[Presentation at a launch event of a new book on FinTech in Sweden, see below].
Trust is a funny thing. It’s a very human condition, which most people would consider absolutely essential in financial services and in business. Yet, we don’t reflect much on what trust really is. Most often it’s a gut feeling, not very well defined.
If you look it up in dictionaries you will find definitions such as ‘firm belief in the reliability, truth, or ability of someone or something.’
Note the word belief.
And here’s the first take-away—things that we’re using regularly without knowing well what it is and how it works, are likely to be unexpectedly changed or disrupted by digitalisation since we don’t analyze the mechanisms in play.
I started to look at the concept of trust for a contribution to a research project at the Stockholm School of Economics which has resulted in the upcoming 23-author book ‘FinTech: Accounts of Disruption from Sweden and Beyond’, and this is a short summary of the presentation I recently gave at a launch event in Stockholm.
First—what is trust:
- Trust can be related to predictability. Note for example this quote: ‘…predictability built the trust that allowed people to synchronize their actions in mutually productive ways.’
- Thus an alternative definition: Trust is the ‘possibility to predict a (desirable) outcome from interactions with someone or something.’
- Interestingly, digital technology is very good at prediction based on large amounts of data. As you will see, this can be the basis for a digital version of trust.
Then, in interviews with ten individuals (see list at the bottom), I investigated how FinTech companies and people in the financial industry build trust and relate to trust:
And here are some main findings:
- Markers. Fintech startups build trust by using markers such as well-known people on the board or among the investors, tests by external experts, media reports, using established tools such as Bank-ID, getting an ISO certification, a banking license (makes you less global!) and through compliance. Other markers that build trust over time are reliability and good functionality. Note that almost nothing of this relates to whether the service is objectively trustworthy or not. But the markers give users a sense of predictability.
- Social. More than markers, the interviewees considered the users’ friends and social networks to be important today. People trust their friends, or essentially they know that if anyone among their friends’ friends’ friends would notice something unreliable, this information would spread very quickly. Not having heard anything negative, it’s probably trustworthy. You could also argue that this regards millennials more, being more used to interacting and giving away data on the Internet. Or as one of the interviewees put it: They are ‘trusting online, or mistrusting, as the case may be, or being wary but in a different way than people who are pre-internet are wary.’ This is in line with digitalisation: The Internet enables peer-to-peer communication across the world, as opposed to hierarchies we have built for thousands of years.
- Two kinds of trust. You can have trust regarding security, and regarding whether a financial institution will give you good advice and manage your funds in a good way. Some interviewees thought that traditional banks are trusted for security but that users’ trust in banks with regard to managing funds is decreasing. Some also thought that millennials have more trust in Internet giants such as Google, Facebook, Apple, and Spotify, than they have in banks, and that these will be more successful launching new financial services, such as direct payments through messaging services, launched by Facebook among others, and recently announced by Apple. This was considered to be an opportunity for FinTech companies.
- Trust is two-way. For FinTech companies, it’s essential not only to be trusted but also to have trust in their customers, to some extent by regulation e.g. regarding KYC rules (Know Your Customer). The Swedish bank-owned digital system for identification, Bank-ID, has been a door-opener for digital financial services, making it possible to identify people remotely. However, Bank-ID has also been criticized, partly for being privately owned by major banks with a potential self-interest of not being challenged, partly for lacking security (more about this in our report).
- Digital trust—Blockchain. As mentioned above, digital technology is efficient for prediction. One example is the startup Hiveonline, building a system for automatic credit rating, as opposed to human judgment. The system collects data on interactions between parties, and through an algorithm, it calculates a credit score which is not influenced by judgment and supposedly holds a higher quality with regard to prediction about how individuals will behave. In other words, trust. (The collected data is stored in a Blockchain—the distributed ledger system which is the basis of Bitcoin and which could be considered to provide distributed trust, since it eliminates the need for a trusted partner which controls and guarantees transactions. Note that Blockchain technology is not yet considered mature and some believe that it can not be used effectively for other applications than cryptocurrencies such as Bitcoin).
- Possible effects of automated credit ratings: In developed economies: a rebalance between large businesses and micro businesses. In developing economies: two billion unbanked, of which 1.5 billion people without even ID, birth certificates or other documents, could get a credible credit score and go to the bank to get a loan.
- Culture. Discussing global systems for digital trust, it’s important to remember cultural differences in people’s perception of trust. One such main difference is the scale between cognitive and affective trust, where cognitive trust is based on the confidence you feel in someone’s accomplishments, skills, and reliability, whereas affective trust arises from feelings of emotional closeness, empathy, or friendship. It turns out that in business contexts, cognitive trust is predominant in the US, in Australia, and in northern Europe, whereas affective trust is more important in Asia, in Africa, in the Middle East, in Mediterranean countries, and in South America. Possibly, affective trust is more important in countries where the legal system is less effective. US businesses, on the other hand, rely much on written agreements and consider mixing cognitive and affective trust unprofessional. Yet, proposing a written agreement in a country where affective trust is predominant could even be seen as offesive—you don’t trust me? All these cultural differences are important to recognize and relate to in a potential global system for digital trust, as in all other contexts of digitalization, where human aspects are half of the equation.
- The Trustnet—a possible evolution of the Internet. This would be a part of the Internet which you can only access if you identify yourself with a global, non-govermentally controlled ID system, e.g. based on Blockchain technology. In this way, everyone on the Trustnet would see whom everyone else is—even governments or companies wanting to do surveillance would need to identify themselves. In this way, surveillance becomes symmetric, as in a small village where everyone knows everything about everyone, as opposed to asymmetric as of today when we don’t know who is watching us. You would then see if people would ‘vote with their feet,’ and for different activities move between the Trustnet (where everyone is identified and visible), the Internet (where you can be anonymous and visible), and the ‘Darknet‘ (where you can be anonymous and invisible).
The book ‘FinTech: Accounts of Disruption from Sweden and Beyond’, expected to be released later this year, is part of the three-year research project The Internet and Its Direct and Indirect Effects on Innovation and the Swedish Economy—led by Professor Robin Teigland at the Stockholm School of Economics, with funding from IIS, The Internet Foundation In Sweden.
List of persons interviewed:
Cecilia Skingsley, Deputy Governor of Sweden’s central bank, the Riksbank, Henrik Rosvall, CEO of the savings app Dreams, Johan Lundberg, Co-founder at the FinTech focused VC-firm NFT Ventures, Daniel Kjellén, CEO at the integrated bank information app Tink, Ulf Ahrner, CEO at the investment digital advising company Primepilot, Danny Aerts, CEO at IIS (Internetstiftelsen), Lan-Ling Fredell, Head of Operations at Stockholm FinTech Hub, Sofie Blakstad, CEO and Founder at the financial trust platform Hiveonline, Frank Schuil, CEO and Co-founder at the Bitcoin-focused startup Safello, and Jonathan Jogenfors, researcher at the University of Linköping.
Note: I also do seminars and workshops on digital transformation, and if you want a deeper look at digitalization, please don’t hesitate to contact me.