The iOS App Store launched in 2008 with 500 apps. Today, 1.85 million different apps are available for users to download. Android users have an expanded list; up to 2.56 million apps are available via the Google Play Store.
Data is being produced at an exponential rate. After all, we are now handed an iPad when checking in to doctors' offices (at least, we were before COVID hit), we purchase most of our home-related products on our phones, and we stream entertainment on our phones.
While the current state of play may seem very advanced considering where we stood just five years ago, many businesses remain behind the digitalization curve in the U.S. and miss out on the network effects and analysis potential that comes along with centralized data. Companies like Snowflake, DataRobot, and Palantir have emerged as businesses that manage and process data on behalf of firms new to the digitalization process. As this shift to digital becomes more robust, these companies, and others that have yet to appear, are poised to benefit and, in some cases, exploit our tendencies as consumers.
It's not about the profits, however, it's about the power that comes with massive amounts of data on consumers, clients, and patients. China understands this very well, as does its government.
The most recent squelching of the Ant Financial IPO suggests that the speed of digitalization may have been moving too quickly for the Chinese government. After all, the fintech platforms are separate from the government and can represent systematic risk to financial stability. Given the plethora of data being collected by these platforms, it is safe to say that the government would like more influence over the database.
Notably, thanks to many fintech platforms, Chinese consumer credit has jumped over the past few years from 20% of GDP to nearly 40% of GDP. In e-commerce, China accounted for less than 1% of the value of worldwide transactions a decade ago; that share is now more than 40%. With consumers using your banking app and purchasing products on your platform daily, you can judge their loan repayment credibility fairly easily with a simple algorithm.
While Chinese consumer credit as a percentage of GDP is a far cry from that of the U.S., which stands closer to 80% of GDP, it may be an important harbinger of what is to come in the U.S.
U.S. monetary and fiscal policy are encouraging more credit-related activity -- consumers have more cash thanks to government stimulus while interest rates remain pinned at record lows, which is opening up waves of mortgage refinancing and attractive auto loans. When adjusted for inflation, (real) interest rates are negative; holding cash in a bank account is no longer attractive due to the negative yield it generates. Scarce assets are benefitting from this powerful cocktail -- consider the acceleration in the prices of Bitcoin, gold, classic cars, and homes over the past year.
Bitcoin Daily Price Chart, 5y History
Companies such as Coinbase, Bringatrailer, and Zillow are a few examples of businesses that are benefitting from this combination of policy and digitalization. Fintech apps are in the very early innings of development in the U.S., but traditional banks are likely to continue to lose share over time. After all, are you enjoying your 0.10% interest rate on savings at JP Morgan?
Over the long-run, fintech regulation will have to increase, but the shape the regulation might take remains very unclear. As we will likely see down the road, digitalization when combined with extremely accommodative policy can make for a very dangerous mix.
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