May 30, 2024

Artclear: Security for the 21st Century Art Market

Artclear: Security for the 21st Century Art Market

At Artclear, our background is in the world of payments and securities settlement systems, which are critical infrastructure for the global financial system. These systems help remove risks that are inherent in many transactions, such as legal title uncertainties and settlement risks, whereby one side to a deal fulfils their obligations and delivers what they owe but not the other side, leading to potentially catastrophic losses.

The development of such infrastructure has been one of the great unknown success stories of financial services and underpins, for better or worse, the tremendous growth in the volume and value of financial activity in the 21st century. Yet, it has no parallel in the art world, despite the increasing overlap between art and finance. The Art Newspaper reported in March on the rise of art-backed loans and Sotheby's announcement of a new securities service, which highlights the need for secure and reliable infrastructure to support these initiatives. That’s where Artclear comes in. In this article, we will explore the overlaps between art and finance and how Artclear is addressing the challenges facing the art market.

The similarities between art and finance

While art and finance are vastly different, they share several affinities. Art, like financial assets, can have substantial monetary value and often represents a substantial proportion of an owner’s net worth. Artworks can also be held by some collectors as explicit or implicit investment assets and are accepted by lenders as collateral for loans. Additionally, artworks are traded, often in marketplaces where buyers and sellers never meet. And finally, mirroring issues facing financial assets before the implementation of secure transaction management systems, physical possession and legal title of artworks regularly become detached as they are loaned between collectors, placed into shipping and storage, or given over to the safekeeping of a host of agents.

Challenges facing the art market

The global art market is valued at USD 65 billion, a number that has remained unchanged for the past decade. In contrast, the 2022 Cap Gemini HNWI Financial Wealth Report indicates that the financial wealth of High Net Worth Individuals, the key client segment for the commercial art market, has nearly doubled during this time. While there are undoubtedly numerous reasons for this discrepancy, one explanation is the lack of transaction management infrastructure in the art world, which raises the costs and risks of entering the market.

Global Art Sales vs high Net Worth Individual Financial Wealth: 2011 to 2021
Sources: Art Basel / UBS Art Market Report 2022; Cap Gemini HNWI Financial Wealth Report 2022.

In the absence of reliable infrastructure, art market participants must rely heavily on direct trust of their counterparties.  One consequence of this is that the impact of digitisation has been rather superficial. Sure, many galleries have virtual sale rooms and so on, but real business is still done face-to-face.

Until 2020, online sales of art had plateaued at around USD 4.5 billion a year: less than 10% of the market’s total value. A 2019 survey by Hiscox found that many online art buyers had concerns about not being able to physically inspect the condition of works, difficulties establishing the seller’s reputation, and fear that the object bought is a fake. Fear of cybercrime was also a major issue. And keep in mind that this survey was taken among the group of people who had overcome their concerns enough to make an online purchase.

Survey results from Hiscox Online Art Trade Report 2019. What are the key issues that online buyers are most concerned about? Physical inspection (74%) Reputation of the seller (60%) Authenticity (62%)
Source: Hiscox Online Art Trade Report 2019.

The Covid pandemic in 2020, which closed many of the major international art fairs, gave a big boost to the online market. However, none of the concerns raised by the Hiscox survey have been addressed and the 2022 follow up survey affirmed the same concerns among collectors.

Artclear’s Solution

Artclear is bridging the gap between the art and finance industries by building infrastructure designed to secure the art market. Our system tackles uncertainties surrounding buying, selling and owning works of art, by indelibly linking information supplied by verified, qualified sources, to the individual artworks to which they relate.  This gives participants in the art market absolute confidence in their transactions at all times, whether face-to-face or online, enabling the art market to expand its reach, reduce fraud, and increase efficiency.

We are combining cutting-edge technology with our expert knowledge of financial transaction systems, to prepare a digital and secure art market for the 21st century.

This article was originally published in January 2022, but was updated in March 2023.