Trust key for wider adoption of emerging technologies
Customer trust plays an important role in the buying decision, and companies understand the importance of building a trusted brand or concept that will attract and retain customers over the long term. With emerging technologies like cryptocurrencies and exchanges, the situation is no different.
“One of the most important services traditional banks provide is emotional trust,” said RA Farrokhnia, professor at Columbia Business School and executive director of the Columbia FinTech Initiative. And despite the economical rents and fees, banks “ensure that the counterparty risk is lower when you want to borrow money or make a payment because you have a central authority”.
Other companies like LendingClub, which offer unsecured personal loans to consumers, also act as intermediaries between lenders and borrowers, helping users complete transactions without entering a bank or using a credit card.
In one scenario where these intermediaries are removed, you are entering the decentralized finance (DeFi) realm where “you need to rebuild some kind of trust mechanism in the system,” Farrokhnia said.
The confidence deficit, however, has the potential to reduce costs and provide more access to those in emerging and developing countries who may not want to participate or may not be able to participate in the traditional ecosystem of financial services.
However, Farrokhnia pointed out that DeFi is still in its infancy and not very efficient.
DeFi and regulation
Farrokhnia claimed that contrary to popular belief, there is no “frontal collision” between regulation and DeFi and that regulation is important to ensure that the underlying products meet certain thresholds, standards and regulatory frameworks that have been set for traditional financial products.
Regulation is also important to protect retail investors, he noted because, like any other system, there are still bad actors and regulation will help minimize illegal activity in the area. It will further lead to more acceptance and less hesitation among users, while increasing the possibility of wider acceptance by the masses.
However, the road to regulation is not going smoothly. Farrokhnia said some innovative products like DeFi are behaving in ways that were not believed possible or may violate current regulations. This is why he said there is a lot of conversation going on between regulators and innovators as the former tries to keep up with the fast pace and figure out how best to regulate DeFi products.
Regional differences in the uptake of emerging technologies
One of the biggest problems that will determine how the nascent ecosystem will evolve is how restrictive or permissive regulations are and how they speed up or slow down the various types of innovations that are currently taking place, Farrokhnia said.
He added that most of the tools, techniques, and products are still in the hands of early adopters who are tech-savvy and know the ins and outs of the system. In order to reach the masses and a much larger audience, factors such as easy access and user-friendly interfaces need to be considered.
Commenting on the differences in acceptance in different parts of the world, he said: “There are certainly some interesting developments or ideas coming online in different parts of the world; You are still not at the point where you can still see a lot of differentiation. “
However, there are differences that exist from one location to another. For example, although countries like China and Japan are close together, the payment systems in the two countries are quite different. And in the case of Europe, where certain advanced countries like Germany were very cash-oriented and had a relatively lower acceptance of credit cards before the pandemic, it was only after the crisis began that more people, companies and merchants started switching online and started accepting cards.
He added that since Africa and Asia have skipped fixed line infrastructure development and moved directly to mobile telecommunications, “it is not out of the realm of possibility” that cryptocurrency development in emerging markets will follow a similar path of leap over traditional financial services.
He said so, affirming the fact that adoptions, applications and innovation will vary in different parts of the world, “depending on a variety of parameters, including the existence of sophisticated regulation of the financial services industry, economic stability, exchange rate volatility, access to Exchange rate and capital controls. “
Farrokhnia said blockchain technology could be one of the few landmark moments in the development of the financial services system since the invention of banking, “which could revolutionize and provide an entirely new paradigm for how people interact with the world and financial systems.”
But ultimately, the advancement of technology and other emerging technologies will depend on how, for example, privacy and access issues are addressed.
The timing of this development is impossible to predict, he said, “but I strongly suspect that this would be one of those scenarios that would have been very difficult to imagine not so long ago, and suddenly you can do things that you could do before not possible or would have been costly, and now you can do it more efficiently. “