By John Auckland, founder of TribeFirst
The radical increase in alternative finance options has sent shockwaves through the traditional financial system throughout the last decade. Whether it’s the ways in which we now store, spend and transfer our money, run, streamline and regulate our institutions, or the way we fund businesses, the financial world is changing rapidly and shows no signs of slowing down.
Powered by ever-accelerating technology and the constantly increasing arsenal of digital tools out there, both businesses and consumers have never been more empowered to bypass the old gatekeepers and do things in new, radical ways.
Throughout the 2020s, alternative finance will undoubtedly usher in many more revolutionary changes. Driven by consumer demand, the climate crisis and the evolution of new financial and technological systems that vastly surpass their predecessors, change is inevitable.
Here are some of my boldest predictions for what I think alternative finance will deliver this decade.
Traditional currencies and financial gatekeepers will lose their dominance
Let’s start with currencies. With the rise of contactless and app-based payments, along with a shift from highstreet shopping to online, our society is well on the way to becoming cashless. In fact, for most countries, particularly in the west, I expect coins and notes will only be used in underground circles by the end of the decade, if they continue to exist at all.
From the dwindling numbers of local bank branches and even hole-in-the-wall cashpoints, there’s less and less need for physical money – something that has been a part of human history for some 3,000 years.
This inevitable future really hit home when I visited Malmö, Sweden last year. Despite taking out plenty of Krona to spend in the city, I couldn’t find a single place that would take my cash. Everywhere I visited, including shops, restaurants and even tourist attractions, were resolutely cashless – surely a sign of things to come.
With cash on the way out, I suspect that stable, fiat coin currencies like the pound, dollar and euro won’t remain intact in the longer term. I can’t imagine them remaining dominant beyond this decade, even in their digital forms.
The transition might go like this. More and more states will cease to peg their currencies to the US Dollar and other major fiat currencies. Then, they’ll take advantage of the digital tools like the blockchain (which I’ll talk more about in the next section) and use their own national cryptocurrencies primarily, with a fiat currency kept as a backup.
Now onto banking. We’ve recently seen the incredible rise of challenger, digital-only banks like Monzo and Starling, the former of which is now worth a whopping £2bn thanks to a successful £113m hybrid venture capital and crowdfunding round in 2019. According to the Guardian, the big traditional banks like HSBC, Lloyds and Barclays are struggling to keep up with fintech insurgents. And while the old gatekeepers are closing branches, axing staff en masse and losing customers, Monzo has more than 1,000 staff, is still hiring, and is one of the fastest-growing banks in history. Digital banks certainly haven’t claimed the financial crown yet, but the momentum is undoubtedly with them.
What will this all mean for the finance and investment world? Banks have traditionally provided significant liquidity to industry and funded a lot of private companies. However, in the last decade, they’ve grown increasingly risk-averse. In some sense, we’re seeing a fragmentation of the financial sector, where the banks, through a form of active inertia, take increasingly fewer risks and as a result get left behind by the smaller, dynamic incumbents. In the 2020s, I expect the alternative investment sector to mature and become mainstream.
In terms of cryptocurrencies becoming dominant, I expect it will ultimately lead to greater – and faster – liquidity for the SME market, lower cost of intermediaries when companies are raising investment, and greater efficiencies and accountability all around.
The 2010s also saw the rise and flop of the ICO. I predict that in the 2020s we’ll see a resurgence in ICOs but within a more regulated framework, and perhaps an updated model, such as the DAICO. I also believe there will be cryptocurrencies setup entirely for investment and private share exchange purposes.
Blockchain will hit the mainstream and become indispensable
When Blockchain was first conceived in 2008 by the mystery developer/s known only as Satoshi Nakamoto, it was used purely to facilitate bitcoin transactions. For those unfamiliar, a blockchain in its simplest form is a string of digital blocks containing transactional information linked together and stored in a public database. These blocks are then timestamped and the unique coding is recorded to ensure they are impossible to replicate.
Blockchain provides real-world applications to digital assets. In the real world, if you sell an apple, it goes bad or someone eats it. This presents a problem in the digital world if you want to sell a virtual apple since it can be digitally replicated a near-infinite number of times. Blockchain can give your apple a uniqueness that means it can’t be copied and used twice, or it can create a rule that means it would go bad after a certain period of time and therefore couldn’t be used. It sounds simple, but these properties provide the potential to revolutionise how we interact online. It makes the digital world more real.
Another feature of Blockchain is that it can be used to execute ‘smart contracts’, which have the potential to revolutionise the efficiency, transparency and security of assuming and transferring digital ownership. While the application of blockchain by mainstream industry has been limited so far, I suspect that we will see greater utilisation of blockchain in the coming decade, with applications ranging from mortgages to supply chain traceability.
Just look at the different ways in which blockchain has been gradually adopted and experimented with by businesses, financial institutions and indeed governments around the world.
As Computerworld highlighted, a handful of examples include the Ugandan government’s aim to use blockchain technology to crack down on counterfeit drugs, while the EU hopes to use it to combat counterfeiting across the board. The Brazillian state of Bahia wants to bring transparency to the public procurement process and tackle corruption using blockchain.
Meanwhile, the Chinese city of Changzhou is seeking to use blockchain to secure healthcare data, as is the US Food and Drug Administration with patient data. Singapore is testing a blockchain-based payment system that aims to make currency exchange quick, affordable and without the need for an intermediary.
And Dubai? The UAE state wants to be the first government in the world to use blockchain for all its transactions.
Here in the UK, Defra is exploring how the technology could be used to improve food traceability. The Food Standards Agency successfully completed a pilot in 2018, in what it said was ”the first time blockchain has been used as a regulatory tool to ensure compliance in the food sector”.
In the same year, the government announced it was investing over £10m “to support Blockchain projects in diverse areas like energy, voting systems and charitable giving”. This followed the HM Land Registry’s successful use of a blockchain prototype to streamline the buying and selling of homes via the digital transfer of ownership. According to business minister Lord Henly, blockchain is allowing the department “to become the world’s leading land registry”.
For companies looking for investment, blockchain has the potential for unlocking liquidity that hasn’t existed before. Smart contracts will potentially give investors greater control over when their money is released, and even how their investment is spent. You can imagine a time when an investment is only unlocked when certain milestones are hit by the directors, and even then the money may only be used to pay certain merchants or spent on things such as paying salaries, for example. Rules like these that protect investors make it far more likely that risk-averse funders will get involved in earlier stage businesses.
With such significant application of blockchain in just the last few years, think of the role it or, indeed, its successor may play a decade on.
Crowdfunding, investment and the death of the consumer
As the director of a crowdfunding company, it’ll come as no surprise that I think crowdfunding will continue to play a key role in the future of alternative finance. Last year, I wrote about how crowdfunding became seen as the more viable fundraising option than banks for many entrepreneurs, with campaigns bringing in more and more funds each year.
I’ve also written about how I think we’ll soon see the death of the traditional consumer and enter into an age of post-consumerism. In this era, we’ll see far closer, more equal relationships between brands and their customers, at great advantage for both sides.
As the decade progresses, post-consumers will want to connect with brands like never before, having not just the option to own a piece of them, but the right to do so. They’ll be fiercely loyal to brands, but have far higher expectations of how they should be treated, and how stringent the ethical and environmental responsibility of companies must be.
Much like Monzo and giffgaff already do in true Custodian fashion, post-consumers will want a seat at the table, have a say on major decisions, and even act as campaign and customer service staff in exchange for exclusive rewards. In short, post-consumers will demand a level of ownership of the brands they support.
Crowdfunding has deregulated retail investment, making it easier to become a part-owner of new and innovative businesses than ever before. Moving forward, I expect we’ll see more and more businesses of all sizes and life stages adopt a more open and transparent approach like Monzo and giffgaff, while opening up to customers for investment.
Brands will continue to use crowdfunding for specific goals and growth stages, harnessing the publicity and swathes of loyal advocates crowdfunding can attract from an ever-growing pool of engaged investors. However, companies may choose to remain indefinitely open for investment so they can constantly build their core tribe. Meanwhile, an increasing number of fledgeling businesses will seek out early-stage Initial Coin Offerings (ICOs) to garner early advocates, particularly as automation slashes the time, admin and cost burdens that come with the vetting process.
Companies that want to allow constant investment currently have the option of listing on a small-cap public exchange like AIM or NEX Exchange, which requires fronting the extra cost of being a public company. Envestry has made open doors investment far easier, however, and will help facilitate this new brand/customer relationship.
There will undoubtedly be a tipping point. When a majority of companies allow customers to invest in them and give them more power, those that keep their doors closed – just as those who shunned the onset of social media – will become completely irrelevant. Post-consumers simply won’t trust them, and so they’ll go underground, or fail entirely.
Financial decisions will be driven by environmental concerns
We’re in the midst of a climate emergency and capitalism hasn’t caught up. If it had, fossil fuels, for instance, would be taxed to high heaven while green renewables would a booming market – both serving the needs of the market by ensuring the future existence of its users.
There’s been no great movement yet, but I predict a groundswell of change before it’s too late. When it does, every financial decision will be green-minded.
Investment decisions will be based on environmental concerns as much as they are financial concerns and may even be subject to a carbon tax on investments that are less eco-friendly. The business plans of any new or growth stage business will include mandatory environmental impact assessments and even individual investors may have their portfolio scrutinised, graded and ranked for green impact.
We already see public institutions like governments and universities scrutinised for their investments, and public pressure has caused them to change their ways. I think the same will apply to businesses in the form of carbon scoring. Companies will be able to undergo a scoring assessment that will give them an environmental grading which they can show their customers.
Much like the mandatory health guidelines we see on food packaging, this scheme will start out as voluntary for those seeking good PR, before becoming a legal requirement. We’re already seeing the start of greater enforcement to tackle the climate crisis, with all large entities now having to comply with the Streamlined Energy & Carbon Reporting legislation.
However, as the effects and implications of the climate crisis grow, I believe that pretty much every financial decision, for companies of all sizes, as well as investors and individuals will be legally required to have the environment at its heart.
In the last decade, alternative finance has already disrupted the way businesses, governments and financial institutions systems around the world operate. Many of my predictions may be bold and ultimately may not transpire. They are, of course, predictions.
However, look at all we’ve seen in the last decade from crowdfunding, cryptocurrencies, blockchain, social media and other digital technologies and it shows how quickly radical shifts can occur. Twinned by the changing habits of consumers, businesses and governments, the boundless advancement of technology and the sobering reality of the climate emergency, it really does feel like anything is possible. In fact, we will need to see things we haven’t even conceived yet if we’re to have any hope of surviving as a species beyond the next three decades.
If anything, my predictions may turn out to have been rather conservative!
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