Fintech Is Rebuilding Capital Markets, From AI to Crowdfunding Startups

Capital markets are kind of like poetry: The words imply many different things at once and the industry behind it is dominated by a well-educated elite fluent in jargon that makes little sense in the world of what we can see, taste and touch. Unlike poetry, it’s never sexy to rattle off capital market lingo while strumming guitar ballads. It’s still pretty much an insiders’ club.

Investors usually pay experts to help them navigate the lucrative chaos, from the stock exchange to commercial real estate. But now emerging technologies like blockchain and artificial intelligence software tools are changing the game. Fintech is making capital markets more accessible and transparent than ever before.

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Mariel Ebrahimi, CEO and co-founder of the tech-savvy commercial real estate conference DisruptCRE, told International Business Times fintech is making capital markets more open and efficient across the board. “Artificial intelligence is really coming into play, cutting out the middleman. Folks are able to analyze deals on their own,” she said. “People are turning to crowdfunding instead of going to a traditional bank or mortgage broker.”

Crowdfunding platforms like Fundrise and RealtyShares are transforming the industry with Kickstarter-style business models. Now even someone with just $1,000 to invest can get involved in billion-dollar real estate deals. And the startups behind these platforms are pulling in bank too. The private equity firm Origin Investments reportedly raised $130 million for its third fund. Forbes reported the real estate crowdfunding industry will grow to $300 billion by 2025. “We’re just at the very beginning right now,” Ebrahimi said.

Some platforms specialize in accredited investors while others open up commercial real estate markets to curious first-time buyers like lawyers, doctors and other businessmen. "Where we’re really seeing it take off is fix and flips," she said. People can buy property, or part of a property, then quickly profit after a little makeover boosts its value. New software tools are also constantly streamlining workflows and simplifying processes on the backend.

Ebrahimi said this AI trend could lead to widespread staff cuts in the near future because data processing tools let people narrow in on more relevant opportunities, options that are compatible with their portfolios, instead of looking through hundreds of deals to find that diamond in the rough. The same way Amazon can recommend books for a user based on browsing history and purchases, AI software can evaluate real estate. One such startup service, Credifi, raised $13 million last February in a B round of funding.

“It [fintech solutions] really opens it up to shareholders so they can understand what’s going on,” Ebrahimi said. Overall, both real estate and the stock market have a few things in common when it comes to fintech: AI-powered robots are taking over.

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Gaurav Chakravorty, head of data science at the investment firm QPlum, told IBT he believes AI-powered stock trading will replace most human trading jobs within the decade. Lars Ottersgard, head of market technology at NASDAQ, said he disagrees with that prediction. Some traditional trading jobs will fade away, making room for new positions in sectors like security and compliance. NASDAQ’s current partnerships with tech companies like Digital Reasoning, a cognitive computing innovator, have already revolutionized surveillance in stock markets around the world.

“You can take data from different sources and create new data and new intelligence,” Ottersgard told IBT about the software’s natural language processing tools. “It is able to produce much more holistic surveillance.” Basically, these machine learning tools can monitor many complex markets while simultaneously listening to chatter about the deals, which makes it easier to spot people trying to trick the system.

NASDAQ’s arsenal not only helps compliance regulators spot financial crime. It also helps human investigators catch the abusers. The U.S. Securities and Exchange Commission set a record for enforcement actions in 2016, leading to more than $4 billion in disgorgement and penalties. “This is making the market more fair, more secure,” Ottersgard said.

Just like with real estate, this makes the stock market more accessible to people outside the multisyllable abracadabra club. “Hopefully, you will see it become easier for the end client to engage with capital markets,” Ottersgard said. “It will reduce reliance on specialists, because you will have tools. … [providing] added customer value for enterprise clients and both individuals and retail investors.”

Lest traders and mortgage brokers fear the current robot revolution in capital markets, Ebrahimi affirmed Ottersgard’s optimistic view about new fintech job opportunities. “More and more companies are looking for data scientist-type professionals,” she said. “And finding out what’s important, what matters and what will influence future opportunities. ...they are looking for folks who can make sense of that data.”

In essence, fintech will shift the kind of interpretation capital market experts do, from wading through the markets themselves to translating massive data sets from a bird’s-eye view into actionable insights. “There’s more and more data every day,” Ebrahimi said.