In the earliest years of the USA, banks rapidly entrenched themselves as reliable, trustworthy financial institutions by establishing impressive, solid buildings in developing towns to engender trust. The architectural solidity of these institutions not only signaled a bank’s access to capital but also represented a long-term investment in the local community for future generations.

The Second Industrial Revolution saw production drift further from the point of consumption. The uniformity of factory-produced items, such as the Model T Ford, established a baseline of quality assurance that encouraged consumers to infer that Ford-branded vehicles were reliable and consistent wherever they were purchased. The rise of the brand economy saw consumers begin to inherently trust brands.

In the modern world, however, brand trust is rapidly evaporating. The fourth industrial revolution, characterized by the disintegration of solid borders between the digital and physical world and spearheaded by technology, has had a profound impact on the way trust is generated, assessed and leveraged in economic systems.

Consumers are now obligated to trust how organizations use algorithms to best deliver services that are intimately tied to their individual data and personal preferences. Trust, as a result, is no longer directly impacted by the consumer perception of a brand but is instead increasingly rooted in action. The value and trust associated with any brand by consumers are now inherently linked to how its values come to life through observable behaviors and societal impact.

The Importance of Trust in the Digital Economy

Trust is a highly valuable currency in the world of commerce. Transparency is a key factor in how consumers interact with and trust brands — the Salesforce Trends in Consumer Trust Research Study demonstrates that 91 percent of consumers are more likely to trust a company with their data if the company is transparent about the way in which it is used. Furthermore, 79 percent of consumers are willing to share relevant personal information about themselves with companies in exchange for contextualized interactions, such as personalized offers before purchases.

The digital economy has grown rapidly since its inception in the late 1990’s. International Monetary Fund 2018 Staff Report data reveals that the digital economy is now worth over $3 trillion USD. The distributed nature of the digital economy — in which consumers are able to purchase goods and services from providers on the other side of the planet — has made trust a critical, quantifiable element of the global economy.

The digital economy, however, is evolving. Consumers no longer purchase goods and services in a vertical manner, relying on centralized service providers, manufacturers, distributors, and supply chains. Instead, consumers are participating in a new economic system that allows for the on-demand, peer-to-peer supply of goods and services — the sharing economy. Characterized by collaborative consumption, the sharing economy is growing rapidly. International supply chain giant DHL anticipates that the sharing economy will be valued at over $320 billion USD by 2025.

The core of the sharing economy is trust. While platforms such as Airbnb and Uber have functioned as the vanguard of the collaborative economic revolution, the centralized manner in which they operate forces consumer trust to rely on third-party arbitrage. The next evolution of the digital economy, however, allows for the creation of a truly decentralized trust paradigm through a new immutable, transparent tool — blockchain technology. The fourth industrial revolution, driven by blockchain technology, is underpinned by a new economy: the Trust Economy.

Trust Economy Summary:
1. The digital economy is dependent on data sharing and security
2. The sharing economy is driven by the frictionless interaction between suppliers and users on an open platform
3. The Trust Economy transforms digital interaction into trust, allowing consumers to regain control of their data

The Devaluation of Trust

Despite the critical importance of trust in the digital economy, the 2018 Edelman Trust Barometer Global Report reveals a world of seemingly stagnant distrust. The 2018 Trust Barometer surveyed 28 separate markets, of which 22 are now distributed — Trust has declined globally in 10 out of 15 sectors assessed by Edelman, with the media now taking the position of the least trusted institution. The demise of confidence in the Fourth Estate is driven primarily by a significant drop in trust in platforms used to access media, notably search engines and social media.

Sixty-three percent of respondents to the survey stated that they were unable to distinguish accurate, reliable news or journalism from rumor or falsehood, and are unable to determine whether a news is generated by a reliable or respected media organization. The lack of faith in media has led to a societal paradigm in which 56 percent of respondents state that they are unable to accurately identify the truth. A further 56 percent of respondents reveal a lack of trust in government leaders, while 42 percent of respondents state a lack of trust in businesses.

A leading cause of the devaluation of trust is the manner in which organizations use consumer data. Salesforce data demonstrates that 57 percent of consumers are uncomfortable with how companies use their personal information, while a further 54 percent of consumers don’t believe that businesses operate with their best interests in mind. Trust Barometer Global Report reinforces the growing lack of consumer trust, with 60 percent of respondents stating that they don’t trust social media platforms to handle their data responsibly.

The decay of consumer trust is a serious problem. Big data, generated by consumers, fuels the development of many of the technologies that drive the fourth industrial revolution. Should consumers choose to withhold their data — a likely result of large-scale data breaches such as the Facebook Cambridge Analytica data scandal — the growth of the new collaborative economy will be impeded.
As the fourth industrial revolution gains momentum, increasing the dependency of businesses on data, the consequences of consumer trust breaches will become more severe. Global market intelligence firm IDC predicts that the amount of consumer data subject to “big data” analysis will surge by a factor of 50 by 2025, generating more than 5.2 trillion gigabytes of consumer data.

The future of the digital economy — and the world economy at large — hinges on trust relationships. Trust has become so important that countries now have a global trust rating.

Trust has become so important that countries have also a global trust index ranking, with analytic firms such as Edelman now quantifying and assessing trust across multiple markets, demographics, industries, and geographic regions.

Trust Migration

Despite the growing statistical evidence that demonstrates growing consumer distrust, trust is not absent from the digital economy — it just isn’t where it used to be. Trust has shifted from an institutional, vertical basis to a new form of distributed, decentralized trust. In contrast to the incumbent trust paradigm in which trust flow upwards to institutions, experts, authorities, and regulators, it now flows horizontally to peers, friends, colleagues and fellow users.

In the new trust paradigm, individuals are now trust authorities. Rather than functioning as passive consumers, individuals are now social influencer who are able to define brands. The shift toward decentralized trust is changing the way trust is generated, increasing the amount of trust capital available to consumers and organizations alike.

The decentralization of trust may hold the potential to significantly impact the global economy, but presents a number of challenges — peer-to-peer collaborative trust is susceptible to manipulation. An economic environment that provides a vast array of disparate sources of “trusted” information can result in consumers trusting the wrong sources. The use of algorithms to function as the arbiters of truth presents significant ethical challenges. The trust shift will have massive consequences for the way we live, work, bank, and consume.

Credit scoring plays an integral role in the operation of the finance industry. In the Trust economy, credit scoring will expand into “life scoring”, in which individual identity and reputation data will be digitized and analyzed in minute detail. The aggregation of disparate sources of personal data will shape a future in which the “trust score” of an individual, generated as a gestalt of their actions, history, and identify data, will be the norm.

Media sources, enterprise organizations, service providers, manufacturers, and platforms all face credibility problems in the current trust paradigm. The collapse of consumer trust has created a vacuum, creating an opportunity to establish a new, decentralized trust system.

Returning Trust to the Digital Economy

It’s evident that the digital economy benefits from support from multiple forward leaning nations around the world. The Organisation for Economic Cooperation and Development Digital Economy Outlook study reveals that OECD countries and partner economies are leveraging information and communication technologies in order to establish forward-leaning policies that benefit consumers on an individual level. Both the UK and US perform strongly, as does China, emphasizing the growing number of consumers there are embracing new economic technologies such as mobile payments.

Despite the growing number of consumers around the world that participate in the digital economy, individuals are less positive than we might expect. We calculated a digital engagement score, based on consumer optimism about the ability of the digital economy to generate employment, help address global challenges, and ensure that the positive impacts outweigh the negative.

Globally, the digital engagement score stands at 45 percent, revealing a negative perception of the digital economy as a whole. The digital engagement score varies by country — generally speaking, more mature economies have the lower engagement rates with the digital economy. Transparency, however, is emerging as a key differentiator, as consumers become aware of the risk associated with trusting faulty, unreliable, or fraudulent sources of data used in trust analysis.

There are already a number of platforms bringing trust back to the digital economy, however. TALA is a credit system aimed at providing the unbanked and underbanked with an alternative data system that delivers access to credit — even without a banking history. TALA underwrites consumers by leveraging thousands of alternative data signals to build a digital credit profile, and has delivered over $500 million USD in credit to millions of consumers around the world. The TALA solution is a real use case operating in the new trust economy.

Trustbond is another new trust economy enterprise that replaces traditional lease cash bonds with a surety certificate issued by the platform, which is available for a percentage fee of the bond amount. Trustbond provides consumers with a surety certificate for a percentage fee of the bond amount that ranges between 12.5 and 17.5 percent, using an automated eligibility process that assesses the online reputation of a user and their previous rental history. By assessing this data, Trustbond is able to create an accurate trust analysis of a user — a trust score. The higher the trust score of a consumer using Trustbond, the higher the discount on the surety certificate.

These platforms represent the first real-world implementation of the core axioms of the trust revolution — trust based on personal actions and history, not vertical data silos operated by enterprise organizations. The “trust score,” function as an aggregated collection of behavioral, financial, and identity data, will become the new standard of trustworthiness for both individuals and organizations. The fourth industrial revolution, supported by the inviolable data integrity and transparency delivered by blockchain technology, is set to heavily disrupt the way consumers and organizations generate and deliver trust, for the better.

This article was written by Mathias Valon CEO of TrustUnion.

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Chaineum - Investment Banking
Chaineum, cabinet conseil de services de banque d'affaires dédié levées de fonds & financements.
Corporate finance + ICO STO advisory : due diligence, évaluation, plateforme, accompagnement.
France (Besançon - Paris) + Worldwide Partners.