This byline article by our advisors Robin Matzke and Florian Glatz was originally published on NASDAQ.
According to a 2016 survey carried out by the World Savings and Retail Banking Institute (WSRBI) and its sister organization, the European Savings and Retail Banking Group (ESRBG), more than 37 million adult EU citizens still lack access to formal financial services, which significantly impacts their ability to build wealth and improve their financial situation and that of their families.
Globally, the World Bank estimates that 2 billion adults of working age do not use formal financial services. When it comes to sustainable wealth creation on a global level, financial inclusion is key. One development with the potential to drive widespread financial inclusion and which has mass appeal is asset tokenization.
Companies like FND Group are particularly focused on enabling issuers and investors to access the future of asset management with tokenized real estate quickly establishing itself as a prime example of how this technology can be implemented.
Firstly, once an investment is approved for retail investors, issuers have the ability to reach a global investor base that was previously inaccessible. Cryptocurrencies make it possible to invest at almost no cost from all over the world. Although it can be time-consuming, going the extra mile to secure full approval is more attractive to issuers and thus will lead to more products available for such investors and, ultimately, a higher return for the investment group.
Secondly, leveraging blockchain technology can contribute to significantly reduced costs on almost every aspect of the investment. For example, automating investor management by integrating a smart contract to conduct bookkeeping in real time dramatically reduces costs for the asset manager. Lower costs then lead to higher dividends.
Reduced management costs have another advantage: they make micro investments feasible. This lowers barriers to investment and facilitates the implementation of saving plans. It doesn’t matter anymore if investors invest $50 USD or $1 million. In fact, generally speaking, investors will accumulate wealth better if they make small monthly commitments.
In addition to the above, an added benefit of asset tokenization for smaller investors is that the investment is not necessarily locked in for the term of the fund, meaning that, should they require it, retail investors can access liquidity. At this point, it doesn’t matter whether the issuer buys back the securities or if another buyer acquires them on a secondary market.
Another remarkable thing about tokenization is that all of these investing options are open to people all over the globe without any requirement for them to be part of the current banking system. Investors can effectively manage their funds themselves, independent of banks or similar legacy financial institutions.
Relatively inexperienced investors can be confident in the transparency provided by blockchain technology and the supervision by the financial market authority. This increases trust in the investment and diminishes the likelihood of them falling victim to potential investment scams which can sometimes affect those without the requisite knowledge to be on the lookout for them. Blockchain also makes it easy to track how many tokenized securities have been issued and what individual investors’ shares are. Any form of misbehavior will be sanctioned immediately.
Finally, investors can evade any risks that may be associated with their own national currency. For example, in countries with a high rate of inflation, savers can opt to move their assets into tokenized securities that are denominated in a different currency (like USD or EURO) and safeguard their investments against financial volatility in the process.
The advent of tokenization offers a multitude of ways to boost financial inclusion and make sustainable wealth creation accessible and feasible. This opens up new opportunities for fund managers, software providers and distributors of securities.