The development of new asset classes is expected to transform the business forever as finance and technology continue to merge. Finance’s worldwide reach is evident. Over 15 billion shares of stock are traded every day, with 100 million credit card transactions. Only evolving, creative technologies connecting parties worldwide and creating never-before-seen financial products can give global monetary networks enormous capacity.

The development of new asset classes is expected to transform the business forever as finance and technology continue to merge. Not only are new alternative asset classes being offered as a result of technological advancements, but the invest-tech platforms that enable them have already changed the way ESG and impact investing are done.

Innovation Across The Financial Sector

Fintech’s wide-ranging effects can be felt in every financial industry. Consumer banking, according to the majority of industry professionals, is the industry most likely to be disrupted by technology. The number of trips to physical banks has decreased by 36% in the last five years, as three out of every four Americans now utilise their bank’s mobile app to handle their everyday banking needs. The way people pay for items has also evolved significantly. Taking an interest in more convenient forms of payment, more than two billion individuals use e-wallets around the world, and contactless payments appear to be the preferred method of transacting.

Fintech lenders can now use data acquisition and analytic approaches to process loans in as short as 24 hours by using technology. As a result, fintech companies have amassed a double-digit market share in the mortgage lending industry due to their speed and convenience.

Fintech’s impact has also begun to be felt by investors. Many in the wealth management industry discover that technology is an essential component of their business plan. The way people invest is changing, with three out of every four consumers preferring self-servicing technologies. Millions of Americans downloaded mobile trading apps in January 2021, and new investors are three times more likely to rely on invest-tech mobile platforms. Although online trading has been around since the 1980s, enhanced trading infrastructures have allowed investors to access different marketplaces lately. This increase in invest-tech is democratising and educating investors in previously unimaginable ways.

Digital platforms are at the heart of all of these shifts. These online all-in-one solutions have redefined the business paradigm by integrating customers and businesses into a digital community. Significantly more businesses are connecting with their customers online, owing to the pandemic’s digital needs. 

The Popularity of Alternative Assets

Applying technology to investing has resulted in phenomenal growth, particularly in the alternative asset business. Fractionalisation, or the act of digitally breaking down an asset into smaller bits and creating a virtual marketplace for those pieces, is driving accessibility across all asset classes. In addition, Fractionalisation lowers the initial capital requirement while also generating liquid digital markets for otherwise illiquid assets.  Almost every alternative asset class has one of these fictionalised invest-tech platforms. For example, investors might purchase game-used sports memorabilia or collectable baseball card.

Peer-to-peer lending services enable investors to make debt investments with pre-screened people. Through commercial real estate, multi-family real estate, and farmland crowdfunding platforms, direct fractional ownership in land and associated businesses. Investors can lend money to tiny firms, buy future music licencing rights, and even invest in future hours of people’s time through digital investing platforms. If you’ve ever wanted to invest in something, there’s a good chance a digital investing platform can help you do it.

Other technologies are also piquing people’s curiosity about alternatives. By improving financial transparency, blockchain and similar distributed ledger technologies increase investor confidence, while automated technologies significantly cut processing time and minimise the need for repeated investment subscription requests.

Reconsidering 60/40 Portfolio

According to a CoreData survey, 40% of institutional investors intend to increase their alternative investment holdings during the next five years. Meanwhile, 59 per cent of individual investors desire to diversify their investment portfolio beyond stocks and bonds. Moreover, many feel that the growth in alternative asset investing is just getting started, with industry predictions predicting a $17 trillion market by 2025.

There are several reasons why ultra-high-net-worth individuals allocate more than half of their portfolios to alternative assets. First, alternative assets are often uncorrelated with traditional asset classes, resulting in greater portfolio diversification. There are more ways to hedge against inflation now that many investing options are accessible. Finally, portfolios that dedicate even a modest percentage of their holdings to alternatives have traditionally produced more substantial returns and lower portfolio volatility.

Many people argue that traditional portfolio allocations are outmoded due to the increase in alternative investments and their accessibility. Alternative investments may have gained popularity due to their accessibility, but their consistent financial performance can make them a permanent part of any portfolio.

Prioritising Long-Term Investments

Investors are beginning to prioritise the non-financial concerns that are most important to them, and sustainability is at the top of their list. As a result, people are increasingly willing to make compromises for ESG, with 66 per cent of respondents worldwide stating that they would pay more for a product if they knew it was created sustainably. Meanwhile, two out of every three banking clients want to see their bank become more sustainable, and half of all customers are willing to quit if progress toward sustainability is not made.

Other new, innovative financial options based on sustainability are also being fueled by fintech. For example, impact tokens are becoming more popular for various social and environmental reasons. One example is a new tokenised carbon credit that uses blockchain technology to measure environmental consequences and is available to individual investors. Direct indexing, which is the idea of replicating a fund by directly purchasing the exact weight of stocks as the underlying index, is another fintech trend. Many investors are starting to establish their customised ESG-focused indexes by using fractional shares to prioritise and customise their holdings.

The Future Of Investing

According to recent research, 90 per cent of Americans now use technology to manage a portion of their personal affairs. New investment vehicles are taking off while old asset types are being modernised. People are paying notice as the earth continues on an unstoppable road of change, with more than half of investors ready to forego some portfolio return to accomplish an ESG target.

Fintech must continue to provide accessible, innovative solutions for investors to participate in
impact investing.