Historically, global financial markets are limited to the affluent class, those with the right contacts in the right location, and endless amounts of wealth ready for their disposal. For most of the population, investing and growing their portfolios are usually inaccessible, inconvenient, and expensive.
Thankfully, financial technologies such as decentralized finance (DeFi) have introduced a new system in the global financial markets. With DeFi, common traditional financial products used today, such as insurance, loans, savings, tradings, and investments, can now be accessed by anyone with an internet connection and a smartphone.
This is because DeFi’s goal is to make money and payments universally accessible. Everyone, no matter where they are, can now have access and transact value efficiently. This also includes access to growing a portfolio through the emerging Fintech markets.
How can FinTech innovations shift our current financial paradigm
The increasing number of FinTech innovations are helping most of the population gain access to all financial services. Traditional centralized financial markets limit the underbanked and unbanked from entering the market for several reasons, including wealth, status, and regional jurisdiction. With FInTech, more individuals will now have the opportunity to access financial markets.
With the current remittance services, fees are expensive. But with FinTech, the fees are now affordable for the whole population. From a global remittance fee of 7%, DeFi can reduce the fees to as low as 3%. Goodby expensive fees. It also allows users to take full custody of their finances and assets without relying on any particular financial and payment company.
According to a research paper from Stevens Institute of Technology School of Business, “[d]decentralized financial services have the potential to reduce transaction costs, broaden financial inclusion, facilitate open access, encourage permissionless innovation, and create new opportunities for entrepreneurs and innovators.” These opportunities include access to better security and financial inclusion.
These innovations will let users participate in financial services by removing barriers to entry in financial products or tools. Through Fintech made possible by mobile applications, millions of people can now access more user-friendly financial platforms that are once only available to the affluent class and Prance Gold Holdings is one of them.
Creating more investment opportunities
In the United States, more than half of its households have some investments in the stock market. While in India, only 2% of the population has invested in the same assets. Will Fintech create more investment opportunities for people outside the financial system?
Where you live plays a significant role in determining your access to financial services, mainly growing a portfolio. Compared to struggling economies, advanced ones can entice more of their population to be invested in the financial markets. Aside from that, financial literacy also affects investing. If a person has no idea how investing works, they are more likely to reject it.
One example of financial technology that can create more investment opportunities is arbitrage trading. Arbitrage is a short-term investment strategy that takes advantage of the same asset pricing gaps on different exchanges.
Arbitrage helps in portfolio growth by increasing accessibility to financial products such as investments. “The paramount benefit of using arbitrage as an investment strategy is that if deployed correctly, it is risk-free regardless of the market conditions,” explains Jeffrey Guo, FinTech Veteran and Seed Investor of Prance Gold Holdings, a FinTech arbitrage trading platform.
To explain further, billions of people worldwide cannot take advantage of portfolio growth because there are fewer investment opportunities. “New trading technologies in FinTech makes it more accessible for even users with minimal technical knowledge and experience,” says Guo. Innovation in technologies that make trading easier to use is one way to increase financial inclusion for millions across the world.
Decentralized financial systems have transformed the traditional markets by providing access to the whole population, particularly the unbanked and underbanked. Its promising innovation will impact the financial market and will help anyone to have access to growing a portfolio. This includes creating more investment opportunities for the general public who don’t have an avenue to their assets.