How Technology Can Solve The Financial Industry’s Deficit Of Trust

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Editor’s Note: This guest post was written by Mike Sha, who is the CEO of SigFig, a free online investment management service. Prior to SigFig, Sha held various key positions at Amazon, including running product at Amazon Payments.

To say Wall Street currently suffers from a deficit of trust would be an understatement. In the last few years alone, the government had to bail out Wall Street to the tune of $700 billion, Madoff and Stanford bilked investors of billions, and ex-Goldman executive Greg Smith’s damning op-ed in the New York Times gave everyday people a glimpse into Wall Street’s profits over people mentality.

In response to the recent fiascos on Wall Street, the government decided to subject the financial industry to its most widespread reform since the Great Depression: the nearly-850-page Dodd-Frank act. This complex regulation is only part of the solution and is a reactionary approach to solving a problem for which the fundamental root cause is surprisingly simple: people no longer trust Wall Street. Regulation may restore stability, but it won’t restore trust. So what will?

The 2012 Edelman Trust Barometer Survey found that more than 50% of people don’t trust the financial services and banking industries. Those results were poor enough to land both industries in the rock bottom two slots in both 2011 and 2012.

The flip side of this survey is that the technology industry was ranked as the most trusted for the sixth consecutive year. Why are technology companies 75% more trusted than financial services companies? Here are some of the things that have helped technology companies earn trust:

  • Put Users First & Trust: Do what’s right for the user. Silicon Valley and the broader startup ecosystem has been raised in a “do what’s right for the user” culture which is desperately needed in industries like financial services, where the desperate search for profits has come at the expense of customers.
  • Truth & Trust: The data never lies. Access to data, and computing power to crunch the data, enables the creation of high-quality, low-cost services that are highly accurate and infinitely scalable. Some industries, like search, are fundamentally built around data analysis, but as we enter the era of Big Data, we are already seeing the effects spread to other industries like health, advertising, retail, and more. Industries that have thrived on opaqueness, like finance, will be disrupted the most.
  • Awesomeness & Trust: Focus on design and user experience. Well-designed, highly-polished products communicate to the user that a company cares about its product and gets the details right, which in turn earns user trust. Last year people shelled out over $125 billion to buy Apple products, but the emphasis on design has quickly spread beyond hardware. Software has enabled websites and mobile apps like Instagram, Pinterest, Fab.com, and Path to bring modern design to everyday life. But it’s not all about how it looks and feels – building services that are fast, stable, and bug free all add an overall feeling of reliability which also impacts user trust.

Several startups, including Square, Simple, and our company, SigFig, are embracing many of these principles to solve problems in finance and banking. At SigFig, we’re using data-driven advice to level the playing field between everyday investors and the investment industry at large, which thrives on opaqueness and puts profits before customers.

This tech-powered advice would be unbiased and driven by cold hard facts, not opinion or commissions. It would also be more robust since tech-powered advice could analyze thousands of products, unlike human investors who can only look at a fraction of that and whose attention is divided between hundreds of clients. Finally, this type of advice would be cheaper and more accessible to everyone, not just those with portfolios worth more than the $250,000 that many brokerages require.

As tax time approaches this year, it’s easy to imagine how ridiculous the idea of relying on a computer prepare your taxes would have seemed 30 years ago. And yet today, technology-powered services like TurboTax have made preparing taxes better, easier and cheaper for millions of people. Some day, hopefully soon, the same will be true across investments, banking, insurance, mortgages, and more.

Obviously, there is no silver bullet to win back trust; Wall Street will have to consistently prove it can be transparent and act in ways that show it deserves to be trusted. Still, we think that if Wall Street embraces technology, it will help to solve a lot of the issues that led to the distrust in the first place. If not, well, there’s a whole crop of startups that are embracing these principles and will change the industry on their own.

Image credit: Will Nathan, wmilesn.com