Fintech is changing. The next generation will combine the elements of the last cycle of innovation in new ways, leveraging crypto and community to become inherently multiplayer: “networked fintech”.
The past few years of fintech have seen improved access (loans online!) lead to better economics (and they’re cheaper!). APIs and open banking have made it much simpler to integrate the core features of banking – saving, spending, lending, investing – into almost any app experience. The bandwidth and speed at which money can move have increased, and it’s now easier for any business to spin up fintech capabilities.
Networked fintech will build on these foundations and see the creation of continuously improving financial products, delivered primarily for – and by – individuals.
From community ownership to collective action
Companies like Crowdcube, Robinhood and Freetrade have empowered retail investors, giving them more access to both private and public markets, as well as access to fractional shares and a seat at the table for pre-IPO allocations. And a new wave of startups – the likes of Republic, Party Round, Otis, Masterworks, OpenSea – has given them a stake in alternative markets for everything from wine and cars to art and NFTs.
This has blurred the lines between customer and owner, and enabled community ownership, but the platforms still remain largely single-player. This is understandable. Just a few years ago, talking about debt, credit scores and stock picks was taboo.
But, more recently, there’s been a destigmatisation of sharing financial information. Younger investors are now openly discussing these things online and building communities around them. See, for example, #debtfreejourney on Twitter and Instagram, or the sharing of “loss porn” among the 12.2m-strong r/wallstreetbets subreddit. And from this trend has emerged a growing demand for collective action in finance. ConstitutionDAO, for instance, tried to buy a copy of the constitution, and it was the r/wallstreetbets community that went toe-to-toe with the hedge funds over GameStop stock last year. Both show the desire of digital communities to collectively direct their money towards a greater goal.
So this goes beyond social features like leaderboards and trade-copying, and towards new multiplayer product primitives, such as asset pooling, voting and coordination. These tools enable collective action and investment, whether that’s distributed hedge funds, investment DAOs, advancing social and environmental goals, or pooling money to purchase collectively owned assets.
Money, being a medium of exchange, is inherently multiplayer, and networked fintech will see this multiplayer aspect of the financial world bloom and become a key feature. In other words, networked fintech will push community ownership toward collective action and investment.
These networked fintechs will likely be powered by crypto infrastructure in the back end, with the slick front end UX of fintech – what some have called “DeFi mullets” (fintech at the front, DeFi at the back). And this is being made possible by the development of better crypto infrastructure for transfers, wallets, yield-as-a-service, custody, and more, so customers can continue to integrate and manage their financial lives – seamlessly, in both fiat and crypto.
From atom to organism, faster
And the multiplayer aspects of networked fintech means that distribution is baked in.
Traditionally, solving the cold start problem – where an early network’s small size limits its features and, thus, growth – has been tough. When, in 1958, the credit card was invented, the Bank of America jump started the product by mass mailing out cards to residents in the city of Fresno, California. From this “atomic network” – the smallest network where there are enough people that everyone will stick around, as Andrew Chen defines it – credit cards developed into one of the most valuable networks in the world. Fast forward to Slack: the atomic network was not a city, but a team of maybe a dozen people within one company.
Networked fintech can push this even further. The next generation of fintechs will be able to use token incentives to bootstrap a network, providing financial utility – and/or ownership – via token rewards to make up for the lack of native utility on the nascent network.
This paves the way for atomic networks that are both more diffuse (anyone around the globe can be an early adopter) and tighter (because token incentives mean a starting network can be smaller). And, by using token incentives, the atomic network of a networked fintech creates owners, not just users. It gives participants a greater stake in the success of the communities they choose to be a part of, as well as the potential to develop its own currency and for collective action. In other words, network effects come in thicker and faster – as do the benefits to the individuals. From the atom to the organism, faster.
The networked solopreneur
So what does this mean for the way we work and the way business is run
Collaboration and the effects of scale have traditionally been mediated through a legally corporated entity. But since the pandemic, we’ve seen the rise of solo workers and the creator economy – one-person or micro businesses who don’t have the scale or network advantages that a company or firm structure provides.
Networked, community-driven fintechs hold the potential to supplant the company structure for solopreneurs by providing them with the community-powered tools they need to run their business effectively. A vertical SaaS platform could, for example, pool data and aggregate demand to underwrite and negotiate better loans or insurance products for solo workers in a specific profession. Or take Substack’s legal defence fund, which gives individual writers and journalists the confidence and resources to go solo. We’re seeing the beginnings of 21st century cooperatives, mutuals and guilds – echoes of the late mediaeval Hanseatic League.
So, rather than individuals being subsumed into a company to efficiently conduct business, the future will see individuals collaborating via a looser network – the tech stack (powered by fintech, DeFi, APIs and open banking) becomes the company.
Moreover, these one-person businesses may also be fintechs: in a networked fintech world, individual-to-individual interactions become increasingly easy, and material. Goldfinch, for instance, wants to use its decentralised credit protocol to allow anyone to become a lender.
We at Moonfire can look forward to a world where fintech, or financial institutions, are an emergent property, born of hyper-enabled and connected individuals.
And we aim to help make it happen.