Trust has always mattered in banking. In the wake of the recent financial crisis and subsequent scandals, it becomes clear that the traditional centralised system of banking does not always serve the best interest of customers. Gregory Pepin, CEO of io.finnet, explains the hybrid model where selected features of centralised and decentralised systems can redefine banking and instil trust in global customers, in an interview with Hilton Supra for citiesabc YouTube Podcast, powered by openbusinesscouncil.
According to the Global Findex 2021 database, two-thirds of adults worldwide now make or receive a digital payment. In a world where customers are choosing mobile apps over teller windows; and digital wallets are fast replacing cash in pockets, banks are changing rapidly. Therefore, while evolving with this cultural shift, banks need to face unprecedented challenges to redefine themselves and earn customer trust.
Rebuilding trust in finance has become a crucial endeavour, demanding a comprehensive reassessment of practices, ethics, and accountability. As the foundation of the global economy, the finance sector plays a pivotal role in driving growth, allocating resources, and supporting businesses and individuals. However, restoring confidence in this industry requires a collective effort to address past shortcomings, adopt transparent practices, and prioritise customer-centricity.
Gregory Pepin is an entrepreneur and investor, with extensive background in the finance and technology industry, specialising in wealth management, finance, management, and strategic development.
Highlighting the important lesson from the past, Gregory told Hilton:
“An important lesson we all learnt in the previous financial crisis (and also the current) is that we need a completely trustless environment that could reduce fraud and could give back power to the user. ”
The financial crisis in the past have exposed the vulnerabilities and excesses within the industry, leading to widespread disillusionment. Rebuilding trust necessitates a thorough examination of past mistakes, understanding their root causes, and implementing robust regulations to prevent similar crises in the future.
Governments, regulatory bodies, and financial institutions have an integral role in this system to collaborate, establish, and enforce stringent standards that promote stability, risk management, and ethical conduct.
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Fostering transparency and accountability: The first steps to build trust
Transparency is a vital aspect of rebuilding trust in the finance industry. In traditional financial institutions, the flow of information and decision-making is often concentrated in the hands of a few central authorities, leading to opacity and potential manipulation.
However, decentralised systems, such as blockchain technology, offer a transparent and immutable ledger that records transactions and data in a distributed network. This technology enables financial institutions to enhance their disclosure practices by providing customers and investors with direct access to accurate and comprehensive information.
With decentralised systems, financial transactions can be traced and verified by all participants, eliminating the need for blind trust in intermediaries. The transparent nature of these systems allows for real-time monitoring and verification of financial activities, reducing the risk of fraudulent practices.
Prioritising customer-centricity as means of rebuilding trust in finance
Rebuilding trust in finance requires a shift towards customer-centricity. Putting the best interests of their customers to priority, financial institutions are now offering products and services that are transparent, fair, and tailored to meet individual needs.
“You can, for instance, use MPC, a cryptographic technology, and use that as an authentication layer in the banking system to be able to finally give the power to the individual. All those elements allow you to use the technology of cryptography and blockchain to take back some control”, Gregory told Hilton.
In today's digital age, where personal information is increasingly stored and accessed online, ensuring the security and privacy of digital identities is crucial for rebuilding trust. This includes implementing robust authentication mechanisms, encryption protocols, and secure storage practices to protect individuals' sensitive information.
Gregory explained the process of generating a sovereign ID for a person:
“The world has been evolving around the trust environment, because that’s the only thing we could verify. Banks interact with each other using SWIFT as the messaging system, because they know it’s you via your SWIFT RMA key. Now, if we’re able to use that system and give to each of the individuals a key and there is a privacy-based ID on a permission-based chain that those regulating institutions have approved, it gives rise to a sovereign ID.”
By utilising technologies such as blockchain or decentralised identity systems, financial institutions can enhance the security and integrity of digital identities, giving customers greater control and confidence over their personal data.
A hybrid model of banking is more robust and trustworthy
Combining selected features of both centralised and decentralised systems, brings out an innovative approach that aims to instill trust in global customers.
While the centralised component offers stability, regulation, and oversight, ensuring compliance with industry standards and protecting customer interest, decentralised aspect, on the other hand, introduces transparency, accountability, and efficiency through technologies like blockchain.
Explaining his vision of a hybrid model of banking, Gregory told Hilton:
“A bank is a regulated institution that has been approved by the regulators as the guardian of the system. The real thing they are guarding is making sure that the system is not used to fund illegal activities. That’s all the KYC and AML features. We can still use those institutions as “gates” from a compliance perspective, while you still have full control of your asset.”
This distributed ledger system enables secure and traceable transactions, eliminating the need for blind trust in intermediaries. By leveraging the strengths of both models, the hybrid approach seeks to create a banking system that fosters confidence, empowers customers, and promotes financial inclusion.
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