How to raise the level of literacy of inexperienced investors and who should do it?
Recently with the growing popularity of ICO as a way to attract investment, the term “unqualified investor” has become known to a wide audience. Regulators at the international level and participants of the financial market are concerned about the growing activity of such investors and, in order to avoid the negative consequences of investing in projects with a high level of risk, introduce more restrictions for investing via the purchase of a digital currency. However, what is better for the “inexperienced investors” themselves – limiting or raising the level of financial literacy? According to Ilya Maksimenka, the founder of the payment system PlasmaPay, time constraints can be useful, but a set of measures to increase the level of education of the population has the greater effect in the long term. And, according to Maksimenka, this task falls on the shoulders of companies participating in the financial market.
One of the key differences between a qualified investor and an unskilled investor is that the latter one usually invests following the “hype technology”, while the first oneunderstands the market and its laws pretty well, analyzes, collects data on the project and already has certain investment experience.
It may seem that fintech projects have nothing to do with investor’s problems. However, according to Ilya Maksimenka, an honest project attracting money through the ICO carries a huge social responsibility to mass investors and should raise the level of general financial and investment literacy of its “investors”, even if it leads to a reduction in the total fees for the ICO. There are eight simple tools that any honest fintech project should use if its investors are on the list of its priorities.
Eight steps towards literacy
1.Clear documents. First of all, information about the project should be accessible and understandable to every investor. Therefore, fintech projects which are going to attract investments should have three types of documents: white paper, invest pitch, finmodel. For White paper, one page is needed, which outlines the technical aspects of the project briefly and clearly without complications and special terms.
It is better to have Investment Pitch in a simplified format called Elevator Pitch, which consists of several slides: problem, solution, market, competitors, team, project financial indicators, road map.
Finmodel should be clear and understandable, as well as reasoned and taking into account the risks of project implementation.
Such careful attitude towards the mass investor will save the project from the future problems associated with misunderstanding and panic of investors, and will reduce the risk of the appearance of massive Internet petitions and police statements of various countries. This market has already witnessef such an outcome of events many times even in the cases of well-known projects.
2.Forewarned means armed.
It is very important to have a warning on the investments risks on the web-site and disclaim responsibility of the founders (disclaimer). Even in the classical venture worldonly several of start-ups survive, and there are no unicorns 1. The development of projects is influenced by many factors, including market factors that do not depend on the founders and the team. And if we talk about new technologies taking into account their adaptation to the market, the risks increase and the investor should understand it. The availability of such documents on the site and the compulsory requirement to read and sign with them is protected not only by the project, but also by the very beginning investor, who will act wisely after by the reading and signing of the document.
3. Multilingualism. Even experienced investors understand the information better in their native language, and even beginners need a translation for a complete understanding. Translation of all documents and in some cases personal offices and all the information provided to users in many languages is a very laborious process and is rarely available to new even global projects. Particular complexity is caused by the translation of all legal documents, which must also be adapted to all jurisdictions where the project will be submitted. And the most difficult step is technical support, which should communicate with users in their native languages.
4. Online courses for unskilled investors. There are a lot of such courses on the market today, but it is difficult for an inexperienced investor to navigate in the flow of information. And fintech startups should help users navigate in the world of new information and create such courses at their own base or at least send their users to the relevant sites. For the projects themselves, such work will increase the trust of future investors and loyalty, and users will be able to replenish their knowledge.
5. Public and community of the project. This is one of the most important tools for increasing the investment and financial literacy of the population. Moreover, not all projects today are able to use this tool competently. Very often, the public and community are formed and developed due to the goal of creating a “hype” around the project. However, according to the founder of PlasmaPay, fintech projects should be responsible to their users fir creating an appropriate information flow through their public relations. Competent start-ups with long-term goals build a community that participates in the development of the project. In such communities, more experienced users act as mentors for new users, answer their questions about the project and the industry. A good example of such an organized community is Revolut and Wirex.
6. Alerts. A novice investor should develop the habit of keeping his hand on the pulse of exchange rates, market news, and first of all monitor his portfolio, wallet and personal page constantly. For that, competent and responsible projects must implement a system of warnings and notifications of users via e-mail within the framework of localization and within the system (project, platform, application) in their native languages.
7. Educational platforms. Nowadays there are separate large platforms on the market with an accumulated and proven knowledge base that will help beginners navigate the new information field and gain primary knowledge about the digital currency market and blockchain technologies. Users can ask any questions and get competent answers there, for example on quora.com. There are investment wikis, such as investopedia.com. Moreover, each country has its own local educational platforms, which have developed a sufficient knowledge base in native languages for users recently. The task for responsible fintech startups is to provide qualified information for such platforms (reviews, trends, opinions).
8. Meet-ups and conferences. These events are organized either by the users themselves or by responsible companies that take care of their users and try to increase their trust in their projects. At such events beginners can listen to more experienced investors, ask their questions and just keep a hand on the pulse of the market and trends. An offline community is formed on the basis of such events,
These simple tools that any responsible projects should use will help both start-ups and users. Of course, increasing investment literacy is not the prerogative of only those projects that go to the ICO. This is a task that must be addressed both at the state level and at the level of individuals.