The Loss of Trust in Financial Institutions and the Rise of TechFins

As we mentioned, finance is largely built on trust. And in the past, banks served as the guarantors of trust in the financial world. But trust in financial institutions has diminished pretty significantly in many countries over the past decade.  

This of course is largely due to the Global Financial Crisis, which affected millions of people around the world. David Bishop remembers that time vividly. Back then he was still practicing law full-time in Hong Kong, one of the world’s financial centers. Most of his friends, colleagues, and clients were deeply affected by the crisis. Even so, they were only able to watch as the near collapse of the global financial system occurred.   

We watched many of our friends as they were terminated from jobs with little warning. We had a daily reminder of how flippantly certain members of the global financial community pursued profits at the expense of their customers and raised concerns that government regulators were not adequately supervising the financial industry.  

The crisis and its aftermath highlighted how the financial system and banks failed to perform some of the chief roles they were meant to perform for our society, particularly in managing risk and allocating capital. Millions of people around the world lost their homes, their savings, and essentially their futures.  

In the US alone, it was estimated that American households lost $20 trillion dollars in wealth as a result of the Financial Crisis. And as a result, it might not surprise you that many people began to distrust the very institutions that were meant to protect and serve them. And the age-old characterization of bankers as greedy, selfish, short-sighted, bloodsuckers returned in full force.  

Let’s be honest: many large financial institutions have not done much since the Financial Crisis to reduce our concerns, with multiple high-profile scandals only helping to hasten the rise of FinTech innovations outside of the traditional financial sector.  

Over the past ten years, due in large part to a combination of the Financial Crisis and the advent of the smartphone, a major shift has occurred, characterized by the rise of what we call the TechFins – digital platforms like Facebook, Amazon, Google, and Tencent – that provide e-commerce, peer to peer lending, communications, and increasingly serve as the keepers of our digital identity.  

But after more than a decade of explosive growth, many of the TechFins are themselves embroiled in controversy, once again leaving customers wondering who they can trust. Data privacy breaches and little accountability have caused many people to question their use of these large technology platforms. But the fact remains: people still need financial services.  

So who will step up as the trusted partners of the future? Of our future? Let’s consider that question as we dive into our first case study.