. This is a phenomenon that has impacted every area of human endeavor and relationships. There is every reason to expect that it will also do the same for finance and investing.
Perhaps one reason that finance and investing have taken so long to become disrupted is that it is a highly regulated space. However, in 2016, Title III – Crowdfunding of the JOBS Act came into effect, the effect of which has yet to be felt in the mainstream. What is certain is that the ultimate impact of post-modern decentering and disintermediation of the middleman, coupled with crowdfunding laws, will be far-reaching and revolutionary.
Blockchain-Enabled, Socially Empowered Revolution of Finance
This concept should have its own name and FinTech does not quite capture it. Some people consider this to be the socialization of finance, meaning that people will continue to do finance and consult and talk about finance and investments in their social groups. No doubt this will occur. But what I am talking about is the disintermediation of banks and financial institutions entirely by having peer-to-peer networks and platforms enabled by technologies such as blockchain. Some might argue that this is what cryptocurrency and blockchain were meant to do and have done already. To a certain degree they have, but ultimately cryptocurrency in its current form has in many ways become a new form of securities and blockchain must be seen as the enabling technology rather than the revolution in and of itself. The actual decentralization and democratization of finance enabled by blockchain technology and the crowdfunding laws are yet to occur.
What Airbnb Did to Hospitality this Will Do to Banking
When it does, it will do to the finance industry what Airbnb has done to the hospitality industry. People will be able to choose whether they want to have their financial needs met by a bank or by a non-bank platform that will facilitate peer-to-peer financial transactions, including loans, equity investments, and savings.
The CrowdFin Revolution
The social aspect will be an add-on to this, further accelerating this zeitgeist-infused revolution of finance. Some people have called this DeFi (decentralized finance), to me, this is the crowdification of finance or CrowdFin for short. The term encapsulates the idea that this is finance by the crowd for the crowd, with at best limited participation of the traditional financial institutions.
Invown is a proud CrowdFin startup, the CrowdFin revolution has begun.