Three Trends That Will Shape Investing In The New Decade
We are entering a new decade during a period of accelerating innovation and change in most every industry. For the financial services sector, the groundwork has been laid for a decentralized global industry built on a new generation of digital technology. In the coming years we can expect to see the emergence of a fully formed, end to end infrastructure that will revitalize investing, capital formation and wealth management.
This will be comprised of an increased role for digital currencies including the digitization of some national currencies, the use of cloud-based primary issuance platforms to invest in digital securities, the ability to achieve liquidity for those securities on digital trading platforms and the proliferation of AI driven software tools to support wealth management. From the perspective of many financial professionals these initiatives are still outliers, but a reconfigured financial value chain will rapidly move them towards mainstream adoption.
Here are the three most important underlying trends that will shape investing in the coming years:
Financial transactions will become almost exclusively digital.
Financial institutions have already been innovating at a rapid pace to remain relevant to consumers. Retail banking has been moving from physical locations with tellers to ATMs and banking apps and banks continue to spend hundreds of billions each year worldwide on information technology. At the same time the sharing economy has become imbedded in every part of the financial system. This goes well beyond car services and hotel rooms to encompass any kind of decentralized asset ownership where technology is used to find efficient matches between providers and users of capital, rather than turning to a bank as an intermediary.
The shift to digital transactions is in large part, generational. Millennials rarely carry much cash, if any at all. As a result, Millennial credit card expenditures are growing faster than any previous generation. And it’s not just credit cards. Millennials are leading the way in digital cash adoption in general and they are concentrated in the countries where digital cash usage is the highest — the US, China and India. 50 million cryptocurrency wallets exist today, and that number is poised to grow exponentially as Millennials adopt digital currencies just as they have previous forms of digital commerce.
Blockchain based digital securities will transform investing and capital formation.
Blockchain technology is driving unprecedented innovation across capital markets and other industries. The pace of innovation is increasing and digital technologies are beginning to be used in conjunction with each other, while more segments of the capital markets ecosystem are moving towards shared platforms. The trading landscape is likely to look unrecognizable to its current form, with current assets fully digitized and new types of digital assets being traded in markets that don’t even exist today.
Today’s capital markets are linked to the country of origin and rely on paper-based systems that are inefficient, costly and opaque. Due to high average transaction costs, onerous listing requirements and complex legal and regulatory frameworks, many innovative businesses never attempt to go public on traditional exchanges. And while electronic trading of securities has become frictionless, the same improvements have not arrived to clearing, settlement and custody.
The infrastructure is rapidly being put in place to support the full range of transactional activities from conducting a primary offering of digital securities to subsequent trading of the securities on a digital exchange. Regulators have engaged in the process to assure that these financial tools are compliant.
Smart use of data will be at the core of wealth management.
Customer intelligence will become the most important predictor of revenue growth and profitability. Technological advances have given businesses, investors and wealth managers access to exponentially more real-time data about what users do and want. But having access to millions of data points can complicate efficiency. A company must identify the 20% of data, which produces the biggest impact on the bottom line. Decision makers must understand the metrics that build relationships and drive revenue.
The global wealth management software market is expected to reach 5.8 billion dollars by 2025 to support the growing need for digital platforms to automate the wealth management process. These digital tools provide workflow automation and utilize artificial intelligence to provide relevant insights while ensuring regulatory compliance. Financial companies can track customer behavior at a granular level through their use of apps, websites and online platforms. Using this and other tracking data, companies can monitor consumer behavior and more closely and accurately target consumers on an individual level. Advanced analytics using AI will help make better investment decisions and optimize management performance.
Conclusion
In the past decade, e-commerce fundamentally changed the way we consume goods and services and it has acclimated most of us to transacting digitally. The coming decade will lead to a more profound behavioral shift as a new process for investing, trading and managing wealth, and the digital infrastructure to support it, becomes mainstream.
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