Four Areas in Which We Need More Innovations in Finance and Investing

Financial innovation is reshaping the investing industry and the broader financial services industry, generating products and partnerships with positive social, environmental, and economic impacts. Impact investing is growing in popularity, and innovations in this sector are making it easier to participate and scale. Many of these innovations focus on financial inclusion and are being integrated into the largest banks due to investor interest and sheer market demand. Here are four areas in which we need more financial innovation to advance the goals of society.
Impact investing

The conventional wisdom holds that financial innovation is a good thing, and that financial services companies should embrace it. As Fed Chair Ben Bernanke has noted, financial innovations encourage economic growth and disperse risk across the financial system. Nevertheless, there are risks to these innovations. These risks may outweigh the benefits. As such, financial innovation is not without risks. However, we must be aware of these risks in order to create a financial system that is robust and able to withstand crises.

Artificial intelligence

Financial firms have begun diversifying their investment portfolios with the use of artificial intelligence (AI). These algorithms, which can learn and act as a human-like counterpart, are driving changes in global finance. As algorithms become core decision makers at companies processing multibillion dollar transactions, they are transforming the way we invest. This article discusses three ways AI is transforming the finance and investing industry. The first of these is the way it will help people manage their money.

Fintech

Fintech is driving a wave of new innovations in investing and finance, including impact token offerings that support environmental and social causes. One such example is the tokenized carbon credit, which leverages blockchain capabilities to track the environmental impacts of companies. Another innovation is direct indexing, which is the idea of replicating a fund by purchasing the same weight of stocks as its underlying index. Finally, fractional shares are becoming more popular for individuals who want to customise their holdings.

Blockchain

Investing in alternative assets has exploded in recent years due to advances in technology. One of the key trends enabling increased accessibility to alternative assets is fractionalization, the practice of breaking up an asset into smaller pieces, and creating a virtual marketplace. This technology is transforming the investing industry by removing initial capital requirements and creating liquid digital markets for previously illiquid assets. As a result, it is driving the growth of alternative asset classes.

SDGs

The SDGs will not be achieved without more innovation in finance and investing. finanza.no will take unprecedented collaboration between private sector actors and public institutions to fund these goals. This requires significant reform of global financial regulation. In order to achieve the SDGs, more corporations and investors must make a meaningful commitment to these goals. Currently, most of the funding for these goals is coming from national governments and domestic resource mobilization.

Financial sector’s role in innovation

In the last few years, the financial sector has seen several examples of disruption that are impacting their organizations and products. To judge their response to these challenges and how to make the best use of them, it is imperative to understand this broad context. The financial sector will often respond by acting tactically, while many other companies will address a structural issue through process innovation. In these cases, financial institutions should consider pursuing radical forms of innovation and acquiring new software companies.