As financial markets are reaching all-time highs, Bitcoin is eyeing the $10,000 valuation mark and venture funding in cryptocurrencies surpassed global early-stage funding for tech companies, much conversation is to be had about the future of finance. Financial technology, or fintech, emerged as an umbrella vision for transforming finance and is now among Asia’s busiest startup verticals. Sleek interfaces, simple language and value for money make many financial technology propositions stand out, and the startups behind them increasingly hard to ignore. But should we trust them to lead the way?
Fintech has lots to gain
Fintech is only beginning to scratch the surface of possibilities. Despite significant inroads in payments, lending and investing, amounts handled remain small in comparison. A popular line of argumentation with incumbents is that fintechs can’t match customers’ trust in financial institutions, especially regarding long term financial commitments, but that’s a flawed view.
Major Asian fintech players already serve hundreds of millions of customers digitally, matching incumbents’ scale across digital channels, which are likely to matter most going forward. Purchase behavior in fintech is expected to follow the evolution of e-commerce, starting with small amounts and eventually increasing to sizeable transactions. Fintech’s share in global financial activity is poised to climb steeply.
Much trust, and perhaps too much freedom
Our increasing trust in financial technology is affecting the global financial system overall. Soaring market capitalizations of major cryptocurrencies, for instance, spark ample controversy. Also debated are Initial Coin Offerings (ICOs), which allow individuals to pledge cryptocurrencies towards ventures of varying sincerity and credibility. ICOs and initial public offerings (IPOs) bear striking resemblance, yet the former requires none of the checks and balances predating a listing on any major stock exchange.
Also on Forbes: Three Reasons Why The ICO Market Is Cooling Down, But Crypto And Blockchain Are Here To Stay
The ability of blockchain to ascertain trust between multiple parties in the absence of a central intermediary seems to inspire the idea of a trustless future requiring no intermediation, but that’s a dangerous route. Blind faith in technology, akin to blind faith in markets, catches up with us eventually. Like a petri dish, transformational technologies and their applications create an environment in which great, benign and less desirable grow side by side. We must remain disciplined about what we place our trust it, but the benefits outweigh the downsides. Digix, Kyber, Anquan and Aditus are some of many initiatives using blockchain to build better financial infrastructure, making them engines of progress. This calls to question the role traditional institutions will play in the brave new world of finance.
New trusted intermediaries drive innovation
In 1994, Bill Gates famously pointed out that "banking is essential, but banks are not." Many Asian financial institutions are laggards in digitization, yet the region leads globally on mobile usage and smartphone adoption. Financial institutions are essentially trusted intermediaries, and we can expect new forms of trusted intermediaries to emerge in response to changing customer behavior – not just in finance. Many successful tech companies have succeeded in creating these by convincing us to trust in remarkable leap-of-faith actions such as staying at a stranger’s house or meeting romantic partners online. We may not realize it, but these services excel at building trust with us. Entrusting technology with buying life-long insurance, investing our retirement savings or even serving all our financial needs, then, seems well within reach.
Top fintechs lead by example
But how does one decide which fintechs deserve to be trusted? The problem is hardly a new one, as the financial sector isn’t exactly a poster child. For instance, news of Swiss regulatory sanctions imposed on JP Morgan for serious violations against anti-money laundering guidelines just surfaced, a ruling the bank apparently prevented from going public – weeks after its CEO made headlines allegedly describing bitcoin as a fraud. Incumbents’ favorite excuse for lack of progress have always been regulatory restrictions, but fintechs are proving this wrong. Every industry has been promised its Kodak moments, but for finance, one may call it Tesla moments: New entrants leading by example, with customers firmly on their side.
Places like Singapore offer great examples. Take Stashaway, who launched this year with a Capital Markets License and a low-cost alternative to traditional investing. Or Singapore Life, which went live as the first new insurer to be licensed in Singapore for four decades and is distributing affordable and fully digital life insurance. Hitting the market as licensed entities proves these companies are deserving of customers’ trust. Lacking cultural and operational legacy and with a solid foundation of trust in place, they show that new equals better and encourage the industry to up its game.
Trust is transforming
How we trust is evolving in the wake of digitization. Historic trust is losing power, and fintechs are building it fast and effectively in the digital world. Ultimately, the most trusted players will succeed. We ought to remain aware of the ease with which we trust digitally to avoid "fake news" incidents of misplaced judgement. Looking for transparency, consistency, prudent regulatory liaison, customer focus and the right people behind a venture gives unmistakeable clues about its legitimacy. If we extend our trust wisely, the brave new world of finance shouldn’t require much bravery from us after all.
