While making payments more convenient many FinTech solutions exploit our digital footprints. Opening the ‘black box’ of such technologies is crucial to ensure we benefit from their fusion into our lives.
The rhetoric behind the promotion of Fintech payment instruments hardly ever incorporates the voice of ultimate users nor does it thoroughly assess the technologies’ ethical grounding. Since we cannot question that which we do not know, this blog argues that the scarce contestation of new financial technologies partly stems from our limited understanding of their implications for the financial wellbeing of consumers.
Financial digitalisation and new payment mechanisms (for example, private and public digital currencies, digital wallets and redeemable platform tokens) are promoted as instruments that nurture efficiency and financial inclusion. A similar discourse is found in discussions surrounding the design and introduction of central bank digital currencies (CBDCs) to complement cash usage.
Despite the contactless inducements of Covid-19 protocols, a cash-free economy was not necessarily a desired utopia even before the pandemic. Going cashless implies forgoing privacy and some autonomy due to a heavier (‘freely-chosen’) reliance on private companies including: banks, credit card companies, payment processors and payment gateways (such as PayPal, Alipay, Worldpay, Shopify, Mercado Pago and Stripe) and P2P social payments or cash transfers services (such as Facebook Pay and WhatsApp Pay).
The idea that monetary networks are networks of information is not as novel as the payment technologies that are newly sprouting in this era of digital finance. In his early 20th century work Philosophy of Money, Georg Simmel stated that information was undoubtedly integral to how money works. For him money (in any of its forms, emphasis added) expressed “nothing but the relativity of things that constitute value”. The new element today seems to be how the digital economy has reshaped our hierarchies of value.
Evaluating disruptive innovations in light of the absence of universal access to banking systems, a number of central banks have considered CBDCs as a means to ensure access to safe, publicly issued payment options with trusted integrity, legal tender status, and valid finality. Yet whether CBDCs would in practice lead to greater financial inclusion will depend on the conditions of access set up in their design. Some advocate linking CBDC’s to digital ID’s which could also help formalise the informal economy. Arguing that the use of personal data is necessary to improve the provision of financial services, others contend that multiple interfaces, big data, biometric technologies, physical payment tokens, prepaid CBDC cards or dedicated universal access devices should be considered. Further, in the eyes of policymakers at the Bank for International Settlements (BIS), the design of retail CBDCs should preserve a two-tiered financial system— a public private partnership capable of providing a resilient and inclusive digital complement to physical cash, which, until now, has been the only payment instrument guaranteeing financial inclusion.
To understand how the trading of relationship-specific data paths generated by digital payments ultimately affects customers who acquiesce their reservoir of personal information it is necessary to look at the micro-foundations of digital payments behaviours.
Digital payments reduce transaction costs, are more convenient and more efficient (save time). Paying digitally is akin to handing over an invisible amount of money, making transactions opaque and psychologically distant. As people move from cash to credit card to digital payment, the saliency of the purchase is eroded, inducing more consumption.
Digital payment platforms allow consumers to connect as many liquid assets and cards to the payment platform as they like. This reduces the evaluation frequency of purchases and weakens incentives to make detailed plans before shopping therefore increasing impulsive consumption. Moreover, digital giants, payment platforms and processors take advantage of big data and algorithms to predict preferences and embed features that lure consumers, playing on their cognitive biases to distract their attention or to make them addicted to digital shopping experiences.
Some researchers have explored the political economy of digital payments from a demand-side perspective, by studying the relationship between individual liquidity preferences and new payment instruments. For example, Masciandaro (2018) analysed the potential demand for CBDCs from the portfolio diversification point of view of financial economics and models it as responding to people’s aversion towards 1) the (public) issuing authority, 2) the opportunity costs associated with ownership of other types of modes of payment, and 3) lack of anonymity.
Down-up movements expressing discontent with payment technologies are more likely to emerge from aversion to issuing institutions (just as cryptocurrencies and other private digital monies surged partly in response to dissatisfaction with financial system structures after the 2008 crisis). Surprisingly, activism regarding contentious data privacy and transparency aspects of new payment technologies still appears rather silent in comparison. Seen as technical instruments intended to enhance convenience and immediacy there has not been much social contestation of the political consequences some of these technologies have as they further quantify and financialise social life.
One is left to wonder whether such passive contestation reveals an uncritical willingness to relinquish the right to preserve the confidentiality of our digital selves’—including disarming the doors to our psychological state—due to our scant understanding of the products themselves.
Once again Simmel’s timeless philosophy of money is extremely pertinent. For Simmel the symbolic power of money stemmed not from our understanding of money’s technical features but from the freedoms it enabled. Furthermore, individuals’ actions and decisions were essential to the reproduction of monetary (information) networks. Hence, they were never completely powerless.
As the digital revolution in payment instruments progresses, we need to be comfortable with the discomfort of critically assessing technologies and their narratives so as to ensure that the only intangibles that move at the stroke of transaction keys are the prices of things and not people’s identity and decisional autonomy.
This is the final part of the five-part blog series by members of SPERI’s Doctoral Researcher Network that has explored how different types and forms of social contestation are shaping the global economy. Read all of the blogs in the series here.