According to Halifax’s monthly index, property prices reached new record highs on eight occasions last year, hitting their greatest record-high so far in December 2021 at £276,091. Annually, the average UK house price grew by 9.8% and by 1.1% month-on-month in December. However, Halifax’s report added that house price growth is expected to slow considerably in 2022. 

“UK house prices climbed again in December for the sixth month in a row, rising by 1.1%,” said Russell Galley, managing director at Halifax. 

“The average price for a property now stands at £276,091, an increase of more than £24,500 compared to December 2020, marking the strongest year-on-year cash rise since March 2003 [...] The housing market defied expectations in 2021, with quarterly growth reaching 3.5% in December, a level not seen since November 2006.”

According to Halifax, the average house price in December 2021 in the East Midlands stood at £225,106, while Eastern England hit £319,447. In London, the average house price for December was £525,351, £159,694 in the North East of the country, and £211,954 in the North West of the country. Scotland saw an average of £192,988 for December, while Wales saw an average of £205,579. 

Shane Neagle, Editor In Chief at The Tokenist, explains what impacted Bitcoin in 2021 and where it goes from here.

Bitcoin’s Performance In 2021: An Overview

Bitcoin gained almost 50% in the last month of 2020, reaching an all-time high (at that time) of over $29,000. On the first day of 2021, the flagship cryptocurrency managed to surpass the $30,000 mark as it eyed further gains.

Throughout the first four months of 2021, Bitcoin resumed its rally with considerable momentum as digital finance adoption continues to pick up steam — for context, 71% of consumers now prefer to pay with a debit or credit card, as opposed to cash. This reflects a changing sentiment among consumer preference, where digital finance and FinTech are not only becoming more convenient and user-friendly, but actually preferred. While this does not directly impact the price of BTC, it certainly provides important context which cannot be ignored.

In mid-April, Bitcoin achieved a historic milestone by reaching the $65,000 mark. However, a combination of unfortunate events brought an end to this trend. It all started with Elon Musk announcing that Tesla halted Bitcoin payments over environmental concerns. For the same reason, China started a vigorous crackdown on crypto mining, further exacerbating the sentiment around Bitcoin. 

All of this prompted a sharp sell-off that saw the leading cryptocurrency plunge by as much as 50% compared to the April peaks over the course of a few months. In early July, Bitcoin even dropped below $30,000 for a brief moment, a level that was last seen in early January 2021, according to data by CoinMarketCap.

Bitcoin’s hashrate, the amount of computing power contributed to the network through mining, also took a plunge as a result of China's clampdown, dropping by over 50% in just one month. However, as Chinese miners settled overseas and started to resume their operations, the hashrate started recovering.

Historically, a high Bitcoin hashrate, which represents higher security in the network, coincides with prices moving higher. This describes why Bitcoin started to reclaim its lost territories as the hashrate was recovering. By October 8, Bitcoin hit a new ATH, as its hashrate was up by almost 85% compared to the bottoms seen in July. 

Eventually, Bitcoin’s hashrate fully recovered from the China ban in early December. Brandon Arvanaghi, a Bitcoin mining engineer, summarised the larger impact:

“The bitcoin network withstood an attack by a major superpower and emerged stronger than ever six short months later. How can anyone ever argue, ‘But what if nations ban it?’ again?”

What Caused Bitcoin's Rally?

Bitcoin's rally throughout 2021 was largely fueled by an influx of high-profile investors. Among the more noticeable examples, major electric carmaker Tesla acquired $1.5 billion worth of Bitcoin, while Michael Saylor's Microstrategy continued its Bitcoin buying spree, increasing its holdings to above 121,000 BTC. 

There were also some other factors that had an impact. For one, Bitcoin experienced its once-every-four-years halving event on May 11, 2020, cutting the reward for mining Bitcoin transactions from 12.50 BTC to 6.25 BTC. In other words, the rate at which new bitcoins enter circulation was cut in half. The event is regarded as important since it has historically correlated with intense boom and bust cycles.

Furthermore, when the pandemic hit the US, it triggered a deep economic downturn, prompting the Fed to take significant measures to limit the economic damage. Among the first moves, the central bank cut the interest rate by a total of 1.5 percentage points, lowering the rate to a range of 0% to 0.25%.

While banks were offering near-zero rates, crypto-assets were delivering triple-digit returns. Bitcoin, for instance, gained almost 300% during 2020. Moreover, crypto lending products offered well over 7% APY on less risky products like stablecoins, which are crypto-assets pegged to fiat currencies at a ratio of 1:1. 

This prompted some investors, including Billionaire and Shark Tank star Kevin O'Leary, to get exposure to crypto. This wasn’t a private matter, resulting in great publicity for the digital asset. And in a similar light, Bitcoin and digital assets have become increasingly accessible, as a growing list of traditional stockbrokers now offer select digital assets. Even the majority of paper trading apps now include digital assets such as Bitcoin.

As another measure, the Fed also started buying massive amounts of debt securities to abate the economic damage and restore the smooth functioning of markets. Initially, the central bank was buying trillions of dollars of bonds, slowing the pace to $120 billion per month by mid-2020, and eventually to $15 billion per month by 2021.

However, the strategy also referred to as quantitative easing, is largely criticised for causing inflation. Some experts warn that quantitative easing is effectively a form of money printing, which leads to inflation—and potentially even hyperinflation—in the long term. 

Nevertheless, the emergency moves by the Fed, accompanied by massive government spending, managed to prevent the economy from sinking into a prolonged downturn. However, several factors, including supply chain bottlenecks and labour market issues, resulted in rising inflation. 

Most recently, the Consumer Price Index (CPI), which measures the average change over time in the prices, climbed by 6.8% in the year through November, hitting its highest level since 1982. This rising inflation also pushed some investors towards Bitcoin and the broader crypto market. 

In mid-October, strategists at JPMorgan reported that inflation concerns were pushing investors towards Bitcoin. "We believe the perception of Bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into Bitcoin funds since September,” they said. 

Likewise, billionaire hedge fund manager Paul Tudor Jones told CNBC that Bitcoin is a better hedge against inflation than gold:

“It would be my preferred one over gold at the moment. Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment."

Bitcoin In 2022: Where Is It Heading?

While it is largely unclear how Bitcoin will perform in the upcoming year, some analysts believe it may perform poorly as a result of the expected rate hikes. In mid-December, the Federal Open Market Committee (FOMC), the Fed's monetary policy arm, said it aims to speed up tapering of its bond purchases so that the programme would end in March.

The central bank also noted that it plans three hikes of the benchmark interest rate in 2022. Usually, risk assets like Bitcoin take a hit when interest rates increase. “To the extent BTC is a hedge like gold, I think it could suffer,” said economist Claudia Sahm.

On the other hand, there are some levels of optimism around Bitcoin. For one, Bitcoin's long-anticipated update Taproot was implemented around mid-November. The update, which gives developers an expanded toolbox to integrate new features, is deemed a game-changer for Bitcoin as it could put it on a par with Ethereum, which hosts nearly the entire decentralised finance (DeFi) ecosystem.

Moreover, Securities and Exchange Commission Chairman Gary Gensler said in early October that the US won't ban crypto assets. “Our approach is really quite different,” Gensler said, ensuring investors that the regulatory body does not intend to ban crypto as other jurisdictions have done. The regulatory body has also approved several Bitcoin-linked ETFs.

Meanwhile, some theories suggest that higher nominal rates could actually have a positive impact on Bitcoin. Data accumulated by Caleb Franzen, a market analyst, shows that there is a direct correlation between Bitcoin and 10-year Treasury yields, which is not normally seen between risk assets and yields. Based on this correlation, Franzen argues that Bitcoin could continue its upward movement despite yields increasing. He added that this scenario will more likely play out if inflation persists in 2022.

2021 is expected to mark the country’s busiest property market in 14 years in terms of property transactions, as homeowners seek out more living space amid the pandemic. This is according to Zoopla’s latest house price index. 

Zoopla’s data reveals that, by the end of 2021, 1 in 16 houses will have changed hands, making this year the busiest property market since 2007. 

High demand is pushing up the rate of annual house price growth, which is tailing at 6.9%, up from 3.5% in October 2020. Nonetheless, the growth marks a slight easing back from the growth above 7% seen in August and September. A slowdown in the overall pace of growth is also indicated by the data. 

The average value of a home in the UK now stands at £240,000, up from £200,000 five years ago. The past 12 months alone have seen the average price increase by £15,500. 

While buyer demand is currently 28% above the 5-year average, the supply of homes being put up for sale in 2021 has been running between 5% - 10% below the averages seen in 2017 and 2019. 

However, despite some interest rate rises, it is likely that mortgage rates will stay relatively low compared to long-run averages. Additionally, there is also greater space for price growth across some of the country’s most affordable housing markets. 

BP has said it will buy back $1.4 billion of its shares in the third quarter due to a $2.4 billion cash surplus from the first half of the year. BP has also upped its dividend by 4% to 5.46 cents per share. In the second quarter of 2020, the oil giant halved its dividend to 5.25 cents per share. 

With the oil price estimated to average out at $60 per barrel, the company also expects buybacks of around $1 billion per quarter and an annual dividend increase of 4% through to 2025. BP posted a full-year underlying replacement cost profit of $2.8 billion, a substantial figure compared to the loss of $6.7 billion over the same period last year. In the first quarter of 2021, BP reported a net profit of $2.6 billion. In a poll conducted by Refinitiv, analysts predicted a second-quarter net profit of $2.06 billion.

The oil giant’s results come as part of a wider trend across the oil and gas industry as companies seek to reassure investors that they have stabilised themselves amid the ongoing covid-19 pandemic.

Back in 2019, the London airport saw four million passengers through its door in just 18 days. Now the airport has warned that its passenger numbers for 2021 could come in even lower than figures for 2020. Around 22 million passengers travelled through Heathrow in 2020, with over half of those travelling in January and February before the covid-19 virus led to closed borders and government-imposed travel restrictions. 

The airport has described the recent changes to quarantine rules and testing requirements for those arriving in the UK as “encouraging”. However, it still warns that the current rules are restricting the country’s financial recovery. Heathrow’s chief executive, John Holland-Kaye, has said that the UK’s slow removal of restrictions is causing the country to fall behind its EU rivals in international trade. 

As pressure from the travel industry increases, the Department for Transport will hold a formal review of the UK’s traffic light system no later than 31 July. 

Small business owners who have been able to survive the initial storm need to understand how the new trends are going to impact the financial structure of their companies. Here are six accounting trends every small business owner should know about in 2021. 

1. AI and automation

Automation has been a familiar sight in various fields, and now it's set to improve the productivity of accountants. Artificial intelligence (AI) and automation can be used to learn case-specific tasks and automate resource-intensive, repetitive, and time-consuming tasks.

Automated tasks are streamlined for everyday interactions and it is a good way to prevent human error. A few areas that can be automated are bank reconciliations, workflow optimisation, and forecast generations. By leveraging the power of data-driven AI and robotic process automation (RPA), accountants can prioritise high-value projects, enabling firms to scale quickly. 

2. Advanced accounting software

In 2021, accounting software can no longer function simply as an on-site asset. The improvement in cloud infrastructure has pushed companies to adopt flexible, cost-effective, and always-on cloud accounting solutions. 

When you're working with a large amount of data and you need to constantly cross-reference them, you'd expect your numbers to be available instantly.  Cloud hosting makes that happen, alongside offering you a seamless, real-time collaboration with different parties. The low cost of deployment is another advantage to hosting accounting software in the cloud. Major accounting platform QuickBooks has a host of options you can make cloud-first. Check out the best QuickBooks hosting providers to understand which one suits your business. 

3. Big data

With the adoption of technology comes the ability to analyse a large volume of data. Cloud-based software and AI work with data to understand the relationship between variables, and it is up to the accountants to narrow them down to comprehensible metrics. Accountants must evolve into all-around financial advisors and help clients understand what a particular data set means for their business. Increased reliance on data analysis also puts the focus back on the need to secure internal resources and make the data cybercrime-proof. 

4. Blockchain

Blockchain technology has gone from strength to strength, and in the future, it will play a pivotal role in accurate data tracking. Blockchain facilitates decentralised ledger for transparent tracking of financial data. It's still in the early stage of growth in the accounting world but financial auditors have started gaining from it. For instance, companies that use blockchain to record their transactions will be able to receive a far more accurate report from auditors than companies without it. 

However, blockchain needs to be improved and regulated before its full potential can be enjoyed by accountants. As it becomes more streamlined, accountants will pivot towards validating system integrity and company policies.

5. Digital tax management

Small business owners have had to adapt to the rapid digitisation of tax filing. Accountants will assume a bigger role in guiding customers through COVID-specific policies and the impact of the revamped tax structure. Moreover, the rise of the gig economy and solopreneurs has created a further expansion of tax rules, so accountants will look for unified analytics platforms to update tax reports in a timely manner. 

6. Outsourced accountancy

Going forward, companies will increasingly look to outsource a major portion of their accounting tasks to third-party vendors. Small businesses have already started outsourcing to save costs and increase efficiency, and the trend will only get bigger in the future. 

The biggest push to managed accountancy services is the realisation that people can now work in remote settings and be equally, if not more effective, in terms of communication and productivity. Since cloud computing and big data will be able to handle most of the day-to-day tasks, small businesses will look to cut down on the labour costs and reinvest in core business operations. On top of that, outsourced accountancy gives business owners an opportunity to leverage industry experts at a fraction of cost. 

When the world goes through major economic changes, businesses need to stay abreast of the latest trends to meet the new demands. Small businesses can avoid complacency by actively investing in the technologies that are impacting their business operations, including accountancy. Needless to say, customers will prefer doing business with the ones who have embraced change.

Affirm Holdings

Affirm Holdings is a financial technology startup that enables consumers to purchase products and make payments in instalments. Investors interest in the company piqued in August when it entered into a partnership with Amazon. In October of this year, Affirm Holdings also partnered with American Airlines, the perfect time given 74% of Americans said they would spend "more on travel this holiday season than ever before”.

However, the stock dipped in early November after its largest client, Peloton Interactive, predicted underwhelming figures for the rest of the fiscal year, which deteriorated Peloton shares and agitated Affirm’s investors. Nonetheless, Affirm’s share prices have increased by 210% since its IPO in January.

DigitalOcean

DigitalOcean is a cloud computing service provider, providing infrastructure and tools for developers, startups, and SMBs. Since its IPO in March, shares have increased by 143% and the company’s Q3 revenue in 2021 increased by 37% to £83m, rather impressive given its three main competitors are Amazon, Google and Microsoft.

Looking towards the new year, the company is well-positioned to maintain its momentum in increased share price. It is predicted that by 2024 global spending on infrastructure and platform services will total £87bn and DigitalOcean believes that there are currently 100 million SMBs and 19 million developers worldwide that would benefit from their service, meaning it has the capability to expand its customer base exponentially.

GitLab

GitLab is an open-source code repository and collaborative software development platform for large DevOps and DevSecOps projects. On its first day of trading, shares of GitLab jumped 35% from its £57.7 share price to £78, and since then it has jumped further to 58%. This increase is largely down to its customer growth and retention. Customer count grew 32% since the start of the year to 3,632. While customers spending over £75,000 grew 35% to 383. In the first six months of 2021, the company made almost £81m in revenue, with almost £70.8m of that becoming gross profit.

Rivian

Rivian was one of the largest IPOs of 2021, raising £8.9bn. The company went public amidst growing market interest in electric vehicles. Popularity among EV vehicles has meant Rivian stocks have jumped 58% since its IPO in November and is expected to grow even further over the coming years. Currently, only 1% of all UK vehicles are made up by EV cars, yet by 2032 this is projected to jump to 55%, so it’s safe to say that EV vehicles are the future of transport. 

TaskUs

TaskUs provides digital business outsourcing services to fast-growing technology companies to represent, protect and grow their brands, and the company provides technology to the likes of Facebook, Uber, Netflix and Zoom. Its success has been as a result of a multitude of factors but its increased presence within the food and ride-sharing industry has been intrinsic as the world opens back up.

TaskUs’s Q3 revenue for 2021 is £150m, representing 64.2% of year-over-year growth, which was entirely organic. Since its IPO in June, its shares have increased by 178%, and as a result of this success, it has managed to create offices in six locations including the USA, India, and Colombia with plans to further expand operations across the globe.

Doximity 

Doximity is an online platform that enables medical professionals to collaborate with colleagues, securely coordinate patient care, conduct virtual patient appointments, and stay up to date with the latest medical news and research. Its clients include medical organisations, particularly pharmaceutical manufacturers, health systems, and medical recruiting companies.

With such a large user base on the platform, it should be no surprise that all 20 of the top pharmaceutical manufacturers advertise on Doximity, and the company made over £150m in revenue in 2020. Since its IPO in June, its stock price has increased by 195% and its revenue is estimated to be between £64.3m and £65.1m for the end of Q3 2021.

Looking to next year, instead of striving for a 100% market share of doctors and medical students in the US, the company could potentially expand internationally or into new professions like law or law enforcement - both areas where enhanced communication could improve the industry.

What does the future have in store for these organisations?

While it’s difficult to predict what will happen to these companies in 2022 and beyond, one thing is clear, they all provide services that are in high demand in their respective markets and offer unique products that rival even the largest companies. All six organisations have grown significantly since their IPOs and will continue to be ones to watch as we enter a new year. 

As I sit here contemplating the areas of my focus for 2021, I hear Boris Johnson in the background announcing yet another lockdown. My heart sinks as I think not of myself, but of those people on the frontline working and even dying to try and keep us safe. I also think of the countless number of people who are facing financial collapse and emotional upheaval again. It is not a great time for us all, but we are in this together and now is the time we must sit back and think of those around us, possibly helping where we can.

2020 was a year of chasing medical stocks, betting on who would be the first with a vaccine and tracing technologies. Are we looking at the same in 2021, or is that trend best left for others to fish out the last remnants?

I have personally seen some of the technologies that people have ploughed a great deal of money into, started to grow into mature areas of health and find new homes for their technology. We have also pulled a huge amount of data over the last year, which is gold in the eyes of many organisations. So, what do we do with all of this, and where is it going to go?

In the UK, we have had Brexit with a deal (although some may argue otherwise), COVID, but also a big shift caused by COVID, with what I consider will be the reboot of how we do things. The environment seems to have done rather well without us all driving, flying and burning carbon like it is going out of fashion and I think we would all look rather bad if we ignored that factor when the COVID clouds lift. The UK has been voted as one of the most invested countries in the world when it comes to technology and our scientists are proven world leaders.

With that in mind, I consider that the following areas are going to be very worthy of investment from big houses, backed up by a few smaller players, of course.

Cryptocurrencies

A word of warning, this is volatile! Over recent months, bigger fish are jumping into the crypto world and recently multiple large hedge funds have announced a rather large investment into some of the coins. This is very likely what has pushed Bitcoin up into the $30K area but, as you will notice with the lower volume trading, it can be affected dramatically during a sell-off. If you can buy and shut your eyes for a while, analysts are suggesting it will hit $100K. This certainly is not for the faint-hearted though!

Artificial Intelligence

I consider about 70% of AI to be nothing more than complex algorithms and the acronym is right up there in abuse land as VR (Virtual Reality). However, there are some diamonds out there and I am eyeing companies which are taking advantage of the huge and complex data collected during the COVID outbreak. There is an awful lot we can learn, not just from the actual virus, but from the execution, drugs and even prediction of the next mega virus or, as we learned recently, the mutated strains of COVID-19.

Blockchain / DLT

This is one of my keen areas of interest and not just because I am involved in a DLT project. Stepping away from cryptocurrencies, the concept of decentralisation intrigues me and there are a plethora of use cases of which this technology fits perfectly. Supply Chain, Traceability, Smart Contracts – you name it. However, be wise to watch and learn before jumping into a stock in this sector. Companies are throwing spaghetti at the wall to see which one sticks and producing the “next big” failure on a daily basis. This sector reminds me of the dotcom era in many, many ways. Loads of money to be lost on weak or impossible solutions, but somewhere there is that one or two “Googles”, which will emerge and change the world as we know it. One thing is for sure, we simply have to embrace the change and the increasing speed of the overlap between our physical world and the digital twin of our world which is coming very soon. Pick wise and there will be digital gold waiting for you at the end of the blockchain rainbow.

Digital Games

Yat Siu of Animoca and Outblaze seems to be the current Midas touch man which we should be watching very closely. His games are rocketing and he is a real blockchain evangelist. With (and I cannot believe I am saying this) digital real estate becoming a very distinct reality, it looks like we are going to be playing “Ready Player One” sooner rather than later and Yat seems to be a forerunner in this arena. With Animoca’s recent acquisition of Lympha and a digital deal struck with Manchester City, I can see exactly where he is heading and if executed correctly, he certainly is on a winner.

Medical Technologies

Away from pharmaceuticals, the COVID pandemic has created a rather large surge in technologies around medical devices. Just look at the uptake in thermometers and wearable devices. The smart players have made the long-term bet and developed/developing their technologies for a post-COVID world. For instance, hospitals need to get us out of their beds and back home to free up space on their wards. I am watching a wearable solution right now which does exactly this and provides a vast amount of data for doctors to monitor remotely. It feels kind of like the future will be computer systems monitoring us and diagnosing or predicting what’s wrong with us. But again, we will likely have no choice other than to embrace it and I would certainly prefer to recover at home!

And this brings me to my final trend prediction, which I think is the biggest no brainer here. 

Environmental Technology

Did you see the pictures taken during the lockdown? If you did, then I imagine, just like I did, you had a little ‘wow’ moment. Seeing the pollution lift all around the world certainly opened my eyes up as to the damage we really are doing, choking our planet because we just seem to not be able to see through the fog. The Duke and Duchess of Cambridge, William and Kate, are making big waves on the subject again and the incentive is out there for a big clean up. I believe that technology is going to play a huge role in the clean-up of our planet over the next decade or two and I am currently eyeing quite a few companies with very strong and clear-cut missions, along with the technology to do just this. Corporations ESG requirements are driving them to find and fund the technologies, so watch out for the ones which the big banks are eyeing too! 

Well, that is my predictions for the forthcoming year and I hope that when you hear from me next, we are all in a better place and out of the lockdown again. We have a long road ahead before we are clear of this virus, but thanks to the fast-paced advances in medical technology, we should outrun COVID-19 in 2021. 

*NO INVESTMENT ADVICE

The content is for informational purposes only and should not be construed as financial advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Graham Norton-Standen, HIG, Finance Monthly or any third-party service provider to buy or sell any securities or other financial instruments.

Georg Ludviksson, CEO and Co-founder of Meniga, a leading provider of AI-driven digital banking solutions, reveals the top 5 challenger banks which will make their mark within the retail banking sector in 2021, as he dissects some of the key attributes and traits that make them such fierce competitors to incumbent banks.

1. Empower Finance

Launched in 2016, Empower Finance has quickly gained recognition by establishing itself as one of the best personal finance management solutions. The San Francisco-based company, which is headed up by former Sequoia Capital Partner Warren Hogarth, uses AI to automate and simplify the banking experience for over 650,000 users. The mobile app acts as a personal financial adviser through a number of budgeting and categorisation features, including the ‘AutoSave’ feature, which automatically sets money aside each week for users who activate it.

Empower Finance is unique in the way it leverages customer financial data to provide users with actionable advice and guidance on staying ahead of the financial curve. For instance, the app tracks and monitors a user’s spending behaviour through transaction data, to offer invaluable insights and tips on how to stay on budget each month.

Since its inception, Empower Finance’s driving mission has been to empower users to make better financial decisions and take control of their finances. I think it’s fair to say that this challenger bank certainly lives up to its name and will continue to do so for quite some time.

2. Monzo

Monzo is arguably the most promising and exciting neo-bank to have emerged from the UK. With almost 5 million customers and an estimated value of £1.2 billion, it seems astonishing to think that Monzo only received its banking licence in 2017. Today, Monzo is the most ‘switched to’ bank in the UK and the top-rated in terms of its overall service quality.

Monzo excels in terms of the usability of its interface, with customers able to effortlessly spend, save and manage their money, all in one convenient place. With accessibility and financial inclusion at the core of its mission, what makes Monzo really stand out from the pack is that it enables new users to open an account within a matter of minutes at no cost. On top of delivering an outstanding user experience and providing a first-class personal finance management tool for its customers, Monzo is also a fully-fledged bank so it offers all the services typically provided by traditional banks, such as access to overdrafts and loans.

Having recently expanded to business banking and attracted over 60,000 business customers already, there’s no doubt that this challenger bank will continue to make waves in 2021.

3. Qapital

When it comes to engaging platforms which motivate users to save money, Qapital is up there amongst the very best. The New York-based FinTech - rooted in cognitive science and behavioural psychology - is on a mission to change consumer behaviour around spending by encouraging people to put their money into things they truly care about, and ultimately, make better financial choices overall.

Qapital places personal goal setting at the core of its product offering to make the process of money management both practical and emotionally fulfilling. Specifically, users set short and long-term goals for themselves and then create spending rules to help them achieve them. This unique approach to goal-based money management is what makes the Qapital digital banking platform one of the most engaging out there. To add to that, the app also includes elements of gamification through its “Money Missions” feature, which - through fun challenges - allows the user to unlock helpful insights into how they use their money. This is one of the many smart ways that Qapital has managed to create new dimensions of customer engagement within its digital bank.

The platform has already saved customers over $1 billion since its launch, having helped millions of users save an average of $5,000 annually. There’s no doubt that Qapital’s growth will continue to accelerate, as it establishes itself as the first-choice app for budget-conscious and financially savvy consumers.

4. Chime

Without doubt one of the most established and long-standing challenger banks in the world, Chime is considered a real trailblazer within the global FinTech sector. Founded in 2013 with the mission of encouraging smart spending and saving, Chime - worth approximately $15 billion - is today the most valuable US consumer FinTech.

It is primarily down to its featurisation and customer-centric approach that Chime has been able to grow at such an unprecedented pace and rapidly attract a vast amount of customers. Some of the key features that draw users in include its no-hidden-fees banking, an automatic savings account, as well as its instant direct deposits which allows users to get paid early.

Chime has also been extremely successful in its marketing efforts, thanks to a substantial advertising budget and impressive search engine tactics, which have enabled the bank to rank highly on Google searches for some of its feature keywords, such as “free overdrafts”. These exceptional marketing capabilities have played a significant role in the company’s exponential growth, and this will no doubt drive the company’s continued expansion into 2021 and beyond.

5. Varo Money

In terms of full-service digital banking experiences, Varo Money’s product offering is unrivalled. Based in San Francisco, the bank was created specifically for groups underserved by traditional banks, such as millennials, to grant them an easily accessible bank account with no monthly fees or overdraft fees, high-interest savings, and a modern mobile app experience.

Beyond being one of the best digital banking apps for millennials, Varo is also the first challenger bank to obtain a national bank charter from the Office of the Comptroller of the Currency (OCC) in the US. This has presented Varo with a significant advantage over other challenger banks, as it is now able to expand its services and offer a larger suite of products such as credit cards and loans, and therefore target a broader set of customer needs while diversifying its own revenue streams.

To add to that, Varo really lived up to its mission of helping everyday Americans make progress in their financial lives during the COVID-19 crisis, when it supported its customers through a number of initiatives, such as providing early access to stimulus and unemployment relief funds and partnering with job platforms, Steady and Wonolo, to help connect its customers to new work opportunities. The best banks are the ones that can be there for their customers in the most turbulent of times, and Varo certainly proved it could do so. 

Closing thoughts

The steady rise of challenger banks is unlikely to slow down anytime soon. Key players, both old and new, are continuing to transform modern-day banking, as they relentlessly roll out new user-friendly and innovative financial self-help tools, which everyday customers have grown to love. And with the challengers’ superior digital capabilities, it would seem they are the current front-runners in the race against the incumbents.

That said, the race is far from over. Incumbents still have many assets which their competitors lack, but first, they must study what makes these challengers so successful and shift their focus towards improving the digital user experience of their customers, or else they risk being left behind. Ultimately, by treating their digital channels and mobile banking apps as a strategic asset, incumbents can get into the position where instead of following, they will pave the way for game-changing innovation.

Amid the economic shipwreck of COVID-19, there are already glimmers of entrepreneurial hope - with the number of start-ups continuing to grow. There were almost five thousand more company incorporations during the first full week of December, compared to the same week the previous year. It’s likely that thousands of workers who have seen their professional lives put on hold are now using this as an opportunity to branch out on their own. It’s a risk – but this blossoming entrepreneurial spirit does bode well for a swifter recovery.

Concerns are rumbling in the background about the high level of indebtedness of the UK Government. The amount it’s forecast to borrow this year is certainly eye-watering - coming in at £392 billion. It’s the highest in real terms since World War II. But years of austerity meant that the public finances were not overstretched before the pandemic hit. So, although the UK has been loaned record amounts, borrowing should peak at 105% of GDP, compared to 250% during both world wars. It’s still a huge sum but ultra-low interest rates lighten the debt burden, and the Treasury’s interest payments to lenders via gilts and national savings are actually falling. The spectre of a possible spike in interest rates could expose the public finances further down the line, although gilt maturities have increased to an average of more than 18 years, pushing this thorny issue into the long grass.

Supercharged spending on capital infrastructure projects may seem extravagant when the debt burden is so high, but investment in green technology to power the future should help create jobs that are so desperately needed. A new infrastructure bank is also being set up help draw in new streams of funding, and although it may take time to generate interest, it should also help turn the tide.

There is also plenty of money washing around the economy right now, looking for a good place to land a decent return. The Bank of England has administered a large dose of medicine to the UK’s ailing economy by ramping up Bond buying with the aim of lowering borrowing costs. That has given a big boost to the money supply. Households have been putting away money at record amounts by paying down credit cards bills, placing deposits in banks, investing money into shares and National Savings. The Office for National Statistics says the savings ratio, which measures the surplus households have at the end of the month, has been rising at a record amount.

If the boom in UK assets is sustained, helped by a rebound in global growth, it could herald in a new Roaring 20s era, mirroring the decade long upswing following the economic pain of WWI.

Many companies have been able to shore up their balance sheets either by saving money themselves, by raising equity from investors or by borrowing cheaply from banks using schemes supported by the Treasury. Since the start of the year companies have raised £80 billion in net finance, that’s triple the usual amount raised, with three-quarters of that from government-backed loans. Much of that money is ready to be deployed once confidence returns, and optimism is seeping back into boardrooms following vaccine breakthroughs. Government support schemes have minimised insolvencies and although there is likely to be an uptick in failures once emergency help ends, the banking sector, as a result, is healthier than in previous recessions.

With a no-deal Brexit avoided, there has been a much smoother transition to new trading future than many had feared. Already fresh optimism has spread about the UK’s prospects with the FTSE 100 starting the new year on the rise. If questions surrounding the trade in services, not just goods, are resolved, that could spur on further recovery. Higher share prices should have a virtuous circle effect, enabling firms to ramp up investment further while also offering returns to shareholders. There will inevitably be a sector differential, with the prospects for oil and gas not simply guided by the oil price, but by the progress of their shift to renewable energy. There is a threat of regulation hanging over the tech sector, with moves being made in Europe and the US aimed at limiting the power of big tech. That would send ripples through the stock market but could also push investors into diversifying into smaller cap companies in neglected sectors instead.

If the boom in UK assets is sustained, helped by a rebound in global growth, it could herald in a new Roaring 20s era, mirroring the decade long upswing following the economic pain of WWI. Although the first half of 2020 is still likely to be a challenge given the fresh lockdowns, Capital Economics has forecast 7.5% growth next year and in 2022, which would be the fastest in living memory. The Office of Budget Responsibility’s forecast is soberer but still predicts a bounce back in growth of 5.5% in 2021 and 6.6% in 2022. But too rapid a recovery has equal risks. It may limit the need for tax rises but could spark a sharp rise in inflation. To avoid a crash further down the road, the pedal of government-powered investment will need to be eased on slowly, to ensure the economy revs up at just the right speed.

Other sustainable practices are made with the intention of reducing costs and creating more profitable opportunities for businesses. They have numerous long-term financial advantages.

Below, Andrew Richardson looks at three reasons why businesses need to invest in sustainable practices if they want to prosper in 2021 and beyond.

Improve your brand value and reputation

It’s becoming increasingly clear that consumers are seeking alternative and more sustainable options when they shop. Consumers who believe that they have a personal responsibility to maintain global temperatures and reduce pollution and waste in the environment will seek out companies that promote their brand as a sustainable business.

While it’s not only important to employ a sustainable strategy to your business, aligning this plan with your brand image allows consumers to appreciate your organisation’s strong and ethical values. Sustainability is of course essential in its own right, but potential customers are now forcing the issue when it comes to business practices.

A survey by Nielsen found that 75% of millennials (aged 24 to 39) believe that they will change their purchasing habits to reduce their impact on the environment. Furthermore, 90% of this group said that they would spend more on products if they were made sustainably.

Research from NYU Stern Center for Sustainable Business found that between 2013 and 2018, 50% of consumer-packaged goods growth came from sustainably-marketed products. Companies have already begun to take advantage of the value placed behind sustainability. This trend is expected to continue.

Sustainability is an investment, but it can command high prices and drive more sales - particularly in key consumer markets. The social value of your brand is important to consumers and they want to participate in your sustainable processes by supporting businesses that share their values.

Sustainability is an investment, but it can command high prices and drive more sales - particularly in key consumer markets.

Staff retention and job attraction

Investing in sustainability is not just about the planet and your customers. Team members increasingly expect to work for a company that they think is making a difference in the world.

A recent survey found that 56% of workers believe that “ignoring sustainability in the workplace is as bad as ignoring diversity and inclusion”. Even more, 40% said that they would seek alternative employment if their employers did not engage with sustainable business practices.

Employment is one of the biggest investments a company can make, with the cost of replacing one staff member in an SME estimated to be around £12,000. Investing in sustainability can help reduce the cost of recruiting new staff and retaining your best employees.

Of course, employees want to know that their work is making a positive contribution and is ethical but they also believe that if a company cares about the environment, the business is also likely to care about their wellbeing too. Therefore, boosting staff loyalty to the brand. Just think of the impact of your staff going home and boasting about the work they are doing to friends and family.

Preparing for the future with resource efficiency

Sustainable practices also help you to keep costs down through the preparation of sustainable resources and reducing waste. Did you know that waste disposal accounts for approximately 4-5% of the turnover of a business?

This can be identified as an unnecessary cost for businesses, particularly for those who do not practice sustainable recycling or aim to reduce their waste in production or purchasing. Instead, designing products where their excess materials can be reused in different products or by creating by-products in the process, you can dramatically increase your revenue with little additional costs.

One company making a push to zero waste are craft beer brewers Sierra Nevada. The company recycles all its waste ingredients, mainly barley and hops, by sending them to cattle farms to be used as feed for livestock. All their organic waste is also composted on-site to use for the growth of their future ingredients. The company declares that they have saved over $5 million since using this sustainable practice. Of course, the practices will differ from sector to sector, however, Sierra Nevada proves that the measures can be creative and uncomplicated.

Regenerating your own products and ingredients is also a significant sustainable practice. Many sectors, particularly those in manufacturing and energy, use finite sources in production. It is known that these products will run out eventually, and their prices will increase with their scarcity. Even regenerating products can become scarce and expensive in demand and do more damage to the environment. Though wood is regenerative, deforestation is a dangerous practice. Therefore, investing sustainably means investing in your future products, not just philanthropy.

Many toilet paper companies commit to planting trees for every product bought. While we recognise this as tied in with their marketing campaigns, it must be highlighted as a suitable investment for companies that will eventually rely on these trees as production materials. This can be considered for businesses in terms of green energy and conserving water.

Investing in sustainability is investing in the future of your company. Understanding the value of reducing waste and practising regeneration is not just for the prosperity of the planet, but also for your business.

The measures to make your business sustainable are as important for your future profitability as it is for ethical reasons. To save your business from company liquidation, you must adopt new strategies to move forward in the world. Business should always be a force for good and give back to the community through employment and positive consumer experiences. Investing in sustainability is just another step to improve your business and grow your authority and revenue.

Sources:

https://www.nielsen.com/us/en/insights/article/2018/was-2018-the-year-of-the-influential-sustainable-consumer/

https://hbr.org/2019/06/research-actually-consumers-do-buy-sustainable-products

https://press.hp.com/content/dam/hpi/press/press-kits/2019/earth-day-2019/HP%20Workforce%20Sustainability%20Survey.pdf

https://www.accountsandlegal.co.uk/small-business-advice/average-employee-cost-smes-12-000-to-replace

https://www.brother.co.uk/blog/sme/2017/business-waste-cost

https://sierranevada.com/about/sustainability/

Ibbotson and Kaplan, in their 2000 study, demonstrated that asset allocation is responsible for nearly 90% of portfolio risk and return. With that in mind, if we seek to outperform the market — looking for the next Amazon or Tesla would surely do the job, but that will be the equivalent of searching for a needle in a haystack. A more realistic goal for the retail investor would be to overweigh their exposure to the right market sector.

In search of optimal portfolio allocation

Let’s start by first looking at some historical information that would help us align our expectations for the future. The time we’re living in currently is quite interesting. Nine months have passed since the start of the bear market in February, and the market is back to pre-crisis levels already. That might mean that the recovery’s tempo might slow down a bit but looking at the job market and the GDP figures — there’s undoubtedly more space for growth.

Since the 1960s there have been three sectors that have consistently outperformed the market in the early stages of economic recovery: Real estate, Financials and Consumer Discretionary.

The one thing they have in common is the boost from low-interest rates, as those are the sectors most dependent on credit. Of course, we should not fall prey to a time period bias, as no two recessions are quite the same, so we need to closely examine each sector’s prospects in the current COVID-19 environment.

Real Estate

Initially, this sector was one of the worst-hit, falling almost 40% in March. However, in the past few months, we’ve started to see a resurgence. The broader real estate index VNQ has outperformed the S&P almost 2 to 1 in the past month, returning 6% vs. 3.11%. One may ask, what led to this strange turn of events?

First, we see an unprecedented boost in residential real estate deals, stemming from the record-low mortgage rates combined with the increased consumer confidence in the summer months. Existing and new home sales skyrocketed in July to levels last seen in 2006!

While those figures show there’s a healthy demand for both multi-family apartment buildings and single-family homes, we’ve seen that there’s a clear winner in the residential space — single-family homes. We believe that’s the subsector that’s most likely to outperform due to the long-term structural changes resulting from the crisis. Two factors are most likely to drive growth in the single-family market segment. First, families facing job loss and weakened financial position are being priced out of the downtown, suburban areas. They are likely to drive up demand for rent in single-family properties farther away from the metro areas. Work from home is the second factor that we can’t help but acknowledge. When people no longer have to be close to their offices, they tend to move out to more affordable areas. Altogether — big cities lose their appeal when all their experiential amenities are closed, and WFH being a viable long-term option.

Some honourable mentions in this sector are data centres, logistics properties, and telecommunications infrastructure. These segments benefit from some healthy tailwinds from the COVID crisis, but this has been reflected in the price to a large extent. The YTD return on all three is currently in the double digits.

We believe that the biggest opportunity for abnormal risk-adjusted return in the real estate field is in the residential market. It has always been one of the most stable parts of the market, the tailwinds are starting to materialise just now, and the broad residential index is still down almost 10%, signalling that there’s still plenty of room for growth.

Financials

In this sector, unfortunately, the prospects don’t seem as promising. It’s considered to be one of the best during the early stages of economic recovery, and it may look like it’s doing well again — the XLF has outperformed the S&P in the three-month and six-month time frames. This run-up has been caused by the generally positive market sentiment around the vaccine news. Banks were severely battered in the first couple of months of the recession, so they had some more catching up to do. Some believe that the rally depends more on the regression to the mean than on the industry’s actual fundamentals.

We have to address the elephant in the room — interest rates.

Central banks in all parts of the western world slashed rates to 0%. In the short term, that actually looks good for banks, as their profits jump due to the appreciation of their existing fixed income securities. However, when interest rates are at 0% for an extended period, adverse side-effects appear. Namely, there’s a reduction of the net interest margins, which leads to a slower expansion of loan books and balance sheets, hence the reduced profitability. During the most recent meeting, the Fed signalled that interest rates might remain at 0% until 2023! Considering the impact on margins that this may result in, the risk/return profile is currently not overly appealing.

Consumer discretionary

Consumer discretionary has always been one of the most cyclical sectors. This time around, though, the performance between the individual components is highly varied. The consumer cyclical index XLY is still up nearly 26% YTD, double the S&P returns. However, this performance is only caused by the few top holdings of the index. Amazon has been a considerable driver behind this — being up close to 70% YTD! On the other end of the spectrum, we see travel services, lodging, and resorts, each being down YTD. With the vaccine news coming up, and consumer spending back to pre-COVID levels, we expect the tide to turn with time. The big e-retailers indeed had a good time during the past few months, but the valuations are starting to look a bit crazy. On the other hand, there’s still plenty of bargains in the lodging/resorts sub-sectors. Of course, there are many risks involved with these stocks, as they are currently burning a ton of cash, and the leverage levels are also high, but that’s the high-risk, high-reward play.

Auto manufacturers are also giving online retail a run for their money. As of the 25th of November, Tesla is up 563%. Those, however, are rookie numbers compared with NIO’s cosmic rally of 1200%. Now there’s much speculation going on with the EV stocks these days, and no one will argue that some of the valuations are a bit disconnected from reality. It’s just momentum traders piling on the next ‘big’ thing. However, we must not fully disregard this, as it’s pointing us to a hint about the future.

Assets under management in ESG funds have quadrupled to $250 billion in the past three years.

The rise of ESG investing

Younger investors are especially concerned with their investments’ environmental implications, and they are putting their money where their mouth is. Assets under management in ESG funds have quadrupled to $250 billion in the past three years. And the speed of capital accumulation in this field is increasing. That means that all active investors should start seriously evaluating the ESG factors of the companies they invest in. Being in the right sector is the first step towards achieving superior risk-adjusted returns, but for the years to come — investing in stocks that have positive ESG scores will help to maintain momentum on your side.