Several factors influence people’s financial decisions, with their emotional state playing a significant role. Behavioural economics offers us insights into what informs economic transactions. Almost always, these are related to how a person feels.
Fear is a natural and defining human emotion that is aggravated during times of socioeconomic challenges, such as those triggered by the pandemic. Fear is an instinctive and natural response to external influences.
The economy has been structured to build this fear of the unknown in people. For the most part, fear ensures the continuity of life and the survival of humanity. It encourages us to remain cautious and shield ourselves from potential losses or missteps.
The insurance and takaful sector, for instance, allows people to make low-risk investments to overcome this uncertainty and enjoy a sense of security against major losses.
A heightened degree of fear could, however, potentially cause harm, especially in the long run. Extreme feelings of concern or fear can be an obstacle in humanity’s progress and its pursuit of growth. Disruptive and innovative technologies and practices often trigger emotions such as fear and uncertainty.
For example, open banking services are a relatively new tool that encourage financial inclusion through disrupting the status quo in the banking and finance industries. Open banking requires financial institutions and tech companies to work hand in hand in order to facilitate transactions between financiers and customers via digital channels.
However, legalising these transactions and increasing people’s awareness about them is a relatively slow process. Customers have a number of security concerns with regard to money laundering and cyberattacks, and such fears could ultimately limit the potential and utilisation of open banking transactions.
Modern technologies, such as the 5G networks that hold the potential to eliminate bureaucracy in government as well as other sectors, can increase efficiency and accelerate accomplishments, but they often spark concerns over their impact on cyber security, the environment and public health.
As a rule, we find such concerns increase in challenging times. However, we need to remember that this is a good opportunity for us to learn to be more flexible and align our systems to create a modern, responsive legal framework as opposed to one mired in legacy issues.
The ability of any country’s legislative system to identify the pros and cons and anticipate likely scenarios of misuse of new practices is a strong factor in leveraging the power of innovation.
Central banks play a vital role in the success of a country’s financial transactions as they are responsible for legislation and for legalising systems and processes. It is time that these institutions take into consideration innovative approaches that can help alleviate the impact of the current circumstances. Some examples include online financial transactions that allow a third party to mediate between a financier and a customer, high speed communication technologies and large data storage capabilities.
We must remember that a variety of decades-old practices – such as traditional banking infrastructures that require in-person transactions – are likely to become obsolete in a few years.
In the absence of established practices, and by introducing new channels and technologies without a suitable legislative system to protect rights and guarantee accountability can lead to disastrous consequences.
In the present scenario, central banks should take the responsibility for the legitimate feelings of fear in the community, and realise that it is the adaptability and resilience of a country to cope with change that ensures the financial and economic success of its markets.
They must also ensure these changes go together with large-scale public awareness campaigns to educate stakeholders and address their concerns over new frameworks, how they bring value to society and how to make optimal use of them.
Fear and uncertainty are widespread during these times. But with careful planning, constant innovation and investment in the right resources we can steer our economies into the recovery phase and come out stronger.
Mohammed Alardhi is executive chairman of Investcorp, chairman of Bank Sohar and was longest-serving Omani head of the Royal Air Force of Oman