The sharing economy aims to reach an estimated market size of $355 billion by 2025, according to PWC. These figures do not come as a surprise considering the accelerated digitalization driven by COVID-19. According to the ITU, a specialized telecommunications agency within the United Nations, during the first year of the pandemic Internet usage reached the highest growth peak in the last decade (10.2%). It is clear that this drastic digital expansion has changed our ways of interacting, bringing new consumption and exchange models that are much more democratic.
What is a sharing economy and how does it work?
The sharing economy is an economic model that involves all collaborative activities between individuals, without necessarily requiring financial compensation. This type of model includes a variety of interactions:
- Collaborative consumption: The exchange of goods and services
- Open knowledge: Information created among users with free access, free of copyright
- Collaborative production: People who share their knowledge and skills in the same project
- Collaborative finance: Transactions that are made between individuals without the need for intermediation by a traditional financial institution
In short, sharing economy platforms are virtual spaces where people looking for certain goods or services get in contact with users or markets that offer them. Thus, companies that follow this model become increasingly competitive as they allow users to satisfy their needs at a lower cost and, owing to their 100% digital nature, in a simpler and faster way.
Fintechs and the sharing economy
When talking about companies with collaborative business models, it is common to think of hotel, transportation and gastronomy service platforms such as Airbnb, BlaBlacar and Uber. However, due to their flexibility and technology, many Fintechs have been able to transfer this model to the financial system, offering products and services that are more accessible than those offered by traditional banking systems. Some examples of collaborative finance include:
- Social lending: Enables the supply and demand of loans between individuals without the intervention of a financial institution
- Crowdfunding: Different people financing a project in exchange for a reward
- Open Finance: A model where financial information does not come only from the bank and can be exchanged and shared with other parties
Collaborative finance has promoted financial inclusion by making a wider range of services available to consumers beyond the banking system. However, one of the biggest challenges for its evolution and expansion is related to trust and security.
Trust and security in the sharing economy
Among the most frequent doubts users have when making transactions within a collaborative platform are concerns related to identity verification (how do I know the person I am dealing with is who they say they are?), about the product or service (will they receive the promised goods or services?) and the security of the transaction (is my personal information safe? is the person involved acting in good faith?).
Recent Jumio research found that 49% of Mexican consumers think it is important to use a digital identity to prove who they say they are when interacting with sharing economy brands, and that 67% would be more likely to engage with sharing economy brands if they had strong identity verification measures in place.
Creating an effective trust management ecosystem is challenging. It starts with the basic building block of information security, but quickly expands to include identity verification, continuous user authentication and credential management. Major sharing economy brands already have technological security platforms. Companies that do not prioritize trust and security initiatives face negative repercussions ranging from unfair criticism, paying fines, court litigation and poor user experience. There are many examples showing the negative consequences that poor security management can bring to fintech companies.
Security, and therefore trust, can be earned and cultivated through strong digital identity verification and anti-money laundering policies and practices. However, a balance needs to be struck between a robust verification process and overly long and tedious onboardings that make the customer abandon at the registration stage and choose another application. Consumers want the experience to be quick and painless, and are disappointed by complicated processes, either because of the time needed to complete the steps or the volume of information required to finalize the application. Consumers have an average of 40 apps installed on their cell phone, yet they use only 18; the other 22 become digital junk and, in most cases, this is because their onboarding processes are broken or flawed, according to the latest study by AppsFlyer, a mobile marketing analytics and mobile attribution company.
How they select who joins their platform and how quickly they turn around that verification decision, is a critical issue for collaborative economy brands. Many of the major apps are trying to grow their list of active users, so conversion rates can be more important than fraud detection. Therefore, while looking to weed out fraudsters, many sharing economy sites do not want to introduce too much friction that lowers conversion rates.
That’s why an orchestrated solution that spans the entire customer lifecycle can help companies maintain the balance between fraud control and frictionless onboarding. This should not only start with identity verification during new account onboarding, but also ensure ongoing stakeholder tracking, or at least periodic re-verification and secure authentication to prove that the people using and providing sharing economy services are indeed legitimate. The good news is that along with the proliferation of the collaborative economy, solutions have evolved, such as the Jumio KYX Platform, which offers automated, highly accurate and easy-to-use identity verification solutions and converts more customers faster, drastically reducing churn rates. Thus, with advanced biometric-based verification, it is possible to detect fraud quickly, stopping fraudsters in their tracks.
At the heart of the collaborative economy’s success is trust and security. Only when both users and suppliers feel confident that the organization has put measures in place to keep them physically, financially and emotionally secure, will they trust the platform.