Fintech (Finance + Technology) is one of most significant trends in the world.
Transformational technologies, such as smartphones, smartwatches, blockchain, P2P network, cryptography, machine learning and optimization algorithms will rapidly and drastically convert the current financial world. In my opinion, there are four mega-trends in this area: 1) Cashless Society, 2) Rise of the Consumer Credit Economy, 3) Cryptocurrency and Financial System Reform via Blockchain Technology, and 4) Trade Automation using Machine Learning.
Firstly, digital payments using smartphones and smartwatches are expected to further accelerate. In Japan, contactless payment systems such as SUICA and PASMO are widespread, but using smartphones for payment will become the norm. I am convinced that in the near future, you won’t need to use a real credit card, but you can pay for your dinner by simply using a smartphone at the restaurant, and you can transfer money to your friend using your smartphone. Alipay and WeChat Pay have already started to reform the way money is used, and China is now shifting to a Cashless Society. In the U.S., Venmo and CASH App are used for transferring money to each other, making cash unnecessary. Japan will also adapt to such, where there will be an enormous opportunity for business. In the next few years, many startups will produce products that will lead to a cashless society.
The Rise of the Consumer Credit Economy
Second is the “Consumer Credit Economy”. With the spread of the Internet and SNS, there is a significant change in how individuals work, and how one obtains credit. In the last century, corporations had considerable authority, and personal trust depended on the type and size of the companies they engaged with. But now, data of an individual’s skills, expertise and career are stored on the Internet and SNS, and in some cases, the number of followers on Twitter / Instagram and friends on Facebook may be more important than what kind of company you work for (there are people who have many followers called “Influencers”). In addition to this trend, individual workers such as users of Crowdsourcing platforms (e.g., CrowdWorks), can earn more than those who work for a company. In the U.S.,“Freelancing in America 2017”, the survey conducted by independent research firm Edelman Intelligence and commissioned in partnership by Upwork and Freelancers Union showed that the number of freelance workers is 57.3 million last year, an increase of over 4 million since 2014. In addition, based on the survey, it is predicted that the majority of the U.S. workforce will be freelancers within a decade (by 2027). With acceleration in such direction, the way of personal credit will change. In the last century, individual workers, freelancers, and small business owners had difficulty to get credit and loans from financial institutions. However now, on Kabbage.com, small business owners can get quick access to working capital by SNS information. In China, Sesame Credit, a subsidiary of the e-commerce giant Alibaba, uses data to create a score for each person based on how trustworthy they are, and high-scored users can gain various benefits such as social security and welfare, the right to be admitted to expensive private schools, and smooth clearance of Chinese customs. As these examples show, a flexible social system optimized for each individual starts to emerge. Of course, countless companies will invent some revolutionary financial product such as insurance and lending services for individual workers in the next few years, and many Fintech startups will intensely endeavor to produce such products.
Cryptocurrency and Financial System Reform via Blockchain Technology
The third is blockchain and cryptography technology. As you know, blockchain is a necessary technology, the core of which is an “open and distributed ledger” and cryptocurrency is one of the hottest applications of blockchain. Cryptocurrency, represented by Bitcoin, has a tremendous impact on the economy, and is creating a new ecosystem. The combination of cryptography, P2P network and blockchain is very compelling, and it may eliminate the existing model of currency and the way money is transferred. The market value of Bitcoin is now over 10 billion US dollars.
But blockchain technology represented by Ethereum is not limited to cryptocurrency, but to various fields such as audit, credit investigation, and transaction management. With blockchain, the system records all data in a block, and the applicants of the network monitor each other’s data correctness, making blockchain secure by design and exemplifies a distributed computing system. With this kind of distributed system, the overhead fees currently charged will be close to zero. There are many possibilities, such as most business processes of the traditional financial institutions would be automated and decentralized by blockchain, and some blockchain companies like Bitfury and bitFlyer would begin to provide blockchain technology to existing banks and financial institutions. In addition, I am convinced that a future would come where venture companies and startups will invent new insurance products (such as automated credit surveys), and unique real estate transaction structures using blockchain.
Trade Automation using Artificial Intelligence
The last is the rise of Artificial Intelligence, represented by Machine Learning / Deep Learning. “AI” has started to change the structure of the financial industry. For example, Goldman Sachs, one of the world’s largest financial institutions, has reported that they have automated trading by Machine Learning and drastically reduced the number of traders in the company, and now there are only two persons who work as traders. In Silicon Valley, some “AI hedge funds” have begun to appear recently, where AI completely judges an investment without human intervention. As these examples show, AI can drastically improve productivity of trading businesses that are based on algorithms, eliminating need for human intervention to a bare minimum. High-speed trading (HFT) has become a popular topic of conversation, made possible with increased computer performance and algorithm evolution, is exceeding speeds beyond human ability. Machine learning has enormous potential to transform the financial business structure.
As I described above, there are many possibilities where transformational technologies are revolutionizing the financial industry, and I’m extremely optimistic about the future. I look forward to a great future, and our lives will evolve for the better.
About the Author
Koichiro Yoshida is the President and CEO of CrowdWorks. He founded CrowdWorks Inc, in 2011 which provides the Japan’s largest crowd sourcing service and has taken lead in offering. The company was listed on TSE Mothers in 2014 and provides services to over 1.87 million crowd-workers which includes,12 government institutions and 240,000 companies as of June,2018. In 2015,he was awarded to Workstyle Innovative Award in Japan’s Venture Company Award of Ministry of Economy,Trade and Industry proposed by Shinzo-Abe Prime Minister.