Renowned economist Myron Scholes, a Nobel Prize winner, shares his perspective on how to rebuild trust in the financial technology (fintech) sector, which has been plagued by uncertainty and a lack of transparency.
The Trust Deficit in Fintech
America is in the midst of what has been dubbed ‘a crisis in trust’. Among the institutions alternative financial services, the banking sector, and government rank fairly low. This is a big issue because a functioning financial system is crucial for the economic health of any country.
The financial system is based on trust — the belief that people can withdraw their money, that their assets are safe in an investment account, and that they will get full market price for their trades. But, gaining trust in financial services is a complicated issue.
Financial systems are complex and opaque—and complexity erodes trust. Digital finance in form of online trading, blockchain, mobile transactions and banking by such offers ideally lead to advancement even the simplest coins deals and value saturation. But it remains to be seen whether these innovations are working as intended.
The scariest thing in fintech
Take blockchain, for example. Advocates of the system argue that because transactions are verified and placed on the ledger through a decentralized network of computers, trust is not required. Yet, Blockchain seems still a hard to understand for most people and so is to handle the digital money. Thus, the reality is that most people simply rely on crypto exchanges and banks — institutions which require as much trust as legacy financial services provider — to hold their assets for them.
Finance was always there, but now with the use of Artificial intelligence (AI) finance has advanced. AI can improve access to financial services, but it also has the potential to lower transparency The question this raises is: to what extent do these new technologies impact our trust in the financial space?
Bloomberg Opinion columnist Nir Kaissar interviewed Nobel Prize-winning economist Myron Scholes, who has been studying trust in finance for the better part of four decades.
Conclusion
One of the key tasks is to restore confidence in the financial system and Myron Scholes shares some valuable perspectives. With so many forward strides taking place in these sectors of finance, it is more important than ever for financial institutions to focus on transparency aided by education, empathy and the will to carry out actions with their clients’ benefit over strictly profitability. When the fintech industry is rooted in trust, it has a chance to contain binding elements within all such transactions that contribute to more secure and successful economics of the future.
