The Future of Money

We have seen the introduction and popularization of many different payment methods: credit cards (1960s), debit card (1980s), online payment (2000s), cryptocurrencies (2000s) and contactless payments, including mobile payments (2010s). If you think this was the end of it, you are likely to be wrong. What we’ve seen throughout history (the very brief history as described above) is the increasingly moving away from physical money, onto methods which are easier, quicker and always available (online). Given what we know about theories explaining the differences between payment methods such as the pain of paying, transparency and decoupling, the easier, less physical, less transparent and quicker a payment method becomes, the less salient the payment itself becomes, and this has led to a myriad of consequences: With credit cards, research has found that people spend more money (Tokunaga, 1993; Soman, 2001; Raghubir & Srivastava, 2008), more often (See-to & Ngai, 2018), more impulsively (See-to & Ngai, 2018; Thomas, et al, 2010), were willing to pay more (Prelec & Simester, 2001), had worse expenditure recall (Gross & Souleles, 2002; See-To & Ngai, 2018), and were most likely to get into debt (Gross & Souleles, 2002). With regards to the debit card, research found an increased willingness to pay as found in the credit card (Runnemark et al, 2015). Looking at contactless payment methods they have been found to lead to higher spending at the POS (Bradford, 2005; MasterCard, 2008; Trutsch, 2014), more frequent expenditure (MasterCard, 2008; See-To & Ngai, 2018) and a perception of increased spending and losing control of spending (James, 2017). Mobile payments were found to be associated with an increased likelihood of exhibiting costly credit card behaviours” (Meyll & Walter, 2018), strong associations between mobile payment adoption and high cost debt, trouble with financial management and high cost credit card behavior” (Garret et al, 2014) and a reduced “pain of paying” when using mobile (Pisani & Atalay, working paper). I know this block of literature review isn’t exactly easy reading, but it should paint the picture quit compellingly: the shape of money matters.

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So what does this have to do with the future of money? Or maybe a better question: what do we expect the future of money to be? It was not too long ago I wrote an article about Facebook’s Libra. Now I’m really not too sure what’s going on with that currency – I’m pretty sure it’s been put back into the freezer for a while. But where Facebook failed Bitcoin might make it big, as its value skyrocketed as Elon Musk tweeted out that Tesla is considering a way of selling its goods against the crypto. If crypto becomes exchangeable for mainstream goods, the currency finally has the tools available to put some nails into the coffin of the current financial system. Issue is, the majority of people doesn’t actually understand crypto. It’s not exactly intuitive. But then again, the current system isn’t exactly transparent either… For the non-believers, we don’t even have to dive into crypto – there is still no majority believing that this monetary system would actually work – but let’s just look into the apps we already have and which have integrated into our lives seemingly. Think of Robinhood. I have recently written an article about Robinhood in which I essentially condemn its business model, but I am especially worried about the UX: it’s sheer gamification of investing. Market fluctuations are being presented as streaks to ride out and there’s a massive group of hyperactive investors who are glued to this app in the same way people were glued to flappy bird years ago. This has nothing to do with investing anymore: this is a game, an obsession, where the utility, if any, is derived from participation rather than actual gain. That is not the role that investing has with regards to money. This is not the right way to develop, or to continue developing a (healthy) relationship to money.

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If investing and crypto aren’t really your thing, let’s look closer to home: how about Amazon? Amazon has the “one-click-buy” system in place. The site remembers your cards details and there is zero friction as you pay. It doesn’t even feel like paying anymore. Because paying of itself invokes images of an exchange of money for a good/service. There is no exchange here. A single click is not an exchange. But it doesn’t stop there. Someone at Amazon genuinely considered a single click to still be slightly too much friction. The solution? No payment at all. Well, at least not all the actions required on the part of the consumer. What does this look like? Well, it’s a till-less grocery store. I find it almost miraculous you still have to scan your mobile app at the entrance when coming into the store, but that is as far as the “transactional” aspect goes. Get in, get out, get billed later. There have also been trial runs with stores that would just use facial recognition to identify you and your linked bank account. However, this concept is still in its infancy because facial recognition still has a lot of issues to iron out.

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Going back to this “get billed later” is also very much the vibe that Klarna goes for (it’s literally their business model). Being a cross-over between a flexible payday loan without the loan shark threatening to break your legs and a smiling credit card, this service allows you to pay for your purchase in three separate terms after having bought the good/service. In the article linked above I already explain why this is bad: this is known as decoupling, where the negative utility of paying (the cost) is no longer associated with the positive utility of obtaining the good/service, and vice versa. You are entirely driven by the temptation to have the good/service NOW, triggering our present bias, with a complete disregard for the cost, as the cost comes later. So at the time of purchase you get all the good utility, but when you need to pay there is only the bad utility, the negative utility and perhaps you being angry or disappointed with yourself because you once more bought something you couldn’t really afford. But Klarna doesn’t care about your utility, as long as you use their services and pay back the money on time. Otherwise this friendly loan shark turns a lot less friendly.

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If you’re thinking: “well I am a smart adult who’s learned how to handle their money wisely, and I won’t fall into these traps,” well, that’s good for you. And I also hope that statement is the truth, and not your overconfidence talking. But however good us adults might be at figuring out what’s going on here, who’s watching the kids? Whilst driving about with my mom, listening to the car radio, a segment came past of moments which can only be described as “oops.” This specific segment was focused on kids (under twelve) who happened to know their parents passcode for their online payment methods, and used these payment methods to buy themselves items in the games they were playing. This is essentially transforming real world money into game money, and buying items with that. But a child doesn’t understand that it’s real money. And that became clear as some of the stories in this segment involved kids who had “accidentally” spent thousands of euros. This is another form of gamification, but in its most literal sense, targeted at an incredibly vulnerable group. I can give you another game related example of why this is god awful: Not all things in a game can simply be purchased. There is also such a thing as a loot box. A loot box is you paying to open the box (treasure chest or equivalent) and being assigned an item through a randomizer (you can argue how random it actually is…). If you think this sounds oddly familiar to something in the real world, you are correct. This is essentially a slot machine. We’ve just given children access to slot machines under the guise of obtaining skins and items for their game. We are selling gambling to kids. This cannot be okay. And it isn’t okay, not just from a moral or behavioural standpoint, but there have been several lawsuits against these practices in which they were found to be illegal. So at least there’s that. However, if we remove the loot box and just look at the items being sold to children, who cannot properly understand the far-reaching consequences of spending hundreds or even thousands of real money on a fantasy game, well, we’ve just found ourselves a real issue!

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Everything I have outlined above is not really as much the future, as it is the present. The systems proposed by Klarna and Amazon have already been put into place, and are popular. Robinhood is a very popular app. The gaming industry has been targeting kids for decades and have always moved in a rather dark grey area. Spending is increasingly moving online, and it's easy to see why: online is very much separate from the physical world. Online money is not "real." It does invoke the same pain of paying as real world, physical money would. And that's where they get us. It is important to see what’s going on here. Companies want to separate us from our money, creating contexts in which we do not seem to be spending money at all. Just because you’re not handing cash over or swiping a card, does not mean you’re not losing resources somewhere.

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The future will be more of the same, but even more clever. I’m not sure how far removed we are from stores that recognize our faces and simply know which bank account to charge, where we just walk into the store and get out with what we need, without even considering whether we still have enough money in the bank, whether we really need it, or even whether we can really afford it. The aim is zero friction and total compliance. Both Amazon and Facebook have made announcements of being interested in moving into the financial services. These companies already know everything there is to know about us, and now they seemingly want even more. This is not a good development, but a development I do expect to come true. Although this might be somewhere in the future, my advice is very much for the here and now: Be wary of how you spend your money. Track how and when you spend your money, and actively make the choice, day in day out, as exhausting as it sounds, to partake or to not partake in systems which are becoming easier and easier. Because they are easy for a reason: so the company can put in less effort in separating you from your money. Just because you didn’t give someone money doesn’t mean it’s not costing you.