The pandemic and the changes it has introduced into our lives have restructured the way we live. For better or worse, the old way of doing things has been put on hold indefinitely, opening place to the new. Nowhere is this more clear than in the financial sphere. Over the past few years we have seen an overhaul of many aspects of finance, helped along by the specific circumstances we find ourselves in.
Lockdowns, restricted travel and stimulus packages have added up to a perfect storm from a consumer point of view. Simply put, people have had more money at their disposal and less to do with it. As a result, the entire fintech sector has experienced a remarkable boom. From online banking applications, money transfer services, consumer investment apps, and Banking-as-a-Service (BaaS) solutions, to the rise of the cryptocurrency industry to unprecedented heights, fintech has established itself as one of the most dynamic sectors of business, and a force of substantial change in the world.
One of the more noticeable aspects of the progress that has been made in this broad industry is how much the end products have improved from a user experience point of view. The idea that technology can serve as a means of rebalancing financial power in favor of those who have been underserved by traditional banking institutions has been central to much of the development that has occurred in recent years. Well, now not only are there a variety of products and platforms offering a degree of financial autonomy undreamt of just years ago, but that autonomy is also getting easier and more comfortable to manage.
In this article we are going to take a look at how different sectors of fintech have turned more traditional conceptions of banking and finance upside down.
Perhaps the most visible front in the fintech revolution over the past couple of years has been that of the online trading and brokerage sector. Stock trading used to be an activity beyond the reach of average people who did not have the means or the knowledge base necessary. That has completely changed now with the dawn of the consumer trading era.
The rise in consumer trading has been fueled by a number of different factors, one of the most crucial being the expansion of access to financial and technological information that has occurred thanks to the internet and the proliferation of trading applications that have made investing in and trading stocks as easy as online shopping. The result of ease of access has been an influx of retail traders into the investment space. It was recently estimated that retail traders now make up about 10 percent of daily market trading. While this figure may seem small, we have to remember that it was miniscule until recently and we also have to consider how big the daily trading market is. Average daily trading goes up to about $380 billion, with $38 billion of that coming from retail.
This growth has been carried through by apps like Robinhood. Robinhood has taken hold of the industry by offering users a simplified and convenient investing experience. While it was experiencing healthy growth even before 2019, once the Covid-19 pandemic hit, it became a whole new ballgame. The company saw its revenue increase astronomically as new users poured in. The crazy thing is, that the inflow of new users isn’t really slowing down. Robinhood reported that its number of funded accounts grew from 18 to 22.5 million from March to the end of June of this year. That’s a 25% percent increase after a record year — truly remarkable stuff.
One thing that is also contributing to this, and the flourishing of other sectors, is the cultural and historical setting in which we live. The Great Recession did not happen that long ago, and many are still upset and/or disillusioned over the fact that the people who were largely responsible for the crash have not been held responsible for the consequences of their actions. This sentiment has crystallized into what has been labeled “meme trading” or “Reddit trading,” in which retail investors have banded together to try and profit from vulnerabilities they have identified in institutional positions.
Another sector that has seen significant change and a huge influx of new users is Banking-as-a-Service. The idea of what a bank is and how it can be used has radically changed. The days in which you had to plan a trip to your local bank branch to make a significant financial transaction have ended. Gone too are the days in which making a bank transfer to another person was a perplexing task. Like other businesses, banking has moved online, and, as a result, solutions became much simpler and tailored to the end-user’s needs.
Whether you are an individual looking to open a personal current account, or your company is looking to open a business account, the process has completely evolved, becoming much more convenient. For individual users, platforms like Paysera and N26 are synonymous with what is known as modern digital banking. These and other similar companies allow users to open accounts remotely and manage their daily finances, from transfers to currency exchange, all across the EU hassle-free in just a few taps on the smartphone screen.
In addition to those, there are more technically advanced solutions available to users who are looking to open a corporate account that will provide them with a similar level of flexibility as the smaller banking apps, just on an expanded scale. Europe has proved to be one of the most important global hubs of fintech development, especially when it comes to BaaS. Companies like Satchel.eu, an EU-based EMI offering a fully-digital money management experience and transactional services, have created a new trend in the market thanks to their advanced, cross-border payment capabilities and personalized approach to their private and corporate clients. Companies looking for cutting-edge financial tools choose Satchel for tailored White label card services, worldwide money transfers, SaaS and BaaS solutions, payroll, fintech consulting and other services they offer. The digital nature of these services gives users a level of flexibility that cannot be matched by the banking system of yesterday.
Hand in hand with fintech banking, are the changes that have taken place in APY and lending markets. The old system is no longer valid and the figures that have come out of the pandemic have brought it to a breaking point. From the summer of 2020 to the summer of 2021, the annual inflation rate in America and the Eurozone has skyrocketed to about 5% and 3% accordingly. The average APY or lending rate you are going to get from a bank is less than that, making the idea of holding your assets in that kind of account useless — provided there is something more lucrative out there.
There is, of course, investing in funds and stocks, but beyond that DeFi has burst onto the scene with APY and lending rates than those of traditional finance cannot compare to. And the real kicker is that while you would have to jump through hoops of bureaucracy to essentially lose money by opening one of these accounts in a traditional bank, on most crypto platforms the process is very simple and user-friendly.
The industry is booming with platforms like Compound, Aave, and CoinLoan that have already carved out sizable user bases for themselves. At its essence, the way it works is that users get rewarded for contributing to the liquidity of a platform. By locking in assets for a certain amount of time, a user is helping the platform expand and, for doing so, gets rewarded with high interest rates. There are also borrowing options that are available for users at much more advantageous terms than those offered by more traditional banking institutions.
While all of these changes and developments have opened up appetizing opportunities for businesses and individual users, they appear to be causing unpleasant disruption in an industry where well-established players are used to operating by the old rules. Just this week it was revealed that the SEC plans to sue Coinbase over the interest earning products that the platform was planning to release. From what Coinbase has said on the suit, it appears that the SEC has no interest in helping them tailor the products to the current legal framework, or even explaining what that framework is at the moment. As powerful as the SEC is, however, there are changes that are taking place on a much bigger scale and cannot be controlled or restrained. Institutions, governments, and international regulators that prove incapable of adapting to the new reality, emerging needs and technologies, are facing a dangerous risk of falling irrevocably behind.
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