Cryptocurrency and the blockchain
Yep, we’re talking the likes of Bitcoin here. The digital currency has been around since 2008, and although the exact number of people using it is unclear, there’s little doubt that it’s here to stay. Cryptocurrency itself is an innovation that changes the financial landscape dramatically, by enabling people to securely carry out transactions directly without going through the usual channels or even systems like PayPal.
But what’s really got the industry paying attention is the blockchain, which is an online record (or ‘distributed ledger’) of every transaction that’s carried out. The blockchain isn’t controlled by any one company or institution – rather, it can be copied and viewed on any computer, making what financial commentators call a ‘trust network’. In other words, it’s possible make large (or small) transactions directly to single or multiple parties around the world, each with a digital signature that helps to protect it from hackers.
A 2015 report by Goldman Sachs said crowdfunding was ‘potentially the most disruptive of all the new models of finance’. Coming from them, that’s a pretty amazing statement, and the success of many crowdfunding initiatives only supports their view. Indeed, in the same month as the report was released, a start-up business called JustPark raised the largest equity crowdfunding total of the entire year (for a UK business, that is). The company, which allows users to rent out their unused parking spaces, had originally aimed to raise £1million, but ended up smashing that goal and coming away with more than £3.5million through Crowdcube.
Not only does crowdfunding give new businesses the opportunity to raise capital less stringently than approaching individual investors, it also gives a strong indication of how successful the end product or service may be. In other words, if a few thousand people contribute a small amount (as opposed to a few people investing high amounts), it proves that many more people are behind the business idea. You could say it’s a bit like market research where people show their support by buying shares in the company.
It’s not all about FinTech though. Let’s take a peek into InsurTech for a second. When you think about how most insurance (car, home, health) works, peer-to-peer insurance doesn’t really seem a huge departure. In short, many people contribute to one common fund of money which can then be accessed by members who make an eligible claim. Ah, but wait. What happens to the money that’s left over? Traditionally, that becomes profit for the insurance company. And that’s where peer-to-peer insurance is different altogether.
Companies like German-based Friendsurance have created their businesses on a shareconomy approach. It means people who require the same types of insurance can form groups and put a certain amount of their premiums payments into a separate ‘pot’ which – if no claims are made on the policies – is then shared back among the people who paid into it. And if claims are made? Well, large claims are handled by the company in the usual way (as most company’s do now), while small claims can be paid directly out of the ‘pot’. It may be in its infancy now, but it’s certainly a growing area.
If actions speak louder than words, wearable devices that can impact on your insurance premiums are big news in the current insurance sector. Some companies, like Vitality (which provides health insurance and life insurance) already offer their members reduced premiums based on their lifestyles. For example, you can connect your smartphone to your insurance account, and Vitality will give you ‘activity points’ (based on the number of steps you walk). Those points add up and – if you earn enough of them – you get cash back for being active.
Money management apps
In 2018, a new European directive called the Revised Payment Service Directive (PSD2 to its friends) will be implemented, meaning banks will no longer have the monopoly on customer account data. In other words, companies can, with your permission, access your information and use it to make payments or offer services without having to go through the banks.
Only time will tell where PSD2 will have the biggest impact, but it’s expected to instigate big developments in FinTech that could really benefit customers. For example, imagine a sort of ‘digital finance assistant’ that could – by assessing your current finances – make recommendations for things like personal investments or mortgages. Laborious form-filling could soon be a thing of the past.
The FinTech already in your pocket
Of course, most of us have access to some pretty clever FinTech through our smartphones, and – if you’re a B customer – you’re already using it.
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