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The Innovation Paradox: Just Because We Have the Ability to Innovation Does Not Mean We Have To

Without question, human beings are drawn to convenience. As a testament to this, consumer behaviour has changed with the speed of innovation, and we continue to demand more. The flipside is that we are often overwhelmed by the wealth of choices we have, and are left unable to assess our options and act according to our best interests.

But should we just accept that the world has gotten too complex for individuals to make the best decisions for their financial health? Or should we, instead, pause to consider the financial industry’s role (and perhaps even responsibility) to help consumers to understand, navigate, and use services, alongside the convenience of the services they are offering?

In truth, many new services and products respond to the need for convenience and drive users to seek out more streamlined and simplified options – ones that reduce friction. Therein lies one of the problems. Most of the services we see today are just simplified versions of earlier iterations, dressed up to look good with one or two strong selling points. The fact that these new services must capture attention right out of the gate means that they have to fix the consumer’s attention on selling their service rather than educating on why, when, and who should use it.

There is a strong sense in which the financial industry is creating services where all friction dissolves. Of course, this is not unique to this sector, but it carries consequences that we do not always anticipate or perceive.

As a case in point, in fintech, digital development makes cash disappear. A cashless society means that there is no money to touch or see. Studies confirm that when individuals don’t feel the friction of objects, they have a harder time relating to them. In fact, using credit cards for payments increases the propensity to spend, compared to cash in identical situations.

Now it is easier than ever before to buy products and services, but it comes at the cost of losing control and oversight.

“The growing subscription business is even worse (than brick and mortar shopping red), as it completely hides the ‘pain of paying’ from us. I believe the obvious party to take responsibility here is the banks, as they have our account information and credit/debit cards. The banks need to build solutions that help people understand how their money is being spent, and help them to gauge their expenses,” says to Thomas K. Laursen, CEO at the fintech and subscription company, Subaio.

Digital money is a blessing and a curse

The fintech startup, Ernit is on a mission to make digital money tactile.

“My daughter has dubbed my credit card ‘the magic card.’ She believes it contains an endless stream of money, and she simply doesn’t understand the value of money today,” explains Søren Nielsen, CEO and co-founder of Ernit.

When cash disappears from her father’s wallet, it also disappears from her piggy bank, impacting her perception and understanding of the value of money. Responding to this, Ernit set out to make a smart piggy bank that could provide children with an experience of money that they could feel. For this, the fintech startup combined an internet of things (IoT) device to an app and a corresponding bank account.

“We use sound to stimulate young people and children’s understanding of money. There are sounds associated with money going into an account and sounds when the piggy bank is empty. In addition, we also think a lot about how we use the technology in behavioural nudging in getting people to use and benefit from the technology. There must be a meaning assigned to it and that should definitely not be to spend as much time with the product as possible,” Nielsen says.

Nielsen explains how too many companies and investors rely on numerical identification to understand whether and how a product successfully engages with the user. Essentially, they focus on the number of users on the screen, optimise the peak usage, and aim to have as many sessions as possible.

“During fundraising, we are often challenged by venture funds on parameters such as interaction and downloads. The more people using the products, the better. And the more products the merrier. The same happens in relation to our customers. But, for us, it’s not just about making it as easy to pay as possible. It’s about forcing in friction, so that consumers get a deeper understanding of what they’re doing. In fact, many potential commercial partners have contacted us to place adverts in our channel so that they can sell products targeted at kids. Commercially it makes great sense, but it does not fit in with our why and the essential wisdom the kids need,” Nielsen points out.
When commercial interests conflict with ethics, the latter tends to go out the back door – as we saw this past year with Facebook’s

Cambridge Analytica scandal.

“Profiling provides competitive advantages. It is of great market value to be able to profile customers with targeted marketing and personalised products and services. There are good ethical reasons to avoid profiling. It is mostly based on the collection of very sensitive personal data, and it gives companies other opportunities to exert an unprecedented influence on, and control of, our lives,” Thomas Ploug, professor at Copenhagen’s Centre for Applied Ethics and Philosophy of Science, says.

The Big Macs of finance

Interestingly, one of the latest trends in the finance industry are digital platforms that provide automated, algorithm-driven financial planning services, with little to no human mediation. Yet many of these so-called “solutions” are challenging to understand and adopt by regular, non-tech-savvy users.

Ultimately, the banks have an ethical obligation to build solutions that are in the consumer’s best interests and that are easy to understand. Economics is an important cornerstone of our lives, and it intersects with all areas of well-being.

Paraphrasing Laursen, too many banks are focusing on ­launching new products that do not respond to or address ­customers’ actual needs. If you ask anybody who is not into finance or technology to interact with an investment robo advisor, many will not understand the prompts, the information shared, or how to take next steps. This is something of a paradox, since they are targeted to people who are not financially savvy.

“We have only seen the beginning of an era of new exciting financial services – all of them vying for the attention of consumers. I am all for diversity and options, but it is worth considering whether these services are more financially healthy options for people, or rather the Big Macs of financial services – fun, but not really nutritional. Services like this exist in a bubble – they only sell the small part they do for people and do not take responsibility for the broader, more complex financial reality of their customers. This direction will leave us with an increasingly fragmented world of services that only take responsibility for parts of the financial health of a customer but never the full picture,” Laursen reflects.

Laursen also points out that worldwide rates of financial literacy are falling. This is very unfortunate, as there are clear correlations between financial literacy and good saving and borrowing habits.

“While we still have a high financial literacy in Denmark, there are indications that we need to focus on it to keep it that way. Only about half of the young people in Denmark today say they have received an introduction and/or counselling in finances. Of those, most have received it from their parents. Compare this with the fact that one third of the youth in Denmark carry a consumer loan. Although the number of young people who are registered RKI is dropping, they are still over-represented in RKI and seem to have a hard time finding their ‘financial footing’ after having been in the registry,” Laursen observes.

Technology isn’t evil, but we must ­appreciate the consequences

The human tendency is to pursue and invest in easy, convenient options. Artificial intelligence, automation, and the increasing complexity of how the world works will eventually make it humanly impossible to comprehend the consequences of the technology we employ, Laursen fears.

“Even though it is a paradox, I do not believe it relieves people in the industry from their ethical responsibility. It is the industry itself that has chosen to use these solutions in the name of efficiency and a fatter bottom line, so we, as an industry, must take responsibility of how that affects our customers,” Laursen maintains.

For its part, Netflix has openly declared that their biggest competitor is sleep. This is a sad commentary on our times. In general, today’s viewers are not critical of what they are consuming on digital channels.

As Laursen sees it, companies must decide how they are going to affect their consumer base – and that it is naïve and ill advised to think otherwise.

“Large corporations and platforms, like Facebook, have nudged us to do things in a certain way. We need technology, and especially smartphones, in our reach to get the shot of dopamine we are looking for. As a collective, we must make demands on what companies build. They can build something that makes a lot of money, but if it does more harm than good, then why should they build it?”, says Nielsen.

In Ploug’s words,
“We are not aware of how data is actually collected systematically and how it can be exchanged across all sorts of different platforms. First, we do not take consent seriously in a large number of situations. We do not embrace conditions for various services and products, not do we protect our privacy in different ways (e.g., privacy settings on various social platforms). Regardless of the amount of data collected, we tend to consent to access more products and services. Perhaps that is because the scale of scandals with the misuse of data has not reached a level where it really makes us stop.”

Thomas Ploug, ­Professor, Centre for ­Applied Ethics and ­Philosophy of Science.

Thomas K. Laursen, CEO at the fintech and subscription company Subaio.

Søren Nielsen, CEO and co-founder of Ernit.

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