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Fintech & farmland: the future of investing

Without question, fintech startups are revolutionizing every aspect of financial services.

From how we save our money, to the types of investments we have access to, to the ease and convenience at which we are able to do this all online, these startups are paving the way to a digital future.

In fact, it’s been reported that nearly nine in ten Americans are now using some form of technology to manage their personal finances. Old asset classes are being modernized via digital platforms while new investment vehicles are taking off. Alternative assets are rising to the scene, and the same startups that are increasing their accessibility are altering the way ESG and impact investing is done.

We’re seeing a convergence of trends that have set the stage for a nearly $10 trillion global market opportunity: farmland investing.

The digitization of financial services

The financial services space has been one of the slowest sectors to embrace changes in technology, but it may not be able to avoid it for much longer. A new generation of startups is disrupting the industry as we know it; in the first ten months of 2021, fintech startups raised over $90 billion dollars in funding, double what they raised in 2020. 

At the core of all of these startups are digital platforms. Technology is rapidly catching up with the modern consumer’s preference to save both time and money, providing them with a growing number of online tools and platforms to make financial decisions on their own. 

As more consumers look for flexible banking solutions, for example, new startups like Chime and Ally have introduced digital platforms that enable customers to view account balances, transfer funds, and deposit checks without needing to leave their homes. This has caused traditional players, like Chase and Charles Schwab, to follow suit. The payments and lending sectors have been upended by these same technological innovations, offering consumers unprecedented speed and convenience. Today, PayPal‘s market cap is almost double that of Goldman Sachs, while lenders can now process loans in as little as 24 hours. 

This digitization has reinvented the way individuals manage their finances beyond banking and everyday transactions, too. Today, there are a host of fintech startups leveraging this technology to drive incredible growth in investing, putting power back into the hands of the individual investor.

Fintech startups are democratizing alternative assets

The disruption that we’re seeing within the world of investing, driven by digitization and increased accessibility, has left no asset class unturned. Alternative assets – historically out-of-reach or unknown investment types for most individual investors – are coming into the mainstream. 

In the past, several barriers prevented the average investor from diversifying beyond conventional assets, like stocks and bonds: 

  1. Many require minimum investments of six figures or more. 
  2. Sourcing and valuing alternatives can be a challenge due to a lack of liquidity and transparency in the market. 
  3. Many alternatives have high transaction costs. 

Fintech platforms are breaking down these barriers and driving accessibility to these assets through technologies like blockchain or fractional ownership for syndicating larger transactions. Today, investors can purchase real assets, like real estate or gold, hedge funds, private equity, and even the more unique, once-off-limits investments referenced above, like blue-chip artwork, cryptocurrency, or farmland. 

Coinbase, for example, gained masses of loyal users by creating a single platform for safely storing crypto, buying and selling multiple cryptocurrencies, and exchanging crypto for government-backed currency, among other features. As a result, it has become the go-to app for mainstream cryptocurrency traders and the first cryptocurrency exchange to IPO.

YieldStreet, a platform that offers a diverse mix of alternative investments, including trade finance, auto loans, commercial loans, and real estate, has created a one-stop shop for investments with different maturities, yields, and risk profiles. 

Other startups like Masterworks and Vinovest are helping the broader public invest like the ultra-wealthy. Masterworks lets individuals invest in fractional shares of blue-chip art while Vinovest helps investors build wine portfolios with the aid of professional sommeliers, proprietary algorithms, and an investment minimum of as little as $1,000. 

Where fintech and ESG intersect

With so many new investment opportunities to choose from, investors are beginning to prioritize the ESG factors that matter most to them — and fintech startups are making it possible for investors to make an impact with every dollar.  

Several fintech startups in the brokerage space, like Robinhood and WeBull, have made it possible for investors to diversify into ETFs and listed options with zero trading or commission fees. In Q1 2021, ESG-focused funds hit an all-time record of $21.5 billion. ESG funds can equal or beat the performance of non-ESG funds; S&P found that in the first 12 months of the Covid-19 pandemic, more than 70% of the ESG funds they tracked outperformed the S&P 500.  

Other fintech startups are making it easier for customers to directly create a positive impact themselves. Stripe Climate allows Stripe business customers to reinvest a portion of their revenues into carbon capture and storage projects. Atmos Financial promises investors that they can help reverse climate change with their checking and savings accounts, which are invested in projects that accelerate the transition to a carbon-neutral economy. Trine has built a platform that allows individual investors to invest in solar projects in emerging markets. 

Fintech: taking root in farmland

The merging of these three trends has created the perfect crossroads for a once-out-of-reach asset class to move to the mainstream: farmland

Farmland has been historically unavailable to retail investors thanks to many of the same barriers faced by other alternative investments, including high barriers to entry, high transaction costs, and opaque markets. However, platforms like FarmTogether are breaking down these barriers and giving individuals access to institutional-quality farmland investments for a fraction of the cost.

From an investment standpoint, farmland offers investors historically low volatility and strong diversification, as the performance of farmland is uncorrelated with the performance of stocks, bonds, and even real estate. This is because farmland tends to perform well during recessions and acts as a store of value in challenging economic times. Another advantage of farmland is that it delivers robust returns — around 10.85% per annum since 1992, according to the USDA. Another advantage of this is that farmland acts as an effective hedge against inflation: when CPI increases, so do farmland returns. 

Most importantly, from an impact investing perspective, farmland plays an essential role in the global food supply chain and on the planet. In order to meet the food needs of a growing global population, experts estimate that farmers will have to double the number of crops grown by 2050. Sustainably feeding a population of over 10 billion will require more than business as usual — it will require producing around 56% more food on the same amount of land currently in use and with 67% fewer carbon emissions

At the same time, farmland emissions are a major contributor to climate change, and farmland accounts for around 24% of global carbon emissions. However, regenerative agricultural practices can turn this around, creating farmland that sequesters more carbon than it releases. 

By investing in farmland, individuals can provide much-needed capital to farmers in order to increase sustainability and make critical productivity enhancements to their operations – all while sharing in the rewards with cash income, capital appreciation, and a balanced portfolio. 

The fintech revolution is permanently changing how we invest

The fintech revolution is empowering investors to take charge of their personal finances in order to achieve superior returns and invest in impactful projects that benefit the planet. 

Farmland investing is at the union of these three trends. Companies like FarmTogether are enabling access to a once-out-of-reach asset class with historically stable, inflation-hedging returns while facilitating our transition to a sustainable future.