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Future of finance

Published This article is more than 2 years old.
  • The most pressing question

    What does our digital money future look like?

    Some executives imagine a world where technology handles all your money needs without your having to ask. Is it time to refinance that student loan? Are you saving enough for retirement? Algorithms know the answer. Some think Ant Group—China’s Amazon of money—is at the leading edge of that evolution. 

    This version of the future could bring more people into the financial system, giving them the kinds of investments and services that used to be just for the rich. But there will still be risks, as digitization could leave vulnerable people behind.

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  • By the digits

    38%: Average stock price jump for US IPOs in 2020 on the first day of trading

    $81: Average amount of money Americans kept in wallets after the onset of the pandemic

    4.3 million: daily average number of trades made on Robinhood brokerage in June

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  • One big number

    Image copyright: Reuters/Tingshu Wang
    An Alipay QR code at a grocery shop in Beijing.

    > $17 trillion: That’s the volume of digital transactions Alipay, the payment unit of China’s Ant Group, handled in 2019. To give you an idea of the scale, that’s more than US card giants Visa and Mastercard handled last year, combined. Eye-popping numbers like these probably help explain why the Communist Party is hyper aware of Ant’s sway in the Chinese economy. Digital payments, meanwhile, are a core part of Ant’s business, spinning off reams of user data and forming a pipeline that funnels in new customers. 

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  • Charting automation in finance

    The Covid-19 pandemic has accelerated the race to automate every industry, but none more than the financial sector. In a Bain survey, 93% of respondents in the financial business said they are ramping up automation because of the coronavirus disruption.

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  • Commonly held question

    Is physical cash going extinct?

    A funny thing happened on our way to a cash-free world—the amount of notes and coins in circulation in countries like the US has continued to grow over the years (Sweden is a notable exception). The short answer for what’s taking place is that digital transactions (credit and debit cards, for example) are for everyday payments, and physical cash is often used for hoarding—a way of keeping money off the grid. That said, there are signs that the Covid-19 pandemic has changed the digital-money game.

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  • Person of interest

    Image copyright: John Coates

    There’s macroeconomics and microeconomics. But how about hormonal economics? John Coates, a Wall Street trader who retrained as a neuroscientist, thinks the testosterone and cortisol molecules are key to understanding financial bubbles. Prepare to rethink what you may have believed about efficient, rational markets. “I don’t say this to be politically correct, but the markets are more stable the more diverse the opinions are,” he told Quartz. “If everybody has the same opinion then you get bubbles and crashes.”  

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  • Quotable

    “The obvious overconfidence, and the obliviousness to things that at least used to matter, made me think of waves of testosterone coursing through the market, which is similar to what Coates describes.” Carson Block, the world’s best known short seller, on John Coates’s research indicating that testosterone helps drive financial bubbles and manias.

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  • Keep reading

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  • Fun fact

    Image copyright: AP/David Karp
    Bernie Madoff exiting federal court in 2009.

    Bernard L. Madoff ran the world’s largest Ponzi scheme. He was also a key pioneer of the business model that helps underpin “commission-free” stock brokerage for everyday traders. Madoff’s trading business, which was separate from the Ponzi scheme, popularized the payment for order flow that companies like Robinhood and Etrade rely on to make money. 

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  • Brief history

    Robinhood says it’s democratizing finance. It’s a great sales pitch that brokerages have been using for decades.

    Charles Merrill perfected that spiel after World War II, when he set out to take “Wall Street to Main Street.” His firm, Merrill Lynch, brought stock investing to an unparalleled number of regular people. Charles Schwab, which slashed brokerage commissions in the 1970s, had a similar marketing gambit. E-trade did pretty much the same thing.

    What’s old is new again. Robinhood is following a well-worn path to brokerage disruption—cut fees, target a new generation of traders, preach financial democratization.

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  • DIY

    • Do you love going cash free? Here are some reasons to encourage your favorite businesses to accept cash until everyone has a way to pay for things digitally. 
    • Are you thinking of trying out a newfangled trading app? Experts say don’t be a stock picker. Instead, consider buying a long-term, diversified portfolio of stocks or bonds through an index fund or an exchange-traded fund. And make sure you don’t invest money you can’t afford to lose. 
    • Would you like to push capital to green-energy enterprises? Defund tobacco companies? Your humble retirement portfolio could be as powerful as a mass protest.
      � Worried we might be headed for another financial bubble? We have a field guide for that. (Hint: governments have been engineering them for centuries.)
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