Finance Is About To Get Disrupted, Big Time!

In the years leading up to the financial crisis of 2008 we saw the rise of finance. Everything got financialized. Businesses, public works, countries and even world trade. But from 2008 onwards we have seen little innovation in the space. Even though you could say that world of finance is constantly evolving, most professionals have moved from finance to tech in the last decade. But is finance back? Let’s look at the biggest disrupters to finance:

1. Artificial intelligence
2. Fintech
3. Digital currencies

Let me go into them in more detail and how they will influence the world of Finance and our economy enlarge.

Artificial intelligence

Artificial intelligence (AI) is the simulation of human intelligence in machines that are programmed to think and act like humans. In the world of finance, AI is being used to analyze vast amounts of data and make informed decisions, often at a faster pace and with greater accuracy than humans. AI is already being used in various areas of finance, from risk management to personal financial planning. As AI becomes more advanced, it is likely to play an even greater role in the industry, potentially replacing some tasks currently performed by humans.

Some specific examples of how AI is being used in finance include:

• Risk management: AI can help financial institutions identify and mitigate risks by analyzing historical data and detecting patterns that may indicate potential problems.
• Personal financial planning: AI-powered financial planning tools can help individuals make informed decisions about their money by providing personalized recommendations based on their goals and risk tolerance.
• Trading: Some hedge funds and other financial institutions are using AI to make trades based on real-time data and market trends.

As AI becomes more advanced, it is likely to play an increasingly important role in finance. Some experts predict that it will eventually replace the majority of tasks currently performed by humans, such as data entry, compliance and analysis. ChatGPT by OpenAI already given us a sneak-peak into how AI radically change the role of the advisor. Just ask it how to diversify well and you will be amazed already. However, it is important to note that AI is still a developing technology, and its use in finance is still largely unregulated.

The speed on which AI is been developed however is mind-blowing. Don’t be surprised that in a few short years almost all consumer interactions in the finance space will be between them and AI.

Fintech

Fintech, or financial technology, refers to the use of technology to deliver financial services. It includes a wide range of products and services, such as digital banks, mobile payment apps, cryptocurrency, and robo-advisors. The fintech sector has exploded in recent years. Fintech is transforming the way we manage our money. Some experts predict that fintech will continue to disrupt traditional financial institutions, offering more convenient and cost-effective alternatives for consumers. Especially now that we see more and more fintech projects combining the power of AI with finance I believe we are on the forefront of a new wave of financial services in the consumer market.

Some key benefits of fintech for consumers include:

• Convenience: Fintech products and services are often designed to be more convenient than traditional financial options. For example, mobile payment apps allow users to make payments and transfer money from their phones, while digital banks offer online banking services that can be accessed from anywhere with an internet connection.
• Lower costs: Many fintech products and services are designed to be more cost-effective than traditional options. For example, robo-advisors often charge lower fees than human financial advisors, and digital banks often offer lower fees for certain services such as worldwide payments. In addition, robo-advisors could - in combination with AI - have a larger knowledge base than the average human financial advisor.
• Personalization: Fintech products and services often use data and technology to provide personalized recommendations and services. For example, robo-advisors can analyze an individual's financial situation and goals to provide tailored investment recommendations.
• Social integration: We will see exchangeable tokens, easily distributed via crypto to represent ownership or a stake in something. Not so much serving as a means of exchange but more like a ticket to a social group that you can be part off. Holders of project tokens may be entitled to a share of the profits or other benefits related to the project.

Fintech is disrupting traditional financial institutions by offering more convenient and cost-effective alternatives. However, it is important to note that the sector is still relatively new and largely unregulated, so it is important for consumers to do their due diligence before using any fintech products or services.

Digital currencies

While still relatively new and largely unregulated, digital currencies like Bitcoin have garnered significant attention in recent years. It is unclear how mainstream these types of currencies will become, but they could potentially revolutionize the way we think about money and financial transactions. So you could say that cryptocurrency is a form of fintech. I would say, it’s one aspect of the larger fintech industry. Like discussed in the previous chapter, there are many other types of fintech products and services that do not involve cryptocurrency.

For who is not yet up to speed, digital currencies of cryptocurrencies are a type of digital or virtual currency that uses cryptography for security and does not have to be issued by a central authority, such as a central bank. Most of crypto is decentralized, meaning that it is not controlled by any single entity. Therefor bringing the promise to be more sound than FIAT money.

Almost everybody has already heard or crypto currencies. Only a small number of people actually hold it, and even a smaller portion uses crypto on a daily basis. But if it’s up to our Central Banks, this is going to change. Some central banks have expressed skepticism about the use of cryptocurrency as a means of exchange and have warned about the potential risks, such as its association with illegal activities and the lack of regulation. But many have active projects running exploring the possibility of issuing their own digital currencies. The Bank of England, for example, has been researching the concept of a central bank digital currency (CBDC) and has conducted pilot projects to test its feasibility. Similarly, the People's Bank of China has announced that it is working on a digital version of its currency, the renminbi. And also the ECB (European Central Bank) has a program in the works.

This CBDC’s scare me somewhat. In the past months we’ve seen first hand how bad things can get when money is poorly managed centralized. The collapse of crypto exchange FTX, largely fueled by the collapse of their own centralized issued cryptocurrency FTT has shown once again that a system managed by few can became very unstable quickly. And if we look at the history of central bank intervention, I find it near impossible to argue that Central Banks hold the interest of the people above the intrest of the few.

Another way we will all start using crypto in the near future is via social tokens. Social tokens are digital assets that are issued and traded on blockchain platforms and represent ownership in a particular person, entity, or idea. They can be used to represent a variety of things, such as ownership in a business, membership in a community, a stake in a creative project or tickets to a concert.

Some examples of social tokens include:

• Creator tokens: These tokens represent ownership in a particular individual, such as a content creator or influencer. Holders of creator tokens may be entitled to special perks, such as access to exclusive content or meet-and-greets with the creator or exclusive access to events and merchandise.
• Community tokens: These tokens represent membership in a particular community or group. Holders of community tokens may be entitled to participate in decision-making processes or have access to exclusive events and resources.
• Project tokens: These tokens represent ownership in a particular project or idea. Holders of project tokens may be entitled to a share of the profits or other benefits related to the project.

Social tokens are a relatively new development in the cryptocurrency space, and their use and value can vary widely. The use of them however will be made simple for mass use quickly. Don’t be surprised when football clubs or music celebrities or businesses will replace their loyalty program for social tokens without you really noticing. The majority will only see the enhanced personalized experience provided to them.

The macro trend: integration and innovation with tech

In the past few years we’ve seen a boom in the stock market. In my opinion the 2010s will be written into history as the age of abundance. Web2 led the way with the rise of social media and software as a service. Also we’ve seen the rise of incredible companies such as Amazon, Alibaba, Tencent, Tesla, SpaceX and the acceleration of Apple, Alphabet (Google) and Microsoft. Where in the 2000s we’ve seen talent pouring into finance, during the 2010s we’ve seen tech been the magnet attracting all talent. Now, with fintech we see the return of talent to the space. A large number of really talented young people work in fintech and this number is, even during this current downturn, still expanding.

In the upcoming years we will see all the in this article mentioned innovations working together, making their growth exponentially more impactful. As these technologies continue to evolve and become more sophisticated, it is likely that they will be used in more and more areas of finance. For example, AI is already being used to analyze large amounts of data and make more informed investment decisions, while cryptocurrency could be used to facilitate faster and more secure financial transactions. These together for example will be packaged as fintech products. Use cases like these will only became more sophisticated and powerful. Fintech will be made just as easy to use as social media and everybody will be incentivized to opt in.

Fintech, in all its ways, is likely to continue to disrupt traditional financial institutions and could lead to the development of new financial products and services that are more convenient and cost-effective for consumers. It is important for financial institutions to stay abreast of these developments and consider how they can incorporate them into their operations in order to remain competitive.?

If we would look at the state of finance this exact moment, it is difficult to make broad generalizations about the financial industry. While some sectors may be experiencing growth, others are struggling. It is important to consider the specific context and look at specific indicators, such as financial performance and market trends, to gauge the health of the industry. It feels more like the industry is at the end of a era and at the start of the new. And as is in all branches, the innovative will outperform the old.

Overall, the future of finance looks bright, with many exciting developments on the horizon. As with any industry, it is important to stay informed and adapt to changes in order to make the most of your financial opportunities.

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