The Death of Debt? How Tech Created a Culture of Borrowing, and What it's Doing to Fix It.
Tech advancements have forever changed the way money is lent and borrowed.
Yugi the Giraffe - 23 July 2018
Prior to the mid-20th century, the biggest technological advance in finance had been the invention of cheques. But post-WWII advancements forever changed the way money is lent and borrowed, with access to immediate lines of credit, and most recently, the use of big data. But what impact have these technologies had on our behaviours around money?
First, some background. Credit cards as we know them were introduced in the US in 1958. In what would later be referred to as "The Fresno Drop," cards were mailed out to 60,000 Bank of America customers… who had not asked or applied for them.
So where did they find these customers? The bank got their information from local retailers who used local charge cards to target likely users. From there the trend exploded, and in less than a year over a million credit cards were in circulation. Ironically, in a time before phrases like "Fintech" and "disrupting the industry" existed, the way we view money - and specifically, the way we spend it - were completely transformed.
Where once paying had meant physically parting with your hard earned cash, it could now be done with the swipe of a card. And when you can't see your wallet getting thinner with every purchase, you pay less attention to your spending habits.
This effect only grew over time with the introduction of chip & pin, and eventually, contactless. Today we can pay without ever reaching for our wallet - look at Apple Pay or one-click buying on Amazon for just a couple of examples.
Bursting the bubble
But convenience has its consequences. Unsecured debt has risen 19% in the UK in the last five years, and in America, credit card debt is at its peak since the 2008 financial crisis. We are spending and borrowing more money, at a higher rate, and more easily. Technology that has made our lives easier has also contributed to a culture of debt.
So what's being done to fix it? In the last five years socially responsible Fintech has emerged, making tech-for-good products more popular. People are beginning to recognise the permanence of technology's role in the payment process, and the inevitability of finance-connected wearables.
Companies like Moneyhub have created products that let users see a dashboard view of all of their accounts, bills, investments and debt. Monzo's visual representation of your monthly spending, along with their lightning-fast alerts when your card is used, keep responsible spending at the forefront of your mind. They even have "pots" that will automatically round up every purchase to the nearest pound, allowing users to build up savings without having to open a separate account. Both tools also have fantastic breakdowns of how your money is being spent, so you can budget by purchase type.
As in many other markets, AI is getting in on the game. UK startup Cleo even has a customer-facing AI to help you get your finances in order. Communicating through Facebook Messenger, she can answer questions like "Can I afford to fly to Ibiza next month with the lads?", and help you adjust your budget accordingly… or not.While innovations in tech continue to make spending easier and more impulsive, the rise of Fintech-for-good is beginning to bring balance with solutions for making that spending more deliberate. What's more, the finance industry at large is starting to realise that tech should help better people's live, not just make them simpler (see open banking for a recent example.) Is this an end to the culture of borrowing? Maybe not yet, but it's certainly a step in the right direction.
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