Likewise, Fintech has taken the financial by storm with a total investment of $80 billion since 2010.
The sharing economy has been witnessing significant traction in the last few years with ventures such as Uber and Airbnb receiving an outpouring of media attention alongside their rapid growth. The trend highlights a significant shift towards peer to peer services, facilitated by technology to bridge the inherent inefficiencies in ownership of goods such as a car or an empty home. A similar trend has been seen in financial services as well where people are directly engaging one another to meet their financial requirements most commonly in the form of loans or issuing equity in exchange for capital. When juxtaposed next to one another, there seems to be a natural partnership between the two and it would be worthwhile to understand and break down this partnership to evaluate how this synergy may evolve. Both concepts aim at efficiency and promote inclusion and a democratization of their respective spaces with the voice of the consumer driving the forces at work.
Fintech, for the past few years, has been driving significant change across financial services in facilitating a more efficient, secure and inclusive environment by lower costs associated with these services and thereby lowering the barriers for a number of individuals to engage them as well as allow new models for data to evaluated in spheres such as credit scoring. The peer to peer lending model is one of the first partnerships between Fintech and the sharing economy. Here, we have seen the fusion of innovative financial technology, with the leveraging of underutilized capital for investment purposes.
To understand the partnership, we need to consider ownership of assets. The ideas associated with ownership are changing with consumers placing much more emphasis on access over ownership. Since consumers are more concerned with access, the drive for businesses thus becomes the ability to provide the greatest level of convenient access to an array of complementary services. The food court model takes center stage as consumers demand greater ease in their day to day activities whether it is for taking a taxi, ordering food or conducting financial transactions. To add to it, we’re experiencing a cross industry effect of rising expectations where consumers see development in one industry and expect the same of another setting off a continuous cycle of disruption.
On the supply side this creates a strong incentive to form effective partnerships with firms and companies to provide this convenient accessibility or even the proliferation of services that act as intermediaries to facilitate the demand for accessibility through the ‘sharing economy’. This is where Fintech and the sharing economy have massive potential for synergy. Fintech can be seen as the infrastructure and technology provider to facilitate this sharing economy, allowing the creating of customized suites with an array of complementary services for the consumer. Fintech would thus allow individuals to offer their financial assets and be able to engage with other consumers in a range of different arrangements and financial structures, equity or debt based. The services that complement these transactions (fund transfers, escrow, dividends, interest payments, KYC, etc.) are factored in seamlessly via technical integrations. An environment that is able to achieve such a seamless and efficient workflow would prove to be the perfect catalyst for further innovation. History is testament to the fact that as greater efficiency is achieved, humanity drives forward by pushing the established bounds and conceiving new models and instruments, exposing new inefficiencies, inaccuracies and fallbacks.
This is the juncture where Crowd Valley has stepped in, to be the future architect and platform provider to facilitate the efficient sharing and distribution of funds related to a host of different global assets from real estate to prized racehorses. Crowd Valley provides the intelligence layer and the standardized API interface to allow our clients to create a centralized suite of services that combines lending, borrowing, fund transfers, data analytics, portfolio management and secondary markets to name a few. The easily integrable environment allows for an infinite number of services to be utilized simultaneously.
On the banking side, this partnership would materialize as an interface that goes beyond the services of transfers, deposits and withdrawals and includes investment advice, portfolio management in a centralized ‘food court’ to ensure the most efficient use of the client’s time. This is essentially what the client is demanding in their desire for greater accessibility; today, they don’t want to have to go to a physical bank and tomorrow they wouldn’t even want to switch between different applications on their smartphones for seemingly complementary services. The margins for efficiency are getting smaller and smaller and costs associated with a second of consumer time and attention is gaining greater value. Today, it may be the minutes it takes to visit a bank and meet your needs. Tomorrow, it may well be that one second in switching between applications that allows a competitor to be the preferred solution provider.
“That time you spent driving previously, now it’s downtime. You have an extra hour and a half in your day where you can be doing whatever you want.”
— Kathryn Duryea, Marketing Consultant, Former VP Marketing, Rocksbox
This poses major challenges to brick and mortar businesses in being cost effective and efficient in meeting consumer demands. It is definitely possible for these ventures to create that suite of services in their branch but it would require significant cash injection to set up and maintain such a physical environment in an age where there is significant pressure for prices to fall. The reduction in prices is largely due to technological advancement cutting costs and allowing digitization but also because technology such as APIs and the API economy facilitating an easy plug and play environment. Furthermore, this partnership allows Fintech challengers to connect with a host of on-demand staff from the sharing economy by professionals that are selling their time and skills to be that ‘boots-on-the-ground’ interface crucial for industries such as real estate crowdfunding or any of the physical assets that are set to be disrupted by the wave of digital financing.
As Fintech and the sharing economy come closer, the opportunities for engaging different assets with a range of different financial instruments will be boundless as consumers and entrepreneurs keep pushing the bounds for innovation and efficiency.
For further reading, please have a look at:
PWC Consumer Intelligence Series: The Sharing Economy
New Kids on the Block: Fintech Meets the Sharing Economy
The Brookings Institution: The Sharing Economy
The Sharing Economy & Financial Services
Adit Vaddi is a business development associate with a Bachelor of Arts in Economics from Vassar College, New York. He has a background in Economics, Accounting, Political Science and Operations (Event Management). He is from Hyderabad, India. Prior to Crowd Valley, Adit has worked as a research analyst for Baring's Private Equity Partners in Mumbai and for the IdeaSpace Foundation in Manila as well as a risk analyst for Fincare in Bangalore. On the operations side, Adit has organized and run over 30 large scale events that cater primarily to a college community. He is currently based in New York City.