Tag: Fintech

New research: The second extended model of consumer trust in cryptocurrency payments, CRYPTOTRUST 2

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Cryptocurrencies’ popularity is growing despite short-term fluctuations. Peer-reviewed research into trust in cryptocurrency payments started in 2014 (Zarifis et al., 2014, 2015). While the model created then is based on proven theories from psychology, and supported by empirical research, a-lot has changed in the past 10 years. This research re-evaluates and extends the first model of trust in cryptocurrencies and delivers the second extended model of consumer trust in cryptocurrencies CRYPTOTRUST 2 (Zarifis & Fu, 2024) as seen in figure 1.

Figure 1: The second extended model of consumer trust in cryptocurrencies (CRYPTOTRUST 2)

Trust in a cryptocurrency is a multifaceted issue. While some believe that the consumer does not need to trust cryptocurrencies because they utilize blockchain, most people appreciate that you must trust cryptocurrencies, just as you must trust any other technology you use that involves some risk.

The first three variables of the model come from the individual’s psychology: Personal innovativeness is divided into (1) personal innovativeness in technology and (2) personal innovativeness in finance. These two influence (3) personal disposition to trust.

There are then six variables that come from the specific context, and not the person’s psychology: The first three are related to the cryptocurrency itself. These are (4) the stability in the cryptocurrency value, (5) the transaction fees and (6) reputation. Institutional trust is shaped by (7) regulation and (8) payment intermediaries that may be involved in fulfilling the transaction. The last contextual factor is (9) trust in the retailer. The six variables from the context influence (10) trust in the cryptocurrency payment which then, finally, influences (11) the likelihood of making the cryptocurrency payment.

Separating personal innovativeness to personal innovativeness in (1) technology and (2) finance, is a useful distinction as some consumers may have different levels of personal innovativeness for technology and finance. The analysis here supports that these are separate constructs.

This research shows that trust in cryptocurrencies has not changed fundamentally, but it has evolved. All the main actors in the value chain still play a role in building trust. There is more emphasis from the consumer on having a stable value and low transaction fees. This may be because consumers now have more experience with cryptocurrencies, and they are better informed. It may also be because there are more cryptocurrencies available, and other alternatives such as Central Bank Digital Currencies (CBDC), so consumers can review the many alternatives and try to identify the best one.

References

Zarifis A., Cheng X., Dimitriou S. & Efthymiou L. (2015) ‘Trust in digital currency enabled transactions model’, Proceedings of the Mediterranean Conference on Information Systems (MCIS), pp.1-8. https://aisel.aisnet.org/mcis2015/3/

Zarifis A., Efthymiou L., Cheng X. & Demetriou S. (2014) ‘Consumer trust in digital currency enabled transactions’, Lecture Notes in Business Information Processing-Springer, vol.183, pp.241-254. https://doi.org/10.1007/978-3-319-11460-6

Zarifis A. & Fu S. (2024) ‘The second extended model of consumer trust in cryptocurrency payments, CRYPTOTRUST 2’, Frontiers in Blockchain, vol.7, pp.1-11. https://doi.org/10.3389/fbloc.2024.1220031 (open access)

New research: Leadership in Fintech builds trust and reduces vulnerability more when combined with leadership in sustainability

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Financial technology often referred to as Fintech, and sustainability are two of the biggest influences transforming many organizations. However, not all organizations move forward on both with the same enthusiasm. Leaders in Fintech do not always prioritize operating in a sustainable way. It is, therefore, important to find the synergies between Fintech and sustainability.

One important aspect of this transformation many organizations are going through is the consumersʹ perspective, particularly the trust they have, their personal information privacy concerns, and the vulnerability they feel. It is important to clarify whether leadership in Fintech, with leadership in sustainability, is more beneficial than leadership in Fintech on its own.

This research evaluates consumers’ trust, privacy concerns, and vulnerability in the two scenarios separately and then compares them. Firstly, this research seeks to validate whether leadership in Fintech influences trust in Fintech, concerns about the privacy of personal information when using Fintech, and the feeling of vulnerability when using Fintech. It then compares trust, privacy concerns and vulnerability in two scenarios, one with leadership in both Fintech and sustainability, and one with leadership just in Fintech without sustainability.

Figure 1. Leadership in Fintech, trust, privacy and vulnerability, with and without sustainability

The findings show that, as expected, leadership in both Fintech and sustainability builds trust more, which in turn reduces vulnerability more. Privacy concerns are lower when sustainability leadership and Fintech leadership come together; however, their combined impact was not found to be sufficiently statistically significant. So contrary to what was expected, privacy concerns are not reduced more effectively when there is leadership in both together.

The findings support the link between sustainability in the processes of a Fintech and being successful. While the limited research looking at Fintech and sustainability find support for the link between them by taking a ‘top‐down’ approach and evaluating Fintech companies against benchmarks such as economic value, this research takes a ‘bottom‐up’ approach by looking at how Fintech services are received by consumers.

An important practical implication of this research is that even when there is sufficient trust to adopt and use Fintech, the consumer often still feels a sense of vulnerability. This means the leaders in Fintech must not just think about how to do enough for the consumer to adopt their service, but they should go beyond that and try to build trust and reduce privacy concerns to the degree that the consumer’s belief that they are vulnerable is also reduced.

These findings can inform a Fintech’s business model and the services it offers consumers.

Reference

Zarifis A. (2024) ‘Leadership in Fintech builds trust and reduces vulnerability more when combined with leadership in sustainability’, Sustainability, 16, 5757, pp.1-13. https://doi.org/10.3390/su16135757 (open access)

Featured by FinTech Scotland: https://www.fintechscotland.com/leadership-in-fintech-builds-trust-and-reduces-vulnerability/

Decentralised Finance (DeFi) in Latin America: My report with the University of Cambridge

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This research is about the business models of Decentralised Finance (DeFi) in Latin America. This is the fourth chapter of my report with the University of Cambridge (Proskalovich et al. 2023). I have given a general overview of this report already, so I am just focusing on the chapter on DeFi here.

DeFi refers to several software solutions that operate on a blockchain. These decentralised systems, supported by blockchain technologies, enable various forms of financial services. DeFi currently operates alongside the traditional financial system, thriving where the traditional system is either inefficient, or expensive, for users. It is unclear whether DeFi and traditional finance will continue in parallel in the future, or merge.

Figure 1. The Decentralised Finance (DeFi) services becoming popular in Latin America

DeFi services

DeFi is constantly evolving, and new use cases will emerge in the coming years. Some use cases of DeFi already identified are decentralised stablecoins, exchanges, lending, derivatives, and asset management.

Payments are an important part of DeFi. Payment can be just with a cryptoassets such as Bitcoin, or they can change bitcoin to a traditional currency and vice versa. Some key areas of the decentralised payments ecosystem are (1) traditional fiat currency-to-crypto services on exchanges, (2) cryptoasset ATMs that exchange traditional currency for cryptoassets and vice versa, (3) cards allowing users to buy and spend cryptoassets, as well as receive them as rewards in loyalty schemes, (4) digital wallets that allow users to send, receive and store cryptoassets, enabling cheaper cross border payments, and (5) both e-commerce and physical shops are increasingly accepting cryptoassets.

DeFi adoption in Latin America

The use DeFi is increasing dramatically, but despite this growth, the activity is very small relative to the use of commercial banks. Digital solutions are vital to overcoming the challenges associated with financial inclusion in Latin America. For example, mobile money use has grown significantly. As cryptoasset adoption in Latin America increases and users become more familiar with the decentralised ecosystem, activity will likely increase. There is a-lot of decentralised financial innovation in the region, such as cryptocurrencies, crypto mining, blockchain and NFTs, with consumers eager to learn more about this ecosystem. So far, Brazil, Argentina and Mexico have the highest adoption of DeFi among Latin American countries.

If you want to learn more about this important part of the cryptoasset ecosystem, you can read the fourth chapter of the report.

Reference

Proskalovich R., Jack C., Zarifis A., Serralde D.M., Vershinina P., Naidoo S., Njoki D., Pernice I., Herrera D. & Sarmiento J. (2023) ‘Cryptoasset ecosystem in Latin America and the Caribbean’, University of Cambridge – Cambridge Center for Alternative Finance (CCAF). Available from: https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/crypotasset-ecosystem-in-latin-america-and-the-caribbean/

The business models of crypto mining in Latin America: From my report with the University of Cambridge

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Dr Alex Zarifis

I am going to talk to you about the business models, and ecosystems, of cryptomining in Latin America. This is the third chapter in my report with the University of Cambridge, Judge Business School (Proskalovich et al. 2023). I have given a general overview of this report already, so I am just focusing on the chapter on cryptomining here.

The blockchain consensus mechanism used in Bitcoin, and some other cryptocurrencies, requires mining for the proof-of-work process. Mining, helps verify transactions and create new cryptoasset tokens. Activity from companies and individuals in this area can positively impact the cryptoasset ecosystem, by encouraging cryptoasset adoption, and providing an income stream.

Figure 1: The factors making Latin America popular for crypto mining

Cryptomining in Latin America happens in registered mining companies, mining pools, and so called ‘ant farms’. Mining pools are a form of cooperation in which people share the risks and returns from mining. ‘Ant farms’ are created by hobbyist that install mining equipment in a residential area.

Latin America has some characteristics that support cryptomining and allow miners to be competitive internationally. These features include relatively cheap electricity and renewable power resources, such as solar, hydro and geothermal. The electricity price is one of the most significant factors determining the profitability of cryptomining, and whether a country will become a cryptomining hub. Despite this, Bitcoin mining in this part of the world is still only a small part of the global mining volume.

The popularity of cryptomining varies across Latin American countries. Some of the leading bitcoin mining countries in this part of the world are Brazil, Paraguay, Venezuela, Mexico and Argentina. In addition to electricity prices, other determining factors are regulation, subsidies, climate, the level cryptoasset adoption, and the general state of the economy. Mining is not widespread in the countries of this region where cryptocurrencies are partially, or entirely, banned.

The crypto mining industry seems to be very sensitive to regulation and electricity prices, and does not appear to be as ‘sticky’ to a geographic location as other parts of the crypto ecosystem. Some miners even have their IT hardware permanently in shipping containers when they are operating, so they can transport it to another country relatively easily. Changes in how countries regulate crypto mining often have a knock-on effect. For example, when Venezuela made regulation stricter, some mining activity moved from there, to Brazil.

If you want to learn more about this part of the cryptoasset ecosystem, you can read the third chapter of the report.

Reference

Proskalovich R., Jack C., Zarifis A., Serralde D.M., Vershinina P., Naidoo S., Njoki D., Pernice I., Herrera D. & Sarmiento J. (2023) ‘Cryptoasset ecosystem in Latin America and the Caribbean’, University of Cambridge – Cambridge Center for Alternative Finance (CCAF). Available from: https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/crypotasset-ecosystem-in-latin-america-and-the-caribbean/

The six ways to build trust and reduce privacy concern in a Central Bank Digital Currency (CBDC)

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New research!

Central Bank Digital Currencies (CBDC) are digital money issued, and backed, by a central bank. Consumer trust can encourage or discourage the adoption of this currency, which is also a payment system and a technology. CBDCs are an important part of the new Fintech solutions disrupting finance, but also more generally society. This research attempts to understand consumer trust in CBDCs so that the development and adoption stages are more effective, and satisfying, for all the stakeholders. This research verified the importance of trust in CBDC adoption, and developed a model of how trust in a CBDC is built (Zarifis & Cheng 2023).

Figure 1. Model of how trust in a Central Bank Digital Currencies (CBDC) is built in six ways

There are six ways to build trust in CBDCs. These are: (1) Trust in government and central bank issuing the CBDC, (2) expressed guarantees for the user, (3) the positive reputation of existing CBDCs active elsewhere, (4) the automation and reduced human involvement achieved by a CBDC technology, (5) the trust building functionality of a CBDC wallet app, and (6) privacy features of the CBDC wallet app and back-end processes such as anonymity. The first three trust building methods relate to trust in the institutions involved, while the final three relate to trust in the technology used. Trust in the technology is like the walls of a new building and institutional trust is like the buttresses that support it.

This research has practical implications for the various stakeholders involved in implementing and operating a CBDC but also the stakeholders in the ecosystem using CBDCs. The stakeholders involved in delivering and operating CBDCs such as governments, central banks, regulators, retail banks and technology providers can apply the six trust building approaches so that the consumer trusts a CBDC and adopts it.

Dr Alex Zarifis

Reference

Zarifis A. & Cheng X. (2023) ‘The six ways to build trust and reduce privacy concern in a Central Bank Digital Currency (CBDC)’. In Zarifis A., Ktoridou D., Efthymiou L. & Cheng X. (ed.) Business digital transformation: Selected cases from industry leaders, London: Palgrave Macmillan, pp.115-138. https://doi.org/10.1007/978-3-031-33665-2_6

The five emerging business models of Fintech for AI adoption, growth and building trust

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New research!

Fintech is changing the services to consumers, and their relationship with the organizations that offer them. This change is neither top-down nor bottom-up, but is being driven by many different stakeholders in many different parts of the world, making it hard to predict its final form. This research identifies five business models of Fintech that are ideal for AI adoption, growth and building trust (Zarifis & Cheng, 2023).

The five models of Fintech are (a) an existing financial organization disaggregating and focusing on one part of the supply chain, (b) an existing financial organization utilizing AI in the current processes without changing the business model, (c) an existing financial organization, an incumbent, extending their model to utilize AI and access new customers and data, (d) a startup finance disruptor only getting involved in finance, and finally (e) a tech company disruptor adding finance to their portfolio of services.

Figure 1. The five Fintech business models that are optimised for AI

The five Fintech business models give an organization five proven routes to AI adoption and growth. Trust is not always built at the same point in the value chain, or by the same type of organization. The trust building should usually happen where the customers are attracted and on-boarded. This means that while a traditional financial organization must build trust in their financial services, a tech focused organization builds trust when the customers are attracted to other services.

This research also finds support that for all Fintech models the way trust is built, should be part of the business model. Trust is often not covered at the level of the business model and left to operation managers to handle, but for the complex ad-hoc relationships in Fintech ecosystems this should be resolved before Fintech companies start trying to interlink their processes.

Alex Zarifis

Reference

Zarifis A. & Cheng X. (2023) ‘The five emerging business models of Fintech for AI adoption, growth and building trust’. In Zarifis A., Ktoridou D., Efthymiou L. & Cheng X. (ed.) Business digital transformation: Selected cases from industry leaders, London: Palgrave Macmillan, pp.73-97. https://doi.org/10.1007/978-3-031-33665-2_4

Research develops a model of trust in Ethereum token ‘Ether’ payments (TRUSTEP)

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Dr Alex Zarifis

My new research developed a model of trust in making payments with the Ethereum (Zarifis, 2023). I published the first peer reviewed research on trust in payments with Bitcoin in 2014 (Zarifis et al. 2014), and I wanted to apply my experience from that to understanding the consumer’s perspective to making Ethereum payments.

Ethereum is being utilised in various ways, including smart contracts and payments. Despite some similarities with Bitcoin, Ethereum is a different technology, with different governance and support.

Ethereum payments require digital wallets and the process is different to paying in traditional fiat currencies like the Euro. When a person wants to take an action without controlling all the parameters, and some risk is unavoidable, trust is necessary.

Figure 1. Model of trust in making Ethereum payments, TRUSTEP

The model demystifies how trust is built in consumer payments with Ethereum. The model starts with the individual’s predisposition and then covers the factors from the specific context of Ethereum payments. From the person’s individual characteristics, their willingness to innovate in finance and technology have a role. There are then five variables from the contexts: Adoption and reputation, stable value and low transaction fees, effective regulation, payment intermediaries and trust in the seller. The personal and contextual factors together influence trust in the Ethereum payment process and making a payment with Ether.

While the model has similarities to previous models of trust, such as the role of each individual’s psychological predisposition and the role of reputation, the role of institutions such as regulators and the importance of trust in the retailer, the distinct characteristics of Ethereum also play a role. In fact, the factors related to the distinct characteristics of Ethereum have the strongest support based on the average of the responses. This research can be added to a growing body of research in trust that illustrates how users’ beliefs in each cryptocurrency need to be explored separately.

Furthermore, the role of the organizations involved in the payment process are shown. While trust in the retailer is usually a factor in retail payments, the regulators and payment intermediaries are not always a significant factor, so it is a useful contribution to show that this is the case here.

That is what I want to share with you here. If you have experiences related to what I am talking about, please let me know, I would love to hear from you.

Reference

Zarifis A. (2023) ‘A Model of Trust in Ethereum Token ‘Ether’ Payments, TRUSTEP’, Businesses, vol.3, no. 4: pp.534-547. https://doi.org/10.3390/businesses3040033 (open access)

Zarifis A., Efthymiou L., Cheng X. & Demetriou S. (2014) ‘Consumer trust in digital currency enabled transactions’, Lecture Notes in Business Information Processing-Springer, vol.183, pp.241-254. http://link.springer.com/chapter/10.1007/978-3-319-11460-6_21#

A model of trust in Fintech and trust in Insurtech: How Artificial Intelligence and the context influence it

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New Fintech and Insurtech services are popular with consumers as they offer convenience, new capabilities and in some cases lower prices. Consumers like these technologies but do they trust them? The role of consumer trust in the adoption of these new technologies is not entirely understood. From the consumer’s perspective, there are some concerns due to the lack of transparency these technologies can have. It is unclear if these systems powered by artificial intelligence (AI) are trusted, and how many interactions with consumers they can replace. There have been several adverts recently that emphasize that their company will not force you to communicate with AI and will provide a real person to communicate with are evidence of some push-back by consumers. Even pioneers of AI like Google are offering more opportunities to talk to a real person an indirect acknowledgment that some people do not trust the technology. Therefore, this research attempts to shed light on the role of trust in Fintech and Insurtech, especially if trust in AI in general and trust in the specific institution play a role (Zarifis & Cheng, 2022).

Figure 1. A model of trust in Fintech/Insurtech

This research validates a model, illustrated in figure 1, that identifies the four factors that influence trust in Fintech and Insurtech. As with many other models of human behavior, the starting point is the individual’s psychology and the sociology of their environment. Then, the model separates trust in a specific organization and trust in a specific technology like AI. This is an important distinction: Consumers have beliefs about the organization they bring with them and other pre-existing beliefs on AI. Their beliefs on AI might have been shaped by experiences with other organizations.

Therefore, the validated model shows that trust in Fintech or Insurtech is formed by the (1) individual’s psychological disposition to trust, (2) sociological factors influencing trust, (3) trust in either the financial organization or the insurer and (4) trust in AI and related technologies.

This model was initially tested separately for Fintech and Insurtech. In addition to validating a model for trust in Fintech and Insurtech separately, the two models were compared to see if they are equally valid or different. For example, if one variable is more influential in one of the two models, this would suggest that the model of trust in one of them is not the same as in the other. The results of the multigroup analysis show that the model is indeed equally valid for Fintech and Insurtech. Having a model of trust that is suitable for both Fintech and Insurtech is particularly useful as these services are often offered by the same organization, or even the same mobile application side by side.

Reference

Zarifis A. & Cheng X. (2022) ‘A model of trust in Fintech and trust in Insurtech: How Artificial Intelligence and the context influence it’, Journal of Behavioral and Experimental Finance, vol. 36, pp. 1-20. https://doi.org/10.1016/j.jbef.2022.100739 (open access)

This research was featured by Duke University:

Zarifis A. (2022) ‘Trust in Fintech and trust in Insurtech are influenced by Artificial Intelligence’, Duke University (Global Financial Economics Center). Available from: https://sites.duke.edu/thefinregblog/2022/11/11/trust-in-fintech-and-trust-in-insurtech-are-influenced-by-artificial-intelligence/