Year: 2021

In the summer of 2020, while stock markets were recovering from a pandemic-driven slump, an old asset made its comeback with a roar. In August, the price of gold surpassed the threshold of $2,000 an ounce for the first time in history. Few people who had been following the market were shocked at the news. “If you asked me at the end of 2019, I would have been bearish on gold. But given COVID-19 and the fiscal stimulus put in place, this didn’t come as a surprise,” said Bernard Dahdah, senior commodities analyst at Natixis investment bank.

A bumper year
Unlike many financial products, the precious metal had a fine year. By the end of 2020, its price had increased by 25 percent, outperforming other major asset classes. Its ascent was temporarily halted by a drop in March, coinciding with the economic shock brought by lockdowns, but this was followed by a rally that led to the record-breaking peak. In autumn, its dollar-denominated price hovered between $1,800 and $1,900.

Gold is the world’s oldest safe asset, always thriving in times of uncertainty

Nobody doubts that the gold rush is a side effect of an unprecedented healthcare crisis, forcing governments to throw the financial manual away. Gold is the world’s oldest safe asset, always thriving in times of uncertainty. Historically, investors have reverted to it as a hedge against political and economic tumult, with its price jumping during wars, contested elections and economic crises. During the Great Recession, gold’s price trebled from early 2007 to 2011. The same scenario is now repeating itself.

Government responses to the pandemic played a major part. In the US, loose monetary policy, accompanied by unprecedented fiscal stimulus to blunt the economic consequences of lockdowns, weakened the dollar to its lowest levels against the euro over the last two years, increasing the price of the dollar-denominated precious metal. Arkadiusz Sieron´, an analyst at Sunshine Profits, a precious metals investment company, said: “Gold reacted in a very bullish way not to the pandemic – its price declined initially in tandem with other assets – but to monetary and fiscal responses to the coronavirus.” Investors were left with few options other than traditional safe assets; unlike the credit crunch of 2008, a flight to emerging markets was less appealing. Government bond yields in the US and Europe were also lacklustre, with the former entering negative territory in March 2020.

Gold goes into first place
In the long term, what makes gold shine so bright in the eyes of investors is what has become a semi-permanent feature of the global economy: low interest rates, occasionally falling below zero. “If rates are high, you lose money by holding gold because of storage and insurance costs. But right now with yields being negative, gold is cheaper than holding US treasuries,” Dahdah said. Normally, the precious metal is also disadvantaged against other assets due to lack of earnings such as interest payments. However, in an era of dwindling returns, it has emerged supreme. In financial markets, the pandemic kick-started a chain reaction, according to David Govett, veteran trader and head of Govett Precious Metals, a consultancy: “This was the trigger, which in turn created a sort of reverse snowball effect. The higher it went, the more it attracted ETF, investment fund and speculative money.”

Even before the pandemic, many analysts were predicting that gold prices would rise, as clouds were gathering over the global economy. In 2019, the global debt to GDP ratio surged to a staggering 322 percent according to the Institute of International Finance, with many developed economies on the brink of recession. Leveraged loans held by financial institutions and ‘zombie’ companies had reached stratospheric levels, pointing to devaluation of the dollar.

Quantitative easing, aggressive government bond issuance and loose monetary policy were all depleting the value of fiat currency – a boon for gold holders. Jan Nieuwenhuijs, a precious metals analyst and editor of the influential blog The Gold Observer, said: “Given the state of the global financial system I would have thought that gold’s price would be higher a few years ago from where it trades today. Due to monetary expansion in recent decades and the Ponzi scheme created by financial asset price inflation, gold is still undervalued relative to other financial assets.” Geopolitical tension has played a role too, according to Professor Arvind Sahay, Chairman of the India Gold Policy Centre at the Indian Institute of Management Ahmedabad: “Growing tension between China and US contributed to the increase in the price of gold.”

The party isn’t over yet
In the short term, analysts expect gold prices to stay at the highest levels seen in the last 50 years (see Fig 1). The Bank of America forecasts gold to surpass $3,000 in 2021, while some analysts see an upper limit of $10,000 if central banks keep devaluating currencies. As long as interest rates are suppressed, gold will remain king, Nieuwenhuijs said: “Major central banks will hold interest rates at or below zero, while trying to boost consumer price inflation above two percent to lower the debt burden. Deeply negative real interest rates will boost gold demand and drive the price higher. Gold’s price can get an extra boost if financial bubbles pop.” Even when the worst of the pandemic is over, few analysts expect interest rates to rise. Dahdah said: “The Fed and the ECB will not raise rates the moment we have a vaccine. Even if everyone gets vaccinated in 2021, some businesses have been so badly hit that we will need to have low rates for two to three years.”

However, other investors expect prices to drop sharply after a sense of normality is restored. Vaccines will be the game-changer that will redirect focus to other financial assets. In the follow-up to the financial crisis, gold prices collapsed from $1,920 in 2011 to nearly $1,200 in 2013, partly due to a temporary increase in interest rates. Govett said: “I am not sure that the pandemic will ever be over completely, but certainly with an effective vaccine developed, I would expect a definite reaction on the downside in gold.” A big question mark hovering over the market is the shape of US fiscal and monetary policy. The forthcoming Biden administration is expected to unleash aggressive fiscal stimulus, while the Fed has hinted at keeping interest rates low until the US reaches full employment and inflation hits two percent. This would be a boon for gold prices, said Sieron´: “The bull market should last as long as the US monetary policy remains ultra dovish, or as long as investors expect it to be.”

Asia on hold
Skyrocketing gold prices have hit the market where the precious metal’s shine is appreciated the most: Asia. Historically, more than half of global gold purchases come from China and India, with countries such as Thailand, Indonesia and Turkey also being top markets.

Data held by the World Gold Council (WGC), the market development organisation for the gold industry, shows that around three out of four Chinese have bought gold in the past or are considering doing so in the future, while more than half of Indian investors own some form of the metal.

However, demand has sharply fallen this year. Global demand fell to its lowest levels since 2009 in the third quarter of 2020 according to WGC data, partly driven by dwindling demand in Asia. The pandemic has forced traditional buyers to postpone purchases and investors to ditch holdings, while lockdowns have hit the jewellery market. China and India have seen a drop in demand by 25 percent and 48 percent respectively in the first three quarters of 2020.

In 2013, falling prices prompted a surge of demand in China that has left its mark on the market, according to Roland Wang, Head of WGC’s China branch: “The gold rush exhausted demand for the following years, especially after the price fell from the peak. China’s economic growth slowed and China entered the ‘New Normal’ phase.” Another reason for dropping demand, according to Wang, is changes in consumer tastes, with younger consumers preferring lighter-weighted 24k hard gold products with trendy designs. “While they provided attractive margins to jewellers as they are per-piece priced, their popularity contributed to a reduction in total weights,” he said.

Government initiatives
The picture is similar in India, where gold is a highly valued status symbol offered at weddings and other festivities. Most of them have been postponed amid an economic crisis that cost around a tenth of Indian workers their jobs, while 45 percent of households saw their income drop. Over the last five years, annual demand has been falling by close to 20 percent compared to the first half of the decade, largely due to high prices and government initiatives to monetise gold.

The precious metal has become a political tool used to defy the dollar’s dominance as a reserve currency

However, the country is still the world’s biggest gold stock owner, with 25,000 tonnes, or 13 percent of global stock, owned by households and temples, according to UBS. “It is a highly unlikely scenario that Indians will fall out of love with gold. Millennials may be less interested in jewellery, preferring instead to hold it as an investment. But jewellers are working hard to keep them interested by selling them gold jewellery of a lower price range, so that they get into the habit of buying gold,” said Sahay.

Experts expect demand to rise again when the pandemic is over. In autumn 2020, many jewellery chains were reporting sales getting back to pre-pandemic levels, while a good monsoon season is expected to boost demand in rural India. Growing demand in Asia will stabilise the world market, Dahdah said: “In 2021 we will probably see a return to more normal levels of gold purchases from China and India, which might put a floor under gold prices.”

Central banks hoarding gold
Central banks have played a major role in the resurgence of the precious metal. Following the demise of the gold-backed Bretton Woods system in 1971, central banks fell out of love with gold, dumping their reserves in the last quarter of the 20th century. The UK famously sold half of its reserves between 1999 and 2002 when prices were hovering between $250 and $270. The policy cost British taxpayers an estimated almost £7bn, and earned Gordon Brown, then Chancellor of the Exchequer, the unwanted accolade of being responsible for the notorious ‘Brown Bottom’ sell-out. When gold’s price dropped to an all-time low in 1999 and its role as a reserve asset was threatened, central banks reached the Central Bank Gold Agreement (CBGA) to limit sales.

One reason why the world’s oldest store of value is making a comeback is its scarcity amid a boom of financial products

The tables turned after the financial crisis when central banks returned to the market with a vengeance. Since 2011 they have been buying gold aggressively to beef up their reserves. In 2018, central banks bought 651 tonnes of gold worth nearly $30bn according to World Gold Council data, a half-century record, while European central banks ditched the CBGA agreement in 2019 (see Fig 2). “The bear market that started a few years after the Great Recession lowered gold prices, making gold an attractive addition to central banks’ portfolio,” Sieron´ said.

The precious metal has become a political tool used to defy the dollar’s dominance as a reserve currency. Russia and China have increased their gold reserves three and six times respectively since 2007, while Turkey has boosted its own reserves by 500 percent since 2017 in an attempt to support its plunging currency. For emerging economies, the geopolitical angle is important, Dahdah said: “Since the financial crisis they realised that gold is a great hedge to diversify away from the dollar whenever there is uncertainty about the US economy. For political reasons we saw China and Russia selling dollar holdings and buying gold.”

However, many analysts expect the trend to subside due to a combination of high prices and the need for liquidity that can facilitate imports of dollar-denominated goods. Dahdah said: “Because of COVID-19, you won’t see them buying gold. They have other fires to fight. It would be a luxury and it’s expensive.” October 2020 was the first month during the last decade that central banks were net sellers, although sales were driven from two countries, Uzbekistan and Turkey. “Sales by Turkey, Uzbekistan, Tajikistan, Philippines, Mongolia and Russia in the last quarter of 2020 only reinforce its liquidity feature at a time of stress for these countries,” said Sudheesh Nambiath, Head of the India Gold Policy Centre.

Growing market for gold ETFs
One class of assets that has benefited from skyrocketing gold prices is gold exchange-traded funds (ETFs), which invest in the precious metal as their principal holding. Although a smallish market, they are seen as an oasis of serenity in the midst of a storm. They surpassed the threshold of 1,000 tonnes of new demand in 2020, while global holdings of gold ETFs hit a record of 3,880 tonnes in the third quarter of the year.

Gold ETFs are a relatively new financial instrument, with the first one appearing in India in 2007. On the back of growing investor interest, they now make up around a third of global gold demand. SPDR Gold Shares, one of the top holders of gold, briefly became the largest ETF in the world a decade ago. In India, their appeal is linked to their legal status, Nambiath said: “ETFs and sovereign gold bonds are the only two investment products that are regulated. This gives a lot more comfort to private investors.”

The picture is similar in China, which as a major gold producer favours the launch of gold-backed funds. Rising gold prices gave a new lease of life to the market; more than half of the gold ETFs listed in China were issued in 2020. Roland Wang from World Gold Council said: “Gold ETFs in China are backed at least 90 percent by physical gold at the Shanghai Gold Exchange, and investors in China view them as a form of physical gold investment.” Geopolitical pressures have played a role too: “Having witnessed volatile stock markets, rising tensions between China and the US, the trade war and the pandemic’s impact on the economy, Chinese investors are increasing their allocation of gold through convenient gold ETFs.” Payment services such as Alipay and WeChat also make them accessible to many retail investors, allowing them to buy fractional amounts worth as low as one yuan, according to Wang: “You can convert your gold ETF shares into physical bars, coins and jewellery easily, just one tap away from your phone on Alipay or other online platforms.”

In the developed world, gold ETFs are becoming the go-to option for many investors, Nieuwenhuijs said: “A lot of the money poured into gold ETFs in 2020 was institutional money that normally traded on the COMEX (gold futures). However, due to the dislocation in the gold market since March 2020, rolling long futures positions became very expensive and some funds moved their positions to ETFs.”

North America and Europe-listed ETFs accounted for 90 percent of global inflows in the third quarter of 2020, driven by low interest rates and uncertainty over government responses to COVID-19. “Usually gold bull markets are driven by demand in the west, and ETFs are one vehicle Western investors use to invest in gold,” said Nieuwenhuijs.

Some analysts question the prospects of the market, notably issuers’ ability to back claims with physical gold. Unlike bars and coins, ETFs come with counterparty risk and are linked with the financial system through ‘custodian’ banks that source and store gold for them. Though growing, it’s a market doomed to remain small, Govett said: “ETFs on the whole are used by investors who find holding physical gold either too expensive or too complicated. These ETFs need to be backed by physical and gold is a much, much smaller market than any other major investment tool, so it doesn’t take a lot to move the underlying price higher.”

A new golden era
One reason why the world’s oldest store of value is making a comeback is its scarcity amid a boom of financial products. Currently, it represents less than 0.5 percent of global financial assets, down from three percent 40 years ago, while its share of international reserves has fallen to 13 percent from close to 50 percent 20 years ago. It may become even scarcer amid worries over the carbon footprint of the gold-mining industry.

For some analysts, gold’s second coming is raising questions over the post-COVID-19 future of the global economy. In an era of low inflation, aggressive money printing and negative real interests, fiat money is losing its appeal, whereas governments cannot print gold. Many interpret central banks’ gold-buying spree as a sign of diminishing trust in legal tender. Increasing geopolitical tension may also boost its importance.

There have been rumours of China launching a gold-backed cryptocurrency, while Germany has been repatriating its gold reserves from the US, possibly as a response to souring relations with several US administrations. In a volatile financial system where gold remains one of the few stable assets, the precious metal may serve once again as an idiosyncratic kingmaker, according to Nieuwenhuijs: “As they say, whoever has the gold makes the rules.”

During the pandemic, ordinary people piled into stock markets, many for the first time in their lives. Between January and September, big US retail brokerages E*Trade, TD Ameritrade and Charles Schwab saw the total number of average daily trades increase by three quarters to six million, according to Sundial Capital Research.

Lockdown boredom is one explanation for this trading surge. Another is the relative lack of sports betting opportunities and the hunt for returns amid record-low interest rates.
As newcomers flooded into trading, they were drawn to one platform in particular. Robinhood, one of the most high-profile trading apps, reported three million new accounts in the first quarter of 2020. Half of these were first-time traders.

Robinhood’s mission is to “democratise finance for all,” according to the Californian start-up’s website. Many studies show us that one of the best ways for an ordinary person to accrue wealth is to invest for the long term. Historically, however, the young and the less affluent have been excluded from the world of investing due to a lack of capital, lack of accessibility and poor financial education.

Online platforms have changed this. “They’ve democratised finance, taking away power from typical city-slickers and giving it to investors instead,” said Andy Bell, chief executive of AJ Bell. “Investing is much more accessible to retail investors when it’s a couple of clicks away online. Previously, opening an account to buy and sell shares would have meant arranging a meeting with a stockbroker and going through reams of paperwork. Now you can be trading within a few minutes.”

It’s this anti-establishment narrative that has helped Robinhood draw in many young people disillusioned with the world of finance in the years after the financial crisis. But this idea isn’t as revolutionary as it sounds; it’s the latest iteration of a trend seen many times throughout history.

A look back in time
Robinhood is far from the first brokerage to attempt to ‘democratise’ investment. After the Second World War, Charles Merrill – the co-founder of brokerage Merrill Lynch – set out to “bring Wall Street to Main Street” by selling stocks and bonds to middle-class investors. Realising that a lack of financial education was one of the main obstacles preventing affluent people from investing, Merrill Lynch published easy-to-read pamphlets on topics like ‘hedging’ and ran a full-page ad in the New York Times entitled, ‘What Everybody Ought to Know About This Stock and Bond Business.’ It also became one of the first Wall Street firms to open branches in smaller cities.

Companies are competing to be the most transparent with their customers and offer better customer service

Despite this and despite the growing affluence of US citizens through the 1940s and early 1950s, relatively few owned stocks. The Brookings Institute produced a report in 1952 that estimated that the number of US adult shareholders was just 6.49 million in 1951 – half the amount recorded in the early 1930s.

The Cold War proved a key turning point in public attitudes towards investing. Between 1954 and 1969, the New York Stock Exchange ran a major advertising campaign called ‘Own Your Own Share of American Business,’ in which it promoted investing as a capitalist defence against the threat of communism. The campaign was highly effective. By 1970, there were 30 million shareholders in the US. This was also driven, in part, by stock splits that made round lots affordable for small investors.

Another key turning point came with the digitisation of investment platforms. Electronic trading systems enabled consumers to bypass the trading floor, making it more affordable for them to invest.

“Access to trading has gotten easier and cheaper. You can open an account at a discount brokerage with just a few clicks,” said Andreas Park, Associate Professor of Finance at the University of Toronto. Even before lockdown drove novices into the world of trading, investment platforms were growing. Around the world, more than 100 million people trade and invest online.

But the secret to Robinhood’s success isn’t just a user-friendly online platform. The start-up is famous for removing some of the main financial barriers to trading. For example, in 2019 it launched fractional share trading, enabling traders to invest in stocks and ETFs with as little as $1, regardless of the price tag of the shares. “The chance to buy fractional shares makes trading easy and accessible for anyone,” said Inga Timmerman, Professor of Finance at California State University, Northbridge.

Acquiring new customers
But Robinhood’s most significant customer acquisition strategy came earlier on, when it pioneered the zero-commission model. The elimination of fees for stocks is a core factor in allowing the newcomer to acquire over 13 million users in just seven years.

When the effectiveness of this strategy became clear, major brokerages followed suit. In 2017, Charles Schwab slashed its basic fee for trading US stocks and exchange traded funds to $4.95. Two years later, it cut commissions altogether, along with E*Trade, TD Ameritrade and many other major brokerages.

A high tolerance for risk can be dangerous. In falling markets, people can get wiped out

“We are seeing new firms trying to enter our market, using zero or low equity commissions as a lever,” Peter Crawford, Schwab’s chief financial officer, told the Financial Times. “We don’t want to fall into the trap that a myriad of other firms in a variety of industries have fallen into, and wait too long to respond to new entrants.” But investors weren’t too pleased with the brokerages’ decision. E*Trade generated about 17 percent of its revenue from commission; for TD Ameritrade, the figure was 28 percent. Because of this, the share prices of both brokerages plummeted in the aftermath of their announcements.

In a matter of years, Robinhood had turned the business model of investment firms upside down. As Bell points out, this price war has in many ways benefited consumers. “Not only has competition from online platforms driven down the fees,” he said, “but companies are competing to be the most transparent with their customers and offer better customer service.”

The real winners
But by far the biggest winners in this scenario are market makers. In lieu of commissions, brokerages rely on payment for order flow (PFOF) in order to make a profit. Market makers like Citadel Securities will pay brokerages millions for this order flow. These firms then pocket the difference between the price to buy and sell, known as the spread.

Market makers are now cashing in on the boom in retail investing. High trading volumes – driven by market volatility and the influx of new investors – have increased the raw materials market makers need to make a profit, while also forcing spreads wider. Citadel Securities doesn’t share financial data publicly, but experts predict that its earnings have leapt.

Arguably, its success on the back of Robinhood would seem to undermine the platform’s mission to ‘democratise investment.’ Critics of PFOF argue that it just makes wealthy executives wealthier. After all, Citadel Securities is run by the richest man in Illinois.

The practice has come under scrutiny by regulators around the world, who worry that it could create an incentive for brokerages to send orders to whoever pays the most instead of looking for the best outcome for the consumer. Canada has banned the practice outright. Robinhood itself was fined $1.25m by the Financial Industry Regulatory Body in 2019 for ‘best execution’ violations.

Market makers defend themselves by claiming they offer a better price than the market does, on average. However, the profit they’re generating off the back of Robinhood calls into question who the start-up’s real customers are, and whether the firm is really motivated to do the best by its users, as it claims.

Novice investors
As Timmerman points out, the economic instability caused by the pandemic makes this a prime time to invest. “When volatility is high, like it has been for the last year, we realise that we have an opportunity to make money by trading,” she said. “Additionally, an event like the pandemic creates an opening for more stock picking as we can decide which industries will do well and which will not.”

Many of these new investors are millennials. Wealthsimple, another online investment platform, says that over half of its new customers are under 34. Worryingly, there is evidence that some of these new young investors may be taking riskier investment decisions than those who’ve been in the game longer. According to a 2018 survey by CFA Institute, less than half of millennials with taxable investment accounts are “extremely or very confident” in their investment decision-making abilities.

Many regulators still think there should be more protections for investors in ETFs made up of riskier assets

And the pandemic may have inflated this confidence. According to data by E*Trade, more than half of investors under 34 said their risk tolerance increased during the pandemic, whereas only 28 percent of the general population said the same.

A high tolerance for risk can be extremely dangerous though. “In falling markets, people can get wiped out,” said Park, “in particular if they used financial products that they don’t understand, such as margin accounts, short positions, or futures and options. They’re not for everyone, and things can go badly wrong.”

Some of these traders may be better off passive investing, Park argues. He refers to a 2000 paper by Brad Barber and Terrance Odean, published in the Journal of Finance, entitled ‘Trading is hazardous to your wealth.’

“The authors found that market returns exceed the returns of those who trade the most by 50 percent,” he said. “So, while those folks made money, they would have been better off buying an index fund.”

A dangerous game
It’s worth remembering that millennials still hold only a tiny percentage of global wealth. In the US, they own just seven percent of total assets, compared to the 26 percent owned by baby boomers when they were around the same age. Without the benefits of low housing prices and the more competitive salaries that their parents enjoyed, investing could be a good way for millennials to close this gap – if only marginally.

In some countries, governments are actively encouraging people to participate in long-term investing. France’s state-backed investment bank BPI has launched an innovative fund to provide access for retail investors to private equity strategies, for instance.

Park points out that the argument that young traders don’t know what they’re doing is an oversimplification. “If experience would matter, then trading desks at banks would be stacked with 50-somethings, right? Where are they?” he said. “A colleague of mine ran trading cases in which he let professional traders operate in an environment where the price was determined by a computer that was programmed to run a random walk, so the price movements were unpredictable.

The professional traders insisted that they could tell when the market would move up or down. Of course, they could not. What matters is knowledge and understanding and really that often boils down to staying away and knowing that it’s pretty hard to beat the market.”

It’s this knowledge and understanding that novice investors sometimes lack. And platforms like Robinhood aren’t doing enough to improve this. In fact, by gamifying trading, these platforms are potentially hooking young people on high-risk financial products. In some ways Robinhood’s interface more closely resembles a social media app than an investing platform. There are bursts of confetti when a transaction is made. Users can tap up to 1,000 times a day to try and rise up the waiting list for Robinhood’s cash management feature. These in-app rewards can lead traders to return to it again and again, encouraging excessive trading.

Real-world consequences
Already this has had grave consequences. In June 2020, a 20-year-old student, Alexander Kearns, killed himself after mistakenly believing he had lost $730,000 through Robinhood’s app. The misunderstanding came down to a user interface issue; during options trading, the cash and buying power will sometimes display as negative until the other side of the trade is processed.

Robinhood responded to the tragedy by saying it would change the way buying power was displayed on the app, as well as adding in additional features to help users better understand how options trades work. “These changes will take a bit of time to roll out, but our teams are hard at work,” the Robinhood co-founders said in the blog post. But Kearns’ death brought to light the perils of trading in a vacuum, with only an app to consult for advice. Many are now calling for these start-ups to be more closely scrutinised by regulators.

It’s not just traders who can suffer as a result of impulsive investment decisions. There are also real-world consequences to these actions. Market speculation can fuel dangerous levels of volatility. Last year analysts attributed the market rally that took US benchmarks from corrections territory in March to an all-time high in August to risk-taking millennials and a bullish options market.

Speculation also led to a massive plunge in the West Texas Intermediate (WTI), the US benchmark for oil, in April. At the start of the pandemic, United States Oil Fund (USO), a hugely popular exchange traded fund (ETF) that deals in oil futures, absorbed $5bn from investors. This drove USO to purchase more futures until it accounted for about a quarter of all May and June contracts for WTI. Its outsized position gave it an outsized influence on oil prices, which plunged into the negative. Commodity prices can have a huge impact on the global economy. Nowhere is this truer than in the oil market.

Sharp oil price changes have knock-on effects through the economy, affecting everything from employment to trade balance to inflation. According to Robinhood, USO was the most purchased stock by the broker’s 10 million users on April 21. The size of the fund more than doubled that month. But many of these investors had made a mistake.

Losses in excess of equity
They thought the fund was a proxy for the price of oil and rushed to buy the fund as its value plummeted by 37 percent in the first three weeks of April, convinced they would cash in when prices recovered. They didn’t realise they were not trading in oil prices, but the futures market. Many traders made huge losses as a result. Interactive Brokers Group said it was taking an $88m hit after customers incurred “losses in excess of the equity in their accounts.”

The trend towards retail investors speculating in complex markets is cause for concern. Investment products linked to commodities futures are considered by regulators to be particularly risky. So, while democratisation of investment might sound good in theory, uninformed retail investors pouring into this market may not be so positive in practice. In 2019, the Securities and Exchange Commission (SEC) proposed that retail investors should only be allowed to buy and sell leveraged ETFs if their broker or investment adviser had first carried out checks to ensure that their clients properly understood the risks. But the proposed sale restrictions sparked disagreements among top US regulators and have since been dropped. Many regulators still think there should be more protections for investors in ETFs made up of riskier assets.

After the pandemic
Thanks to online trading platforms, more and more ordinary people are investing in stocks and ETFs. The pandemic has only accelerated this. The question now is whether the trend will outlast COVID-19. Timmerman believes it will. “I see it as a long-term pattern primarily due to the accessibility that websites like Robinhood offer retail investors. The volume will most likely go down (as it does when things in the stock market do not go up) but the overall increase in the volume of retail trading is here to stay,” she said.

From one perspective, platforms like Robinhood have helped to democratise investing, as they’ve empowered young and less affluent traders to generate wealth. But they’ve also left these traders exposed. It’s clear from Kearns’ death that the gamification of equity and options trading poses risks to uninformed investors. Although SEC proposed improvements to the retail investor experience in the aftermath of his suicide, these arguably don’t go far enough.

However, there is another real-world benefit to the increased accessibility of trading. In a very short space of time, millennial investors have had a huge impact on Wall Street and the way its firms operate. They’ve driven brokerages to cut commission and upend their business models. They’ve pushed them to invest more heavily in online platforms.

They may also convince these companies to offer more environmentally and socially sustainable investments. According to Morgan Stanley, under-35s are twice as likely to sell a holding if they behave unsustainably. Millennial investors are changing Wall Street. In some ways, it may be for the better.

If 2020 was the year of postponed enjoyment, it was only natural that Black Friday would come a little bit later than usual. In France, where this most un-Gallic institution has recently taken root, the government decided to postpone it by one week, yielding to pressure from small shop owners. As French officials acknowledged, holding Black Friday during the country’s second lockdown would benefit e-commerce powerhouses such as Amazon. Just a few days before the announcement, the US firm had disclosed that its sales had received a significant boost during the lockdown.

Although a one-off measure linked to the pandemic, the French government’s decision reflects a deeper disenchantment with large corporations and their tax practices. Despite its record revenues of €32bn across Europe, the US company received €294m in tax credits in 2019 due to a pre-tax loss of €983m. Another US tech giant, Google, has been forced to pay over $1bn in fines and back taxes to the French state for underpaid tax from 2005 to 2018, lending credence to the belief that large multi-nationals (MNEs) have been playing the system.

A broken system
International corporate taxation has traditionally been considered a topic dull enough to preoccupy accountants and academics. The Great Recession and the rise of populism turned it into a politicised subject, with pressure groups highlighting the links between inequality and the tax policies of large corporations. In the previous decade, the media shed light on the role of tax havens through a series of documents leaks, such as the Panama and Paradise Papers. Tommaso Faccio, an academic who heads the secretariat of the Independent Commission for the Reform of International Corporate Taxation (ICRICT), an advocacy group that includes in its ranks prominent economists such as Thomas Piketty, said: “Tax-related leaks showed that there are different rules for the one percent and the rest of us. Austerity imposed in several European countries exacerbated the feeling of the public that although public services and government revenues were hit, some corporations were getting away with it. That created the political momentum for change.”

The scale of global tax avoidance through obscure accounting methods such as transfer pricing is breathtaking

The scale of global tax avoidance through obscure accounting methods such as transfer pricing is breathtaking. ICRICT estimates that a staggering 40 percent of foreign corporate profits are shifted to tax havens. Losses from profit shifting surpass $500bn annually according to IMF data, with $200bn missing from the coffers of developing countries. The rise of the digital economy has exacerbated the problem. For tax authorities, online companies with little physical presence are elusive foes. The European Commission estimates that the gap between the tax rate facing digital businesses and other sectors stands at 12 percent.

The pandemic is expected to make things worse. Some fear that many corporations may attempt to boost dwindling profits through creative accounting. ICRICT estimates that global tax revenues may fall more steeply than the 11.5 percent drop from 2007 to 2009. The crisis has also revealed the privileges of tech powerhouses, Faccio said: “The pandemic highlighted the fact that there are two economies: the online one, which did very well, and the rest, which suffered the consequences.”

And justice for all
If there is hope for change, it comes from a leafy suburb of Paris. In October 2020 the OECD, a think tank based in the French capital, published the blueprint of its proposals for corporate tax reform, the product of a long negotiation involving 137 countries. The draft has been hailed as a major step towards an overhaul of the system that could increase global tax revenues by more than four percent.

The proposal, which includes two ‘pillars,’ seeks to modernise international corporate taxation. The first pillar recommends an apportionment of global profits, including online sales, to the countries where customers are located. To find a middle ground between the current system, which bases taxation on corporate physical location, and more radical ideas, the OECD proposes a formula that differentiates between routine and residual revenues, with a percentage of the latter being allocated to jurisdictions where revenues are generated. The measure targets consumer facing and digital companies with an annual turnover over €750m, which has prompted fierce resistance from the US.

For its part, the OECD hopes it will end the global race to the bottom, with governments scrambling to lure footloose MNEs with low tax rates. Professor Reuven Avi-Yonah, an expert on tax law teaching at the University of Michigan and one of the originators of the idea, told World Finance: “The customer base is relatively immobile, so this is the best way to address tax competition.” However, many critics believe that such optimism is overblown, pointing to the failures of a similar initiative in the US to end tax competition between states. Farid Toubal, an expert on MNE taxation who teaches at École Normale Supérieure Paris-Saclay and who is a member of an economic advisory body reporting to the French Prime Minister, said: “There is no clear effect on fiscal competition. The US experience is instructive, as apportionment of sales at the state level did not prevent competition among US states to attract investment.”

The root of the issue
Many experts claim that the plan only tinkers with the system, keeping intact controversial tax practices that allow MNEs to combine income from different countries to benefit from low tax rates. “The OECD’s proposal maintains the existing ‘arm’s length principle’ and transfer pricing system for a large share of corporate profits. The problems would also be maintained – including large-scale corporate tax avoidance and international tax competition,” said Tove Ryding, Policy and Advocacy Manager at Eurodad, a network of 50 European NGOs.

The OECD plan suggests that companies will have to comply with minimum tax rates on a country-by-country basis, rather than globally

Many believe that MNEs should be treated as unitary organisations, rejecting the idea that subsidiaries are separate from the main company. Others point to a simpler system that would mandate universal apportionment, instead of focusing on a slice of the revenue of specific MNEs. “You cannot find a meaningful way to determine what is residual and routine revenue. They have opted for this formula because they want to limit the impact of tax reallocation,” Faccio said. Complexity is a major concern. Determining residual and routine revenue involves high administrative costs, including the collection of data by tax authorities and international co-operation to avoid double taxation. “The complexity associated with more sophisticated allocation rules, paired with the need for tax authorities to collect new information, is likely to give more room to multi-nationals to circumvent corporate taxation, especially in low-income countries,” said Toubal, who added: “Simplicity should be the rule. It would help establish a fairer system, since not all administrations have the means to navigate complex rules.”

Another contentious issue is the tax base that will be targeted. Developed countries favour sales-based schemes focusing on consumption, whereas developing countries prefer formulas that highlight labour-intensive activities. A group of 24 developing countries has advocated for apportionment taking payroll into account. No solution is ideal, but a compromise is necessary, according to ICRICT’s Faccio: “The balance you choose between production and sales reflects the values of the negotiator.”

Minimum tax
The second pillar of the blueprint includes a radical proposal: establishing a minimum corporate tax rate for all MNEs, regardless of their location. This would reduce incentives to shift profits to low-tax jurisdictions. Politically, it has also been less problematic, since it targets less powerful, low-tax countries. Although the number of the minimum rate is under negotiation, OECD officials have informally floated a figure close to 12.5 percent as a clincher.

Many worry that this measure will also add complexity to the system, given that the OECD plan suggests that companies will have to comply with minimum tax rates on a country-by-country basis, rather than globally. Conservative pressure groups like the US National Taxpayers Union have highlighted potential clashes between the two pillars that could lead to double taxation, particularly in jurisdictions where worldwide income is taxed, such as the US. “Minimum taxation would reduce certain forms of tax competition, but may give rise to new forms, like competition for headquarters,” said Professor Clemens Fuest, head of the German think tank Ifo Institute for Economic Research.

All eyes on the OECD
The role of the OECD, essentially a rich country club, has also come under scrutiny. Following the financial crisis, G20 countries tasked the organisation with the development of a roadmap to corporate tax reform, a process that led to the proposals published in October 2020. Many argue, however, that the right body to deal with the issue is the United Nations. “There is a question of legitimacy. This is a universal issue and the only forum with universal membership is the UN,” Faccio said.

Corporate tax income represents 15 percent of total tax revenues in Africa and Latin America, compared to nine percent in OECD countries. The Group of 77, a coalition of developing countries, has called for the establishment of an intergovernmental tax body within the UN, but this has been blocked by developed countries. “At the United Nations, the dynamic is different, and we often see broad coalitions of progressive countries become agenda-setters,” said Eurodad’s Ryding, adding that such a measure would increase “the level of ownership of the decisions” and thus reduce unilateral action.

Critics believe that implementation of the proposals could reduce corporate investment, halting post-pandemic economic recovery

Critics also point to the lack of transparency, with non-OECD governments having limited access to the details of the negotiation. Although 137 countries participate in the negotiation, many African countries are not represented. “The OECD says that all countries participate on equal terms, but this is not really the case,” Faccio argued, pointing to numerous African tax authorities that don’t have the resources and negotiating experience of developed countries. For the EU, corporate tax reform poses a difficult conundrum.

While member states are keen to increase tax revenue, any attempt to deal with the issue has run into a problem that lies at the heart of the union’s woes: different tax policies across the EU. The pandemic has complicated things further. Last summer, the European Commission prompted member states to avoid supporting companies linked to overseas tax havens.

However, many believe that the EU needs to deal with its own tax havens first. Countries like the Netherlands, Ireland, Cyprus, Luxembourg and Malta have come under fire for their lax attitude towards MNEs; tax schemes with imaginative titles such as ‘Double Irish’ and ‘Dutch Sandwich’ have become a quintessential part of Brussels lore. The issue came again to the fore during the heated negotiations over the establishment of a recovery fund to support COVID-hit countries. The slow progress of the OECD negotiation casts its shadow over the EU, Eurodad’s Ryding argued: “At one point there was hope that the OECD negotiations could pave the way for an agreement among EU member states, but now that the level of ambition in the negotiations is so low and the negotiations have stalled, that hope is clearly fading.”

Searching for a global agreement
The tax regime of technology companies, which operate across EU member states but pay most taxes in a single jurisdiction, is at the centre of the debate. In 2018, the European Commission proposed a digital services tax of three percent as a temporary solution until a global agreement is reached, only to be blocked by a coalition of countries. A similar plan to force large corporations to disclose paid tax and profits has also been blocked, sparking a debate over the unanimity rule that requires all members to agree for legislation to pass. The head of the Commission, Ursula von der Leyen, has threatened to use a treaty article that allows majority rule under exceptional circumstances. “Unanimity rule has prevented reform in the past. This is why the EU gave a chance to the OECD where countries like Ireland, Luxembourg and Cyprus are less influential,” Faccio said.

Reflecting the will of EU powerhouses like Germany, Italy, Spain and France to see a meaningful reform, the Commission has said that it will wait for the OECD negotiations to conclude in 2021. However, some accuse the Commission of being biased towards heavy taxation. “The agenda of the European Commission’s taxation and customs union directorate shows a great overlap with the agenda of tax activist groups, which are very vocal in the Commission’s recently established platform on tax good governance,” said Matthias Bauer, Senior Economist at the European Centre for International Political Economy (ECIPE), a Brussels-based think tank. The debate is further complicated by the departure of the UK. Many UK overseas territories have been added to an EU tax haven list. European officials fear that after Brexit the UK may opt for a low-tax regime, dubbed ‘Singapore-on-Thames,’ that would undermine the EU.

Blurred lines of the digital economy
The biggest worry, however, is that many countries will act unilaterally. The UK plans to impose a digital services tax in 2021. France also aims to impose a three percent tax on the turnover of technology corporations with earnings over €25m; the country’s tax authorities started approaching US technology companies in December, sparking a call for tariffs on French products on the other side of the Atlantic. Negotiations with the US came to an abrupt halt last summer. In a dramatic letter sent to several EU capitals, the US treasury secretary Steven Mnuchin declared that the US was at an “impasse” and had to focus on dealing with the pandemic.

Critics claim that unilateral digital taxes are counter-productive. “It is difficult to draw a line between the ‘digital economy’ and the rest, because the digital transformation affects almost all sectors,” said Toubal, who noted that tax planning is not limited to digital companies. Others believe that the side effects will be substantial, with consumers and small businesses suffering the most. “They [technology companies] will effectively pay these taxes, but at the same time pass them on to consumers. It is the users of digital services, mainly SMEs and small businesses, which suffer from such taxes, including restaurants, hairdressers and winemakers who pay more for advertising space on Google and Facebook,” Bauer said.

Waiting for Biden
The debate on corporate taxation has strained Europe’s already difficult relationship with the US, although US multi-nationals are estimated to cost the EU nearly €25bn per year in lost tax revenue. Under Trump, the US took a unilateral approach, with every measure against US companies deemed an act of war. When France announced its digital tax, the Trump administration responded in kind, threatening to impose tariffs on French wine.

Will the election of Joe Biden change the US position? Many analysts caution against optimism. “Even under Obama, the US government was only interested in protecting US multi-nationals. That is unlikely to change,” Faccio said. However, the Biden administration is expected to ditch the Trumpian America-First dogma. “Biden will take a multilateral approach, rather than the conflictual approach of Trump who was blowing hot and cold every other week. His administration will make an effort to reach an agreement,” Faccio said.

In the run-up to the election, Biden took a hard stance against big business. His platform included radical proposals such as closing tax loopholes and ending cross crediting. Crucially, he pledged to raise the corporate tax rate to 28 percent and double the minimum tax rates for foreign subsidiaries of US firms to 21 percent. Although tech powerhouses are traditional Democratic donors, Biden will not succumb to any pressure, Avi-Yonah said: “Tech companies do not have much clout in the Biden administration, which is likely to continue the antitrust cases against Google and Facebook.” A different US tax policy will drastically change the international agenda too, according to Faccio: “If the US implements a minimum corporate tax rate of 21 percent, the global negotiation will be different. The US rate is the benchmark, so the OECD will possibly figure out a global minimum tax rate around that number, rather than a low 12.5 percent that would kickstart a race to the bottom.”

A new era
As expected, the pandemic has cast its shadow over the negotiations. Many countries have already approved the OECD blueprint, hoping to reach an agreement by mid-2021 when the worst of the pandemic will hopefully be over. Critics believe that implementation of the proposals could reduce corporate investment, halting post-pandemic economic recovery. A Deloitte survey found that more than half of MNEs expect to be hit by the new tax regime. Although acknowledging the danger, Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said that this is a price worth paying: “The two-pillar proposals would lead to a relatively small increase in the investment costs of MNEs.

The negative effect on global investment would be small, as the proposals would mostly affect highly profitable MNEs whose investment is less sensitive to taxes.” Many believe that the prospect of a radically different post-COVID-19 economy has already shifted the debate. In a recent paper, Toubal and other academics argue that the pandemic has stressed the need for a more robust corporate tax system. “The crisis has revealed that some essential public goods, such as infrastructure and healthcare provision, have been underfunded in many countries, an issue that corporate tax avoidance has likely exacerbated. Some multi-nationals that have been avoiding corporate taxes for years are also receiving financial help from governments, which many find unacceptable,” Toubal said.

What everyone seems keen to avoid is a proliferation of unilateral action. “Under a worst-case scenario, resulting in a trade war, the failure to reach an agreement could reduce global GDP by more than one percent, at a time when we can least afford it,” said the OECD’s Saint-Amans. A compromise will be hard to reach, but the alternative should be more concerning, he added: “In contrast to what some may say, I believe the right question is: ‘What would be the costs if there is no agreement on a global solution?’”

To say that 2020 was a transformative year would be putting it mildly. The ongoing pandemic has prompted profound changes in the way we live, work and socialise, with prolonged social distancing measures meaning that many aspects of our lives have moved online in the past 12 months. Kitchen tables now double up as desk space, meetings have been replaced by Zoom calls and Friday night drinks take place over FaceTime, instead of at the pub. When it comes to how we spend our money, too, the pandemic has pushed us towards the digital realm.

When fears of the virus first began circulating in Europe in February 2020, cash quickly fell out of favour, despite studies indicating that currency doesn’t transmit COVID-19. Shoppers were encouraged to use contactless payments wherever they could, and in the UK alone, ATM usage fell by 71 percent between early March and mid-April. When heading out to the supermarket and other essential shops, we have been ditching the cash and relying on our cards and mobile phones, instead. While in-person spending dropped during 2020, online purchases have surged, with an increased demand for goods leading to supply chain chaos and congested ports the world over.

As for banking and how we manage our money, we have also seen an accelerated shift to online services. According to a study carried out by Mastercard, 62 percent of respondents across 12 European markets said that they would be interested in switching from physical banking to digital platforms, and the company’s recent Global State of Play report also showed that 53 percent of the world’s population are using banking apps more than they were before the pandemic.

So, looking at these trends and evolving behaviours, it could be said that 2020 was the year that fintech really hit the mainstream. With the financial crunch of the pandemic taking its toll on households across the globe, it’s perhaps unsurprising that customers are looking for new ways to better manage their money in this time of crisis. If we are indeed entering a ‘new normal,’ shouldn’t we take a new approach to our finances, too?

Brave new world
The COVID-19 pandemic might have started out as a public health crisis, but it has since snowballed into something much bigger. The global economy has been plunged into a once-in-a-lifetime recession, the recovery from which seems long, slow and precarious.

We launched early quite simply because we thought we could help in light of the economic uncertainty caused by the pandemic

Lockdowns have decimated livelihoods and sent unemployment rates soaring, with those who were already most vulnerable – those from poor, marginalised communities – bearing the brunt of the economic pain. And the bad news is that this is just the beginning. We have been warned that the worst is still yet to come in terms of job losses, squeezed household incomes and depressed wages as the world enters the deepest recession since World War Two.

It was this dire economic outlook that prompted Dame Jayne-Anne Gadhia to launch money-saving app Snoop in April 2020 – two months ahead of schedule. Using open banking to connect to users’ bank accounts, the app then analyses customers’ spending and saving habits, identifying where they might be overpaying on their subscription packages or utility bills, for example, and offering helpful tips on where to pinch some pennies when it comes to daily, weekly and monthly spending.

“We launched early quite simply because we thought we could help in light of the economic uncertainty caused by the pandemic,” Gadhia told World Finance. “That, alongside encouragement from our first beta customers, gave us the belief that we could make a difference, and that there was no time like the present to launch.” Launching remotely in the midst of a pandemic was something of a challenge for the Snoop team, but they felt compelled to get the app out to the public as soon as it was ready – to help users make the most out of their money at what they knew to be a crucial time.

Financial reassessments
Families in the UK – where Snoop is based – are on average £515 worse off per month due to the impact of COVID-19, and the British economy is expected to shrink by 11.3 percent in 2020, with recovery off the cards until at least 2022.

These precarious and uncertain times have prompted many to reassess their spending and attempt to tighten their purse strings – but it can be hard to know where you could be saving money if you don’t know where to look.

The idea behind Snoop is that it will do the hard work for you, finding the very best deals and personalised money-saving tips and putting them right in your pocket. The launch of Snoop marks something of a new chapter in Gadhia’s impressive career in finance. First training as an accountant with Ernst & Young, Ghadia was introduced to business magnate Richard Branson in 1994. Just a few short months after this fateful introduction, she helped Branson to launch Virgin Direct – which later became Virgin Money.

She spearheaded this project for over a decade, steering it through seismic events such as the financial crisis of 2008 and all of its ensuing fallout. While Virgin Money represented a more traditional bank, operating on a traditional platform, it was here that Gadhia first developed an interest in challenger banks and digital alternatives to regular financial services. Indeed, the idea for Snoop had already arisen before Gadhia left Virgin Money in 2018. Drawing on the lessons she had learned in her high-flying career to date, she decided to commit herself to Snoop in January 2019, and a little over a year later, her vision had been brought to life.

Since its launch, the app has already skyrocketed to well over 130,000 downloads, and recently raised £10m from over 1,700 investors in a successful crowdfunding campaign. Already, it would seem, the app is having the impact that its creators intended, with one particular Snoop suggestion helping residents on an estate in the UK to pursue a £75,000 rebate from their water supplier.

And with more money-saving features in the works, Snoop is just getting started on its mission to put power back in the hands of the consumer. “Our focus and core challenge now is all about momentum,” says Gadhia. “We are accelerating the build of the Snoop platform and all of the money-saving features we’d like to deliver for our customers, and helping to make more and more people better off.”

Fresh perspective
As the world around us changes, we need solutions that reflect the opportunities and demands of our ‘new normal.’ Snoop, like many of the other tech companies and start-ups making a name for themselves, has succeeded by taking a fresh approach to a traditional industry. The financial world has long been dominated by a handful of traditional banks, offering a rather unimaginative set of products and services. In recent years, however, a number of forward-thinking fintech start-ups and digital-only challenger banks have started to make significant inroads into the industry, giving customers a faster, more convenient and more personalised way of managing their money.

Looking at these trends and evolving behaviours, it could be said that 2020 was the year that fintech really hit the mainstream

With fintech existing at the intersection of finance and technology – two traditionally male-dominated industries – it is both interesting and encouraging to note that some of the most innovative and exciting companies in the fintech world of today have been founded or co-founded by women. Take Starling Bank, for example, which was founded by Anne Boden in 2014. The company made history in November 2020 by becoming the first digital challenger bank to turn a profit – leapfrogging its rival Monzo on its way to profitability. 2020 also saw Starling scoop the award for ‘Best British Bank’ for the third year in a row, marking a real milestone achievement for female-fronted fintech.

Yet the industry still has some way to go when it comes to gender equality. In the UK, female-founded fintech teams receive just one percent of all venture capital funding, and the situation is not much better in the US, where three percent of VC funding goes to female-led teams. Then there’s also the widely reported boys’ club culture in tech, and the ongoing issue of wage inequality. While there is certainly plenty of work still to be done, the disruptive nature of fintech also offers an opportunity for progress in this area – after all, when rethinking an industry as traditional as finance, surely there’s scope for these innovative companies to reconsider their approach to diversity and inclusion?

A more inclusive future
Snoop co-founder Gadhia has long been a vocal advocate of gender equality in the worlds of business and finance. Speaking on the podcast ‘Can I ask you a personal question?’ in August 2020, she described being labelled a “bloody difficult woman” by “older white men” over the course of her career, telling the show’s hosts that she, at times, felt overly criticised by her peers for taking an untraditional approach, and that this negative response had affected her mental health.

Long before COVID-19, digital banking had been heralded as the future, with traditional banks under pressure to modernise their services

Undeterred by such comments, however, Gadhia continued to push for greater inclusion at every stage of her career. While leading Virgin Money, she strove to increase the number of women in senior management roles, and sought to address the company’s gender pay gap. She was also asked to produce a report for the government, called the Gadhia review, which looked into how financial services companies could achieve a better gender balance, especially when it comes to more senior roles.

On the strength of this report – which advocated for a more inclusive culture, better management strategies and ways of encouraging flexible working – the Treasury then launched the Women in Finance Charter, which asks financial services firms to commit to a course of action to ensure a greater gender balance at top-ranking roles. In 2016, the British government awarded Gadhia the title of Women in Finance Champion in recognition of her work, and a year later, she was made a founding member of its Business Diversity and Inclusion Group. Then, in the 2019 New Year Honours list, she was made a dame for services to women in the financial services.

“What women have faced – in banking and beyond – is a slightly different yardstick to be judged by than traditional bankers,” she continued. “We are expected to behave in a certain way to be accepted. But actually, true diversity and gender equality is not about behaving the same, but being different because of the differences. We have to take that leap forward,” Gadhia said.

It’s no secret that greater diversity is better for business. Studies have shown that gender-diverse companies – particularly those with more women in senior roles – are more productive and more stable during times of crisis. While traditional financial services companies have been slow to prioritise diversity in their recruitment drives, newly established fintechs have an opportunity to shift the narrative and build gender balance into their company culture from the very start.

“I think inclusivity is important for individuals, society and the economy,” Gadhia told World Finance. “And that’s true now more than ever. After all, it’s proven that a balanced workforce, at all levels of an organisation, can drive out performance and lead to enhanced profitability. Diversity of workforce avoids the pitfalls of groupthink, drives creativity and encourages innovation. And we need men and women of all races, beliefs and capabilities to inspire that.”

Shifting the focus
Along with focusing on gender balance within their own companies, fintech firms could also stand to benefit from ensuring that their products appeal to a gender-diverse customer base. According to Oliver Wyman, there is at least $700bn in revenue opportunity available from better serving women as customers.

Often, women are not having their financial needs met by traditional banking firms, and could be better served by fintech alternatives that offer a more personalised approach to money management. Research carried out by the management consultancy firm found that while women control two-thirds of global household spending, they are 25 percent less confident in their own financial acumen, compared with men.

The firm also discovered that women tend to feel more negatively than men do about managing their finances with traditional banks, suggesting that fintech companies have a real opportunity to tap into a dissatisfied customer base and offer innovative solutions that meet the needs of modern women. And that wouldn’t mean taking a completely gender-neutral approach, either, as evidence has shown that even supposedly unbiased strategies can, in fact, lean more towards men’s preferences and requirements when it comes to financial planning and money management.

Instead, fintechs could stand to benefit from gaining an understanding of the specific financial needs of women, and working these into their offerings – while taking care, of course, not to base their approach on outdated gender stereotypes. Already it seems, the more personal approach to money management offered by fintech apps and challenger banks has proved popular with women. A 2019 survey from the US showed that 58 percent of financial app users were women, suggesting that women are more inclined to turn to fintech solutions in order to manage their spending.

It is often darkest just before dawn
What’s more, with women hit hardest by the economic fallout from the COVID-19 pandemic, there has never been a more important time for fintech companies to listen to the financial demands of women. In fact, the International Monetary Fund has warned that 30 years of gains for women’s economic opportunities could be undone by the COVID-19 downturn, with both the short-term and long-term effects of the crisis threatening to exacerbate existing gender inequalities.

A report by the University of Exeter found that women in the UK are almost twice as likely as men to have lost their job during the pandemic, while a study by the Women’s Budget Group showed that around 133,000 more women were furloughed than men during Britain’s first pandemic-enforced lockdown. Women’s wages were also dealt a harsher blow than men’s, in part because they are more likely to be working in sectors hit hardest by the crisis – such as hospitality, leisure and retail.

With the economic outlook looking rather bleak in the months to come, it’s understandable that many people – and perhaps women in particular – may be looking for new ways to make savings and financially plan for the future at this uncertain time. That’s where money-saving apps such as Snoop come in. From the comfort of their own homes, customers are able to track their spending and see where they could be making savings, with fintech apps offering a more personal and practical approach to money management – all at the touch of a button. Long gone are the days where you would have to attend an in-person meeting with a financial advisor at your bank branch. Today, all you need to manage your spending and set saving goals is an AI-powered app in your pocket. In these times of crisis, fintech could offer a valuable lifeline to those in real financial need.

The post-pandemic future
With our world undergoing so many significant transformations during the last year, there has been much conversation about whether these changes will be a permanent part of our post-pandemic future. The long-awaited COVID-19 vaccine could well provide a roadmap out of the pandemic, and while its rollout may be slow and gradual, it has provided some much-needed light at the end of the tunnel. But, if ‘normal life’ begins to resume, as we can now hope, just how ‘normal’ will it be? Will we be entering a new era, moulded and transformed by the experiences of 2020? Or will we gradually slip back into the routines and behaviours of the past? As the last year has shown, any predictions about the future are largely futile, but it is hard to imagine that the pandemic will not leave deep-rooted social, cultural and economic scars.

For years now, the world has been undergoing a digital revolution, and COVID-19 has accelerated this shift to online-first. This is particularly true when it comes to money management. Long before COVID-19, digital banking had been heralded as the future, with traditional banks under pressure to modernise their services and offer practical, personalised options for a digital age and its increasingly tech-savvy consumers.

It was clear that customers wanted quick, convenient, hyper-personalised products at the touch of a button, and if they couldn’t get that from their traditional banks, then they were happy to look elsewhere. If this was where banking was heading in the pre-pandemic world, COVID-19 has only served to hasten this digital transformation.

Technology will lead the way
According to a survey recently commissioned by Plaid, 67 percent of respondents plan to continue managing most of their finances digitally once the pandemic is over, marking a real shift in how consumers approach banking and money management. People have been seeking new solutions, with fintech adoption skyrocketing across all age groups.

“Almost 50 million UK consumers have a current account, and over 25 million people use their mobile to manage their money – a figure that’s growing quickly as a by-product of COVID-19,” says Gadhia. “Apps like Snoop can deliver consumers a better experience and save them lots of money – we’ve calculated that our app can save users an average of £1,500 per household per year. As such, I think businesses like Snoop are going to play a very big part in the way people manage their money in the future – all driven by the latest technology, hyper-personalised experiences and independence.” While many of us long for a return to the ‘old normal’ in our personal lives, at least, it seems that when it comes to our finances, these digital trends are here to stay. As the world finds its way out of a deep, dark recession in the years to come, fintech may well be fuelling its recovery – and all at the touch of a smartphone screen.