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The reach of finance is global. 100 million credit card transactions occur daily, while 15 billion shares of stock are traded every day. The incredible capacity of global monetary networks is only made possible by evolving, innovative technologies that connect parties around the world and create never-before-seen financial instruments.
The rise of new asset classes is set to change the industry forever. New alternative asset products are being offered as a result of technology, and the invest-tech platforms that make them possible have already altered the way impact investing is done.
There is innovation in the financial sector.
Every financial sector can feel the impact of fintech. Consumer banking is the industry most likely to be upended by technology according to a majority of executives in the field. Over the past five years, the number of visits to physical banks has dropped by 36%, as more and more Americans use their bank's mobile app to meet their everyday banking needs. The way people pay for things has changed. Over two billion people around the world now use e-wallets, and the trend of paying with a credit or debit card seems to be the preferred method of payment.
Data acquisition and analytic techniques can be used to process loans in as little as 24 hours. This convenience and speed has allowed the companies to gain a double-digit market share.
The impact of fintech has begun to be felt by investors. Technology is a necessary part of business strategy for many in wealth management. Three out of four people prefer self-servicing technology and the way people invest is evolving. New investors are three times more likely to use invest-tech mobile platforms, and millions of Americans downloaded trading mobile apps just during January 2021. Online trading has been around since the 1980s, but technology has recently allowed investors to access different markets through improved trading infrastructures. The growth in invest-tech is democratizing and educating investors.
Digital platforms are at the center of all of the changes. The business model has been reinvented by online all-in-one solutions. More companies are interacting with their clients online due to the digital demands of the Pandemic. 75% of businesses will use digital platforms to adapt to new markets by the year 2025. Alternative investment companies strive to improve transparency, communication with clients and the way they engage with their investments by using this technology.
Alternative assets have risen in popularity.
The use of technology in investing has led to incredible growth in the alternative asset industry. Fractionalization is the act of taking an asset, breaking it into smaller pieces and creating a virtual marketplace for those pieces. Fractionalization removes the initial capital requirement barrier while simultaneously creating liquid digital markets.
Almost every alternative asset class has a fractionalized invest-tech platform. Equity shares can be bought in sports collectibles. Peer-to-Peer lending platforms allow investors to secure debt investments with screened individuals. Direct fractional ownership in land and associated operations is possible through commercial real estate, multi- family real estate and farmland crowdfunding platforms. Digital investment platforms can be used to lend money to small businesses, buy future music royalty rights, and even invest in future hours of people's time. Chances are there is a digital investment platform that you can use to invest.
Other technologies are driving interest in alternatives. The use of distributed ledger technologies is increasing investor confidence through financial transparency, while automated technologies are reducing processing time and lowering the need for reworked investment subscription requests.
The 60/40 portfolio needs to be reconsidered.
40% of institutional investors plan to increase their alternative investment holdings over the next five years according to a survey. The majority of retail investors want to add alternatives to their portfolio. Many believe the growth of alternative asset investing is just beginning, with industry forecasts projecting a $17 trillion industry by the year 2025.
Ultra-high-net-worth individuals are allocating more than 50% of their portfolio holdings to alternative assets. Alternative assets are usually uncorrelated to more common asset classes. There are more opportunities to hedge against inflation because of the number of investment options. Portfolios that allocate a small portion of their holdings to alternatives have historically generated higher portfolio returns and reduced portfolio-wide volatility.
The rise in the number of alternative investments and the accessibility to these opportunities has led many to believe traditional portfolio allocations are outdated. It is possible to make alternative investments permanent in any portfolio.
It's not as scary as you think.
Prioritizing sustainable investing.
With so many new investment opportunities to choose from, investors are starting to prioritize the non-financial matters that are most important to them, and sustainable living is at the top of their list. More and more people are willing to make a sacrifice for the sake of the environment, as 70% of respondents around the world say they would pay more for a good. Two out of three banking customers want to see their financial institution become more sustainable, and half of all customers are prepared to leave their bank if progress towards sustainable doesn't happen.
The supply and demand for sustainable investing are amazing. Retail investors and institutional firms are trying to impact investing. The amount of money invested in ESG funds more than doubled in the year 2020. Almost 800 new ESG funds were created between December 2020 and June 2021. Real assets that prioritize sustainable practices are seeing growth in opportunity and demand as well as a high emphasis on Esg reporting, while all of the real estate investment trusts are starting to place a high emphasis on Esg reporting.
The rise of innovative investment offerings centered around sustainable practices is being driven by the rise of Fintech. Impact token offerings are used for social or environmental causes. A new carbon credit is accessible to retail investors that uses the power of the internet to track environmental impacts. Direct indexing is the idea of replicating a fund by purchasing the same weight of stocks as the underlying index. Many investors are starting to create their own personalized indexes by using fractional shares.
The current state of climate change is the true necessity for these products. Global temperatures will likely rise 1.5 degrees Celsius over the next two decades, which could cause permanent and irreversible changes to weather patterns. The United Nations is slightly behind in its goals for sustainable development, and the International Money Fund says more financing is needed. When there is more carbon dioxide in the atmosphere than at any other point, the intervention of technology and finance is a beacon of hope where investors can easily use fintech and digital platforms to begin impact investing.
There are 7 keys to authentically investing in diverse start-ups.
The future of investing.
A recent study shows that 90 percent of Americans are using technology to manage their finances. New investment vehicles are taking off while old asset classes are being modernized. More than half of investors are willing to sacrifice some portfolio return to achieve an ESG goal as the planet continues down a path of irreparable change.
It is now up to the fintech to deliver innovative ways for investors to get involved in impact investing.
The growth of sustainable investing is related.
