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The Disruption Of Consumer Finance And Banking Is Upon Us

Have you ever heard of financial democracy? No? Me neither. But you’ve likely heard or read stories about the increasing inequality in wealth distribution.

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  1. Lending

    There are many individuals and small businesses demanding micro loans. On the one hand, financial institutions face overexposure to market and default risk, and on the other hand, individuals want to maintain full control of the way their capital is being allocated.

    Taking this into account, it is no surprise that companies like (the now public) LendingClub in the US or Funding Circle in UK are experiencing exponential growth. It may seem like a non-overlapping market for banks, but it will actually start to take its toll on the traditional banking sector sooner rather than later.

  2. Online Stock Trading

    In other words: making the investment in stock-listed companies available to the masses. This is controversial, but extremely disrupting and in line with the new taste of savers for being the arbitrators of their own money.

    Even though it’s taking the appearance of online gaming, online investment platforms are addressing the same kind of customers that banks serve and, just like lending, it will increasingly affect their business. A natural evolution of this movement will be the creation of an online marketplace for privately-held shares, featuring lower liquidity, lower regulatory requirements for the companies and higher intrinsic risk. Some initiatives in the EU as well as the US seem to indicate this eventuality is near.

  3. Savings and Personal Finance

    How was the banking sector created in the first place? Simple: collection of capital in return for an interest rate and allocation of the same capital for a higher average interest rate. Today, there is an entire sector of online-only banks, which offer lower costs and overall better services to their customers, thanks to a leaner and more flexible structure.

    This enables them to implement new value-adding features to improve their services. EverBank is already public while Moven, Simple and Green Dot are other valid examples. These banks offer full transparency and prove to adjust their technology to the changing taste of savers.

Unfortunately, the financial sector is historically very traditional and it is arguable that its agents are unprepared for the major changes and innovation going on right now. Moreover, VC firms with expertise in FinTech are scarce as innovation has mainly touched consumer products in the last decade. To me, it’s a green field of opportunities that will come to fruition only a few years from now, and that’s what makes it so interesting and the next.

 

This article has been edited and condensed.

Gianluca Valentini is the Co-founder of Equidam, a a cloud technology and financial services company providing tools for SME evaluations; helping both entrepreneurs and professionals gain access to better data analysis tools. Valentini studied Economics and Law at the University of Padova (Italy) and graduated cum laude from the MSc Finance & Investment at the Rotterdam School of Management. His aim is to work on seed capital and early stage transactions by improving capital allocation to innovative ventures. Connect with @Equidamtweets on Twitter.

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