The defining challenge for this era is disruption, said PM Lee in the recent NDP Rally. We’ve seen this time and again: Amazon, Google, Apple and now Uber. New business models emerge from seemingly nowhere and quickly change the world. Whether we like it or not, disruption will happen. If your investment portfolio still comprises old world companies, it’s time to look across the horizon and get acquainted with the latest technological trends.
The Era of Disruption
We live in the era of technological disruption. Things are changing fast and old business models that do not work will be jettisoned in favour of new business models. Like what PM Lee said, we can respond in two ways – we can either close ourselves off, or we can embrace change.
Retail disruption: Amazon and e-Commerce
It’s no surprise that bookshops are going extinct. Online bookshops such as Amazon promises a wider selection, good browsing experience and the convenience of online shopping. In addition, the prices at Amazon are cheaper too. This is possible because of the Internet and Amazon’s unique business model. Unlike traditional bookshops, Amazon does not carry much inventory but passes the orders to the book publishers. Physical location is no longer as important. Instead, shopping experience and time-to-delivery have become key success factors. Amazon has invested billions in building massive distribution centres and even experimented with drone delivery service.
Led by the likes of Amazon, e-Commerce is all the rage now. In Singapore and other parts of Asia, e-Commerce sites like Taobao, Alibaba, Lazada and Qoo10 are disrupting retailers and shopping mall operators. In fact, quite a number of Retail REITs here are experiencing slower traffic and sales volume due to competition from e-Commerce.
Transport disruption: Grab and Uber
Meanwhile, the transport sector is facing its own disruptive forces unleashed by Uber and Grab. Uber and Grab are private car hire services, but they may not necessarily own any vehicle fleet. Instead, they use intelligent apps to help consumers identify the nearest available drivers. They grab data from users, analyse travel patterns and adjust the charges to match demand and supply. Also, anyone with a car can potentially become a Uber/Grab driver. Compared to the traditional taxi services, they are more nimble, more responsive and provide better services. Yet, even Grab/Uber can be disrupted as PM Lee pointed out. Autonomous driving can make drivers altogether redundant.
Financial disruption: Crowdfunding, Bitcoin/Blockchain and Robot-advisory
What about the finance industry? Can traditional banks and other financial services firms be disrupted? Definitely. Today, banks have a stranglehold on the deposit, lending, capital markets and payment services. But there are a number of fintech firms looking carve out a piece of the pie. Crowdfunding will probably disintermediate traditional banking, matching those who need capital and those who have excess capital. Bitcoin/blockchain introduces the concept of crypto-currency and promises to simplify securities trading, trade financing and fx remittance. Robo-advisory threatens to do away with bankers and wealth advisors. Instead, a Siri-like robot will be able to crunch data and provide the best customized financial advice.
How to invest in a disruptive world?
Investing in disruptive technologies is not easy. The majority of the listed companies here (e.g. DBS, SIA, Singtel) belong to the old world. The technology giants, the FANG stocks – Facebook, Amazon, Netflix and Google, are well… already global behemoths. They are no longer the exciting startups they were 10 years ago.
The startup space is a high-risk high-return world and traditionally dominated by venture cap and private equity funds. But equity crowdfunding is threatening to open up this space, offering investors the opportunity to invest in early-stage companies. Due diligence and selecting the right eco-system remains crucial to success.
How about p2p lending? There are still plenty of sceptics, wondering if the p2p platforms are pricing their risk correctly. But banks are not risk experts too. During the global financial crisis, a number of banks wrongly managed and priced their risks to disastrous consequences. As the market evolves, p2p platforms will raise their game and offer better investment experience.
What should investors do in the era of disruption? Should they stick to stocks and bonds of large established corporates, and ignore the emerging technological trends?
We think that a better choice for investors is to learn about the latest trends and make full use of the opportunities offered by fintech firms. Fintech are opening up opportunities in private equity, trade finance and SME lending – areas that are traditionally exclusive only to industry participants.
Do plenty of research and invest a little money. No doubt, it is risky. But not changing may be even riskier.