A source of potential cost and friction in product adoption and usage is a lack of trust. The greater the trust, the lower the cost in the form of resistance to adoption, and demands for protections from risks. A good reputation can go a long way to establishing trustworthiness. This can take time and many transactions to build. For products and businesses, transparency may be the most effective method to establish and maintain trust.

The most powerful means for products and businesses to establish trust and resist the temptation of negative incentives is transparency.

I’ve spent two decades working in capital markets. I have witnessed first hand the value of trust and the costs of breaching it.

Transparency Reduces Costs

In markets, such as a financial exchange, it is inefficient to verify the reputation of everyone you may transact with. That is to say, as a buyer/seller, how do you know that your counterparty isn’t engaging in fraud or manipulation? Or that they will make good on their sale/purchase? How do you know you have comparable access? Are you being charged comparable fees as other participants?

Financial exchanges address these questions through transparency about their operations published in rulebooks: 

  • Membership criteria establish who can participate
  • Trading rules set out what participant behavior is acceptable or prohibited
  • Surveillance programs enforce the rules 
  • Pricing and products are standardized
  • Clearinghouses ensure counterparties’ obligations are fulfilled 

All of these practices aim to create transparency, promote trust, and foster less expensive, more frequent transactions.

Transparency Creates Accountability

Stock exchange practices are regulated in the U.S. through rules promulgated under the Securities Exchange Act of 1934, which created the Securities and Exchange Commission to oversee exchange compliance. The transparency resulting from these rules and oversight has increased trust among participants. Additionally, accountability incentivizing exchange operators are encouraged to engage in good behavior. 

Generally speaking, there are few examples of exchange operators engaging in nefarious behavior. In contrast, more opaque markets with less oversight have seen many examples of their operators fined for malicious behavior. Some examples include:

Transparency and oversight are a powerful combination in creating and maintaining trust through accountability.

“If it’s free, you’re the product.”

The need, and demand, for transparency in products and businesses, is greater than ever. Insiders have started to speak out on this topic as seen in the recent Netflix documentary The Social Dilemma. As the adage cautions, consumers are becoming increasingly aware of the value and potential misuse of their data, and how “free” products may have hidden costs

Product managers should seek to establish and maintain trust with their customers by being transparent about:

  • How a business makes money
  • Its relationships and potential conflicts of interest
  • What data will be collected and how it will be used

For new products without an established reputation, transparency can help overcome consumer trust obstacles. In addition, transparency can also embed incentives toward good governance in product and business decisions. This is particularly important where there is information asymmetry between the business and the customer.

Wrapping Up

In short, transparency is a powerful tool to form and sustain trust with product users.

Product managers that understand the value of transparency can embed accountability and good governance into their products. Above all, this makes them more trustworthy. Meanwhile, more trustworthy products reduce costs, build loyalty, and ultimately create honest and sustainable relationships with customers.

About the Speaker
ErisX Chief Operating Officer

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