January had the bitcoin bulls all excited, with the crypto asset smashing through key support levels to spark speculation that it might be getting ready for a run – though at time of writing it was looking a bit glum again. 

The world’s most famous cryptocurrency might have (so far) failed to make good on its promise to revolutionise finance, but digitalisation has lots to offer individual investors over and above Bitcoin speculation. Digitalisation is already eliminating intermediaries, opening up new markets and giving us more control over how we manage our wealth and our data. There are a few big technologies we’re excited about here at Hedgehog for their potential to revolutionise finance, and they look a little something like this… 

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1. Embedded Finance 

Embedded finance has been around for a while, blending financial products with non-financial services. Uber is a great example of it; you can order, ride in and pay for a taxi without ever needing to reach for your wallet. Credit offered at point of sale by a retailer to help spread the cost of large purchases is another long-running example of embedded finance. 

Embedding their products and services gives financial service providers the opportunity to increase their reach and serve more customers. Consumers get a seamless, enhanced experience and the financial services provider behind it gets their customer – and their data. 

Now, data is fast becoming one of the most important commodities we have, thanks in no small part to leaps forward in data technologies like artificial intelligence (AI) and blockchain – more on those in a moment. By embedding services across a range of transactions, financial services providers are in a position to collect huge amounts of data, helping them to build a full picture of their customers, what motivates them and what they need. The result is a pretty accurate individual profile which, for us as consumers, yields a highly personalised experience. As embedded finance matures and financial providers build up a fuller picture of you as a consumer, you’ll be offered products and services – including investment opportunities – that are aligned to your goals and values. For individual investors, that should mean less time spent researching and sourcing investments, and a higher likelihood of achieving investment objectives.

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2. Blockchain

Blockchain offers a host of opportunities for investors, and will continue to as the market matures and gets more liquid, but it is its potential when it comes to distributed ledger technology (DLT) that is particularly exciting. 

Blockchain is one of the best known types of DLT, which is effectively a decentralised database that allows for the recording, sharing and synchronisation of data across a distributed network. It enables peer-to-peer transactions to be verified without the need for a third party, bypassing admin-heavy processes and speeding up a multitude of transactions, from lending and borrowing to buying and investing. It’s also super transparent, anyone can see the data stored on the ledger (although it is immutable once recorded and can’t be changed), meaning regulators have greater oversight and investors can track their investments more easily.

One of the leading use cases for DLT is tokenization, which creates a record on the blockchain (token) that represents an asset in the real world, such as real estate or infrastructure. Tokenization allows for fractional ownership, reducing the amount of capital needed to invest in these larger opportunities. Best of all, because tokens are issued and recorded on the blockchain, there’s less need for third parties to facilitate the transaction. This means tokenization has the potential to provide individual investors with opportunities to invest in fractionalised alternative assets without the additional costs introduced by intermediaries. 

As blockchain matures and opens up more opportunities for investors, that will create additional scope for embedded finance players as well. They’ll be able to embed blockchain-based, decentralised finance (DeFi) products in non-financial services, optimising customer experience and increasing access to technologies like tokenization.   

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3. Artificial Intelligence 

The pinnacle of data technologies, artificial intelligence (AI) has huge utility within financial services. At a very basic level, this software analyses massive data sets, spots trends in near-real time and (critically) provides a probabilistic set of outcomes, suggesting what might happen next based on past data and recommending or even taking a course of action in anticipation of that. The application for AI in a markets setting is relatively obvious, and the investment industry cut its teeth with Robo-advisors, using algorithms to allocate funds and manage investments with minimal human interaction. 

Robo-advisors offer a number of advantages to individual investors. They’re typically much cheaper than their human counterparts, with guardrails based on some of the best investment theories – effectively giving individual investors access to leading investment strategies without the large buy-ins and fees charged by fund managers. 

But the application for a data technology like AI, which can make classifications and decisions without the need for a human operator, goes well beyond robotic investing. AI can be put to use automating a number of processes, such as fraud detection and reporting. In the context of fraud detection, it offers investors increased protection compared to more manual processes, since it can spot patterns and adapt to new threats. But its use isn’t limited to traditional finance. AI is the data technology, and blockchain is effectively a database of structured data, meaning AI could eventually be deployed to spot patterns and trends in data stored on-chain as well. 

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Digitalisation beyond bitcoin

These three data-centric technologies will drive huge change in the finance industry over the coming years and, together, will form the building blocks of an exciting new ecosystem full of opportunity for individual investors. Digitalisation has lots to offer when it comes to revolutionising finance, the jury’s still out on whether the same can be said for Bitcoin.

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Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.‍