The long tail of fintech law
The application of modern technology to finance, or “fintech”, represents the unlocking of the long tail of investment, particularly that of global and local communities. It has the potential to empower people both globally and locally to pool their resources and invest in projects and initiatives they are passionate about.
It will enable Bermudians to be able to better invest in ourselves and our community. It will also attract companies wishing to have the means to invest in their global communities as well as those willing to build the infrastructure to make this smaller-scale investment possible.
This represents potential for economic growth for Bermuda that can drive jobs, create opportunities for Bermudians and drive a renewed sense of prosperity.
One reason for Amazon.com’s early success was because a large proportion of their book sales came from obscure books that were not available in bricks-and-mortar stores.
Chris Andersen, former editor-in-chief of Wired magazine coined this concept “The Long Tail”. The idea was that there is value in targeting a wide range of products selling in small quantities as contrasted with a limited range of products that sell in high quantities.
Amazon.com unlocked the potential to be able to promote books that targeted very small but popular niches in contrast to traditional bookstores that targeted bestsellers.
There is money to be made in niches because people are tribal by nature. We like to build communities around shared goals, ideas and ideals. This happens both on a local community level as well as a global level, thanks to the internet.
On the internet, you can find and connect with other people who share similar interests, even if they are obscure. The challenge is that investing in a shared concept or idea, especially on a local or global level, can be hard. These kinds of investments traditionally have been accessible only to large corporations.
We already see it today with the website Kickstarter.com. There are a wide variety of projects available that anyone can support. Whether it is the creation of a special product, podcasts, movies, books, games — you name it — the opportunity is there to raise funding from a tribe or crowd of interested people for what may be an obscure, niche idea.
This concept is referred to as “crowdfunding” and has become a popular means of raising money for niche projects. The challenge is that by supporting the project, you have the potential to gain only a final end product or the benefits of a service; you don’t, however, have the potential to own a part of the success of the product.
One of the most frequent comments I see regarding cryptocurrencies, which is then mistakenly applied to all forms of digital assets, is the suggestion that Warren Buffett warns against putting any money into them.
I think it is important to qualify this further. Warren Buffett has long had a rule to invest only in businesses and ideas that he understands and that are within his “circle of confidence”.
For this reason, Buffett is widely known to have avoided tech stocks up until just a few years ago and steers clear of cryptocurrencies. It can be useful to invest in what you know, but the challenge is whether or not those things are actually investable.
Cryptocurrencies can be hard to understand and highly speculative, which is why Buffet warns against them. Digital assets, however, have the potential to unlock opportunities to invest in things that you know and are familiar with.
Take Bermuda as an example. Many people invest in rental or Airbnb apartments because it is something that is local and easy to understand. This is a great option if you come from a wealthy family or work in insurance and can afford a house with an apartment, but is not realistic if you do not.
It simply isn’t possible for someone who cannot manage to buy a home to be able to invest in a rental apartment. One of the things that the application of modern technology to finance, or fintech, will achieve is to make these sorts of investments more accessible.
It is possible to take an apartment building, pair it with a property management service that will manage renting it out and then apply these new fintech concepts to make it more affordable as an investment.
The challenge today is that the process of buying and selling that sort of property makes sense only if you can buy a single apartment within it. As we are able to digitise the process and reduce the costs associated with doing so, it becomes possible instead to buy a portion of ownership of the overall building for an amount as small as $100.
This access to ownership opens a lot of possibilities. You could set aside $100 of every paycheque to invest in something that you can go to look at and get to know the managers. Each $100 can generate returns based upon the performance of the rental as an investment. You could even go to a bank, perhaps a new fintech bank, and put up your ownership of the apartment building as collateral for a loan while keeping your ownership and its returns.
Perhaps most importantly, you would have the flexibility to buy and sell it as easily as sending a message on your phone. Although it will take years before this kind of thing becomes accessible and easy to do for the average person, it is what is certainly possible to do now.
The technology opens many possibilities for different forms of fundraising. Rather than having to get a traditional loan from a bank, a local small business could seek funding from its customers in order to expand.
Perhaps it’s a coffee shop, or a grocery store or any other business you interact with every day, know and understand — the key aspect being that rather than being locked in for a certain time period, any loan or investment you make in that small business is transferable. You would be able to buy it from or sell it to other Bermudians at any time.
On a local scale, this unlocks a lot of opportunities to transform the access that average Bermudians have to investments that are traditionally available only to the rich. It also has the potential to open new sources of fundraising for business owners.
It unlocks similar opportunities globally as well. It allows people to collaborate and invest in their interests: in the things they know and understand. It may be that you want to support a special artist or movie producer. Perhaps it’s a company building a solution to a problem you face. Perhaps it’s companies looking to invest in green-energy projects in developing countries. The potential is seemingly endless.
Bermuda has an opportunity to establish itself as a key player in this space. The combination of a flexible and reactive regulator with our strong reputation has the potential to attract the innovators who want to drive progress in this space. Bermuda has an opportunity to act as a free port for global investment that has the potential to create jobs and boost our economy.
This has the potential to unlock the long tail of global investment to make it possible for people in developing countries to have access to the kind of opportunities that those in developed nations have. It also enables people to invest in and support their global tribes and to benefit from investing in things within their circle of confidence.
There is a lot of potential for Bermuda if we are willing to work together to pursue this opportunity carefully and move faster than our competitors.
• Denis Pitcher is a Bermudian tech entrepreneur with an interest in exploring the potential of blockchain and distributed ledger technologies for Bermuda. He is a fintech consultant to the Bermuda Government’s fintech Business Unit as well as a tech cofounder and chief architect of resQwest.com, a global tourism technology solutions provider. He can be reached at firstname.lastname@example.org