Over the last several years, peer-to-peer payment apps like Venmo and Zelle have made it exponentially easier to transfer money among friends and family. While paying for your share of dinner or the gas bill once required visiting an ATM to get cash or writing a check that took days to clear, it’s now simple to settle tabs instantly with a few taps of a screen.
That seamless peer-to-peer exchange of funds reflects a growing desire among consumers to transact anywhere, anytime and with anyone they choose – all while feeling confident their money is secure. As the peer-to-peer model reshapes how we pay for things, a similar shift is happening across other financial sectors, including the private and non-listed securities market. Much like peer-to-peer payments have made it much more efficient to exchange cash, digitally formatted securities are dramatically changing how investors access alternative assets and manage their portfolios.
Streamlining a Decades-Old System
Interest in peer-to-peer financial services has risen sharply in recent years, with an estimated 82.5 million people using peer-to-peer mobile payments in 2018, up from 64.4 million in 2017. The trend spans across the generations, with 75% of millennials, 69% of Generation X and 51% of baby boomers saying they’ve used peer-to-peer payments. With total payments volume expected to reach $300 billion by 2021, peer-to-peer payments have gone far beyond sending pizza money to a friend to include transactions across our personal and professional lives.
As consumers increasingly expect that level of convenience in all their transactions, few areas are as ripe for change as alternative investments management. Investors in private securities have traditionally needed to either have a personal connection to the deal or have it presented by their registered investment advisor or broker-dealer, drastically limiting access, incurring fees and adding time to the process. There’s also never been a robust secondary market for private equity, venture capital and other private securities. That means investors haven’t been able to exchange alternative assets with other investors directly, requiring them to work through the broker-dealer network and often take a big discount on an asset when selling.
Now, digitization is enabling a true secondary market for alternative assets. As a digital representation of an asset like real estate, venture capital or even direct equity, digital securities are a more efficient, easily exchangeable version of these investments. Much like payments technology has made it simple to transfer cash efficiently and securely, platforms like Openfinance are enabling simple, secure peer-to-peer trading of private securities with other investors around the globe. For investors, that means:
- Connecting with a broad peer-to-peer network. Secondary trading platforms are creating a real marketplace for private and non-listed securities, connecting accredited, non-accredited and global investors. While investors need to meet the qualifications for each digital security, these platforms offer an efficient way to transact with other investors directly 24/7.
- More opportunities to diversify. With access to a variety of assets on one platform and smaller offering sizes, investors can diversify and continue to refine their portfolios as new opportunities arise. Some trading platforms, Openfinance included, are streamlining transactions further by enabling a one-time qualification process, eliminating the need for redundant investor checks with each investment.
- Lower fees. Along with convenience, digital securities are helping to lower the costs of buying and selling alternative assets by eliminating many of the antiquated processes that have long existed. Similar to the move in public equities from paper to electronic, Openfinance’s technology brings significant efficiencies, allowing investors to trade directly on the platform more cost-effectively.
- Built-in compliance. Not only are secondary trading platforms compliant with Securities and Exchange Commission regulations, they’re built on technology that enforces these regulations seamlessly. Investors only receive access to assets they’re qualified to own, ensuring they’re always in compliance with the law.
For issuers, the rise of secondary trading platforms for alternative assets offers advantages as well. Digitization can lower administration costs and drive higher investor satisfaction, while also enabling additional liquidity. This translates to more capital to deploy to the core business and a greater likelihood of repeat investors. As peer-to-peer models evolve across the financial services marketplace, peer-to-peer investing for private securities is poised for significant growth.