There is a financial revolution brewing, one that could lay waste to a system that existed for centuries and replace it with a new democracy. From millennials to boomers, everyday people are using readily-accessible technology and a shared sense of disenfranchisement to beat the Bastille of Wall Street. Their actions are likely to shape the future of financial service as we know it.
Keep reading to learn what you and your organisation can do to thrive in this brave new world of crypto finance and peer-to-peer Fintech services.
Image: AdobeStock / ink drop
Image: AdobeStock / ink drop
The latest stirrings of discontent made global headlines earlier this year when young, tech-savvy revolutionaries battled hedge funds shorting GameStop stock.
Developing their strategy in online forums like Reddit and armed with fee-free brokerage apps like Robinhood, the collective drove a 1600 per cent share-price rally of the struggling video game retailer. Though the GameStop frenzy earned the world’s attention, it was not the first time people power disrupted the market.
Another recent example is how everyday investors used social media to help drive the price of Bitcoin up 305 per cent over 2020.
Video: Storyblocks / Dualstock
Video: Storyblocks / Dualstock
How did we get here?
Millennials and the GFC
The “democratisation of financial services” movement began during the aftermath of the Global Financial Crisis (GFC) in 2008. Today’s millennials were teenagers when the GFC hit. Their current attempts to democratise financial services is a logical consequence of their experience.
Traditional social structures have disappeared, and their lives are characterised by instability: economic crises, a pandemic, rising education costs, unattainable home ownership and volatile job markets. They are also digital natives, able and accustomed to access everything they need, at any time, through mobile devices.
Our research at The University of Queensland (UQ) Business School indicates that four groups of individuals are involved in shaping cryptocurrency markets. Which one are you?
1) Freshman: those with little or no cryptocurrency knowledge, but keen to ‘jump on the bandwagon’.
2) Fortune Hunter: those seeking high cash returns.
3) Idealist: individuals not motivated by money but wanting to build, share and extend cryptocurrency knowledge and skills for others.
4) Trailblazer: the smallest group overall, consisting of those engaged in commercial cryptocurrency activities as quasi-entrepreneurs.
For some at least, influencing a stock such as GameStop, or cryptocurrency like Bitcoin, is a social revolution, a chance to beat the machine with its own weapon.
Others are drawn by the possibility of making a quick buck with nothing more than a little seed money, a mobile phone, and a free app.
Where to from here?
Impact on market stability
Existing mainstream financial markets and institutions like the ASX, Wall Street and Dow Jones, are deeply entrenched and unwilling – or unable – to evolve. In the cryptocurrency world, the power of the people is fuelled by unprecedented advances in digital technology.
Free trading apps such as eToro and Stake democratise finance by removing traditional barriers and exposing a larger percentage of the population to the stock market. In the same way Netflix rendered Blockbuster obsolete, decentralised finance – such as trading apps, open lending and digital banks – may eventually replace big banks.
The potential consequence of this is disruption to existing markets, currencies, and financial systems as we know them today.
Four tips to help you thrive in the new era of digital finance:
So, what can you and your organisation do to thrive in this brave new world of crypto finance and peer-to-peer fintech services?
1) Keep your finger on the groundswell pulse
Learn from the social groups actively influencing financial markets, like the ones active on Reddit. As new market-entrants, they are also potential competitors (Trail-Blazers) or even sources of venture-capital (Fortune-Hunters). By learning with the market, firms can develop new open and collaborative innovation processes.
2) Embrace emerging social and technical changes
Leaders wanting to survive in a market dominated by new financial technologies need to proactively anticipate emerging changes and deliberately design strategies to shape the market for their own advantage. Strategies should be ambidextrous – identifying and operationalising ways to grow a firm’s current markets (core business), while stimulating the initiation of new markets. Some ways to do this are partnering with new ventures or engaging in service design processes.
3) Be open to new market opportunities
Banks and other incumbents (such as credit unions) are likely to be the most affected by cryptocurrencies and other forms of new financial technology. It is necessary to recognise the importance of emerging funding opportunities through Initial Coin Offerings (ICOs) and other peer-driven Fintech. Unless traditional financial institutions adopt a community approach, it will be difficult, if not impossible, to collaborate with a mass population actively attempting to overthrow them.
4. If you don’t understand it, don’t put your money in it
Whether you are looking to invest in traditional financial services or cryptocurrency, you should never invest in what you don't have an understanding of. Both your business and personal decisions should always be made after conducting your own research and gaining feedback from a professional.
It is becoming increasingly important to collaborate closely with the communities actively influencing financial markets outside of established industry silos to access much-needed tacit knowledge.
This collaboration could lead to much-needed policies that foster a fair and healthy innovation ecosystem and a true democratization of financial service. You can start by implementing some of my suggestions above to enter the growing fintech revolution.