Since 2008’s global financial crisis, activists, planners and elected officials alike have voiced a call to democratize finance. Yet despite an abundance of monetary transfer services and fintech solutions available today, wealth inequality remains entrenched while intermediation remains costly.
Crowdfunding provides one possible solution, enabling small investors to participate in online lending transactions through platform mediation. But for true democracy of finance to flourish, access must not only be equal.
Crowdfunding is a method for individuals and businesses alike to finance projects and businesses they support, making it a popular alternative to more traditional sources such as venture capital. While crowdfunding may offer startups the financing needed, it also comes with risks, including losing your principal investment; regulations also limit how much can be raised through crowdfunded campaigns.
There are various forms of crowdfunding, from donation-based platforms to equity crowdfunding – which enables businesses to raise capital online by selling ownership stakes – in exchange for investments, entrepreneurs offer rewards such as future products or services as an exchange.
Equity-based crowdfunding can be an excellent way to unlock additional sources of finance for innovative companies, but many investors tend to favor investing in companies local to them, leading to “home bias.” This makes it harder for clean tech and sustainability-related start-ups to secure investment.
P2P lending connects borrowers and investors through an online platform, where these platforms charge fees to match them together. P2P lending offers an alternative to traditional banking that may help borrowers who have trouble securing loans from banks or credit unions, though it is essential that you research each platform thoroughly before making an investment decision. Before making such decisions it is advisable to seek professional advice.
P2p lending has seen rapid expansion, and established financial institutions such as Goldman Sachs and Societe Generale are investing in this space. Goldman Sachs may back Aztec, an online marketplace for people to bid on corporate invoices through peer-to-peer lending platforms like Aztec.
These innovations not only reduce loan costs but also provide opportunities to democratize finance and expand access to credit for poor households and small businesses in many countries. Accessing affordable financing remains an obstacle to economic development; traditional financial products often prove too complex or expensive for less privileged individuals to understand.
Fintech is revolutionizing the financial world. It removes entry barriers that have previously made financial services inaccessible for many. Where once traditional institutions required minimum account balances and credit scores to gain access, fintech companies now provide access to finance no matter the status of one’s finances.
These innovations make it easier than ever for consumers to save, invest, and borrow money – not to mention create wealth! More importantly though, they enable more people to participate in the economy and contribute their wealth creation capabilities towards building a strong and secure global economic framework.
While technological developments are transforming the financial industry, it’s essential to remember that success requires more than technology alone. Successful fintechs are those with an understanding of their value proposition and know how best to deliver it, in addition to having created and managed an effective ecosystem of partners and suppliers which enable faster innovation while offering greater customer value.
Crowdfunding and peer-to-peer lending platforms are revolutionizing finance in many ways, yet that does not automatically translate to greater democracy in finance. Some equity crowdfunding platforms act as broker-dealers by only accepting accredited investors whose decisions may not be transparent to the general public and can impede attempts to diversify and derisk investments.
Some crowdfunding entities attempt to address this challenge by creating deliberative minipublics – smaller groups composed of citizens selected via random selection or stratified sampling who discuss and decide upon funding issues – with which citizens participate in making funding decisions. But this solution might only lead to an impoverished democracy of access and little else, since people would be incentivized to invest their funds in private goods which provide greater returns over public goods. An effective plan for democratizing finance would require moving beyond replicating or worsening the status quo, where finance capital is controlled by titans. Instead, an innovative way of doing so should include lessening financial firms’ dominance and creating an avenue for collective democratic control of investment functions.