The State of Mobile Banking
For this article, I analyzed the design and functionality of 35 mobile commercial banking apps just to discover that we are still far off from revolutionizing and disrupting the way people manage and transact with money. True to my holistic approach, we first look at some mind-boggling statistics and data on how we create, circulate and use money. In the second part of this article, we explore the phenomenology of money and develop a few interesting and challenging questions from a philosophical point of view. We then head over to unravel how money in the hands of individuals influence their behaviour. Finally, we observe some of the more popular mobile apps that are available today, purely from the perspective of a UX and service design. This is the first take in our field that I know of, that combines sociology, philosophy, psychology, economics and design methodologies to analyze a software product. Let’s get started.
Why is it that in times of AI and smart apps, effective money management for most people is still such an unachievable task, while the number of those who have significant debts is constantly rising?
How people manage money and debt
The services and experiences most banking apps provide can be described as primitive, gimmicky and unimaginative in the context of the statistics and analysis provided below. Even once Monzo – UK’s challenger bank – begins offering a bank account for homeless people, the situation won’t change much. The digital services are shallow and only sell the products banks have been providing already for as long as they have existed — just with the newly added mobile convenience factor. Why is it that in times of fin-tech, artificial intelligence (AI) and smart hardware devices, effective money management for most people is still such an unachievable task, while the number of those who have significant debts is constantly rising? Although the two — app usage and poverty – might not be co-related, why not see mobile banking as a means/tool of getting people out of debt, since these days everybody has some form of debt and a smartphone anyways. First, let’s take a step back and look at some consumer data.
For instance —the Money Charity is the UK’s financial capability charity and their experts educate the public on all relevant money matters. The charity frequently releases statistics that show people’s debt in the UK, and they just published an update (link) that paints a very dark picture in terms of the overall wealth of the nation. For many complicated reasons, the growth rate of debt per adult continues to rise. Every ~5 minutes one person in the UK declares being insolvent or bankrupt. Twenty properties are repossessed every day. Eighty-four mortgage possession claims and orders are made every day. People in the UK only owed £1.5839 trillion at the end of April 2018. This number is expected to go up to £2.296 trillion by 2022. £30,597 – that’s the average debt per adult in the UK today. £1,850 is the average annual interest repayment that most likely goes to the big five commercial banks or lending institutions. Outstanding consumer credit lending was £210.6 billion at the end of April 2018, increasing by £1.2 billion last month. Per household, the average consumer credit debt was £7,744 in April 2018 (owed to banks or other credit institutions), up slightly from a revised £7,698 in March 2018. It would take 26 years and 4 months to repay this if you made only the minimum repayment each month. The average debt owed per student at the end of 2015/16 was £16,849. The average debt for the 2016 cohort which most recently entered repayment was £32,220. Around 9.79 million (36%) UK households have no savings, while a further 3.54 million people (13%) have under £1,500. 19.31 million people (71%) have less than £10,000 in savings. Those numbers are mind-boggling, and even though I haven’t looked at other countries, I am certain that situations like these are present or are evolving in comparable places everywhere else around the world.
In light of such data and the wide adoption of ‘smart’ mobile banking apps, you have to ask yourself; what is it these mobile banking apps are actually doing?
Banks as creators of money
Let’s ease you in with a simple example, demonstrating how our monetary system works at a high level. The story starts in the US but is easily transferable to other, developed countries.
Say ‘Hi’ to our fictional character John. John wants to purchase a new Tesla (price/car $100k, for easier calculation). As so often, he does not have the equivalent of gold reserves or paper money at home under his mattress, so he goes straight to his bank to ask for a credit/loan. The bank assesses the risk of giving John the loan and decides to go for it.
Hold on for a minute – just weeks before all this happened, the US government issued a new government bond and requested $1 billion dollars as new (productive) funding for the currently booming economy, so more Teslas can be build for all the hundreds of Johns and ever demanding consumers out there. The privately run US Federal Reserve System (FED) received the request and magically created the $1 billion, literally out of the blue sky – thanks to digital money. Now, one of the big retail banks (the ‘dealers’) accepted the newly created $1 billion from the FED as a loan with a very low interest rate (~1%) and created a deposit in their system. You can see where this is going. Just hold on, it gets way more interesting.
So say, it was John’s bank that took the $1 billion from the FED. It puts aside 10% as a reserve since it is a legal requirement (% varies from country to country). John’s bank can now lend money worth of ~$900 million to finance not only production but also the hundreds of Johns who are keen to purchase new Teslas. But, John’s bank does not just lose the money to all the Johns it has given a loan, in fact, it adds the $900 million to the $1 billion it has already in their own system as a record/deposit. This process is called fractional reserve banking. Yep, that’s right, for every Dollar created there is a ~One Debt Dollar put aside. So you probably ask; where did this additional money come from? Well, the bank just assumes that the total money supply in our economy increased because we have the original $1 billion thrown into the system by the FED and the additional $900 million circulated into the economy in form of loans. Remember, money in this context is only a medium of exchange – the exchange of debt. You can now continue this cycle over and over again. So, Elon Musk –the CEO of Tesla– takes John’s $100k and puts it in his bank. The bank again keeps 10% and ‘gives’ away the rest as loans. Elon Musk’s bank has now $190k in their reserves. Boom! – the circle closes again and we have $90k more in circulation. We started with $1 billion created by the FED to boost investments and after two ‘loan loops’ from retail banks (FED to Johns bank to Elon Musk’s bank) we already have roughly tripled that money – thanks to fractional reserve banking and other tricks private bankers and politicians have set up to control economies. In the end, $1 billion can become ~$32 billion pumped into the economy and it’s all debt. It’s crazy, isn’t it?
Don’t get frustrated. Better ask yourself, how did all this mess start in the first place? It probably all started when Governments gave away control of producing and issuing first physical, and then digital money. In America, this started to happen around 1910, when a bunch of bankers met secretly on Jekyll Island to mould the plan for creating the Federal Reserve System (FED) and the Internal Revenue Service (IRS) we know today. Only 3 years later, the proposal for this new US banking system got instilled. From now on, the printing and issuing of money got privatized and the control was in the hands of bankers, who have their own agenda as we know. The UK has basically a similar setup, but instead of the FED, we have the Bank of England (BoE), which also is just a private money creator/supplier. It’s similar everywhere; The government asks for money and private banks issue the money in form of loans. Those loans come with interest rates and usually get paid off with our TAX money (remember who instilled and brought back the US TAX system in its current form? Exactly – bankers like Rothschild, Rockefeller and Morgan in 1913 with the introduction of the Sixteenth Amendment).
How did bankers become so smart with money? For that, we have to go back in time even further, but don’t worry – I will shorten the history of banking down to a few sentences (read more here). So apparently, Londoner goldsmiths in the 17th century started storing people’s gold in their vaults for a small fee. Probably because of the fear of getting robbed, traders used the service and got in exchange paper receipts, certifying their stored values. Initially, only the original depositor could collect the stored goods. What the goldsmiths then observed was that the traders started to use the receipts on the markets as if it was currency (or real value). Fewer traders came back to the goldsmith to ask for their stored values. It was just not convenient. This gave the greedy goldsmiths the idea, that they could again lend out the dormant value unused in their vaults on behalf of the original depositor. In case a lot of people asked for their gold in the vault at the same time (bank run), the goldsmith just had to make sure he always kept enough reserves in his vault and all was good. Of course, this newly issued money in form of pure receipts was all debt money; The Goldsmiths’ debt. You can now understand a bit better how money gets created these days. Although it is far more complex than that, these are the basic principles of the banking system we have in place today and you might wonder, what mobile app features do banks really need to keep this system alive and well? GoCardless? Please give me a break.
There is another interesting perspective I wanted to share with you before we close this chapter and head over to the phenomenology of money. Here is what lawmakers have to say about depositing and lending money. Did you know that when you deposit your money to a bank, you give them actually a loan? That’s right. Ever wondered why you get those tiny interest fees? Banks are borrowing money from the public – big time. How about banks lending money? Well, actually banks don’t lend money, they officially purchase securities. That’s all they do. So next time you agree on accepting a loan for your Tesla or house, you are selling security (promissory note) and the bank is buying those securities. Once you signed the contract the bank will say that you can find the money in your account. They would be legally held accountable if they said instead that the loan got transferred into your account. In reality, no money is transferred at all. The banks deposit made available to you is simply the banks' updated record of its debt to the public –and– to you. This is how the banks create the all-encompassing money supply and this supply consists of 97% of deposits made out of thin air, triggered every time a new John who wants to lend money for his Tesla or something similar. It is brilliant and digital money makes it even better.
The phenomenology of money
Now that we established together with a shared understanding of the current banking system, it’s time to unravel the mystery of money and its role for our society. For this we need a philosophical approach, we need the methods of intellectual inquiry which will help us embrace the whole picture of money as a social phenomenon. You’d ask, why is this so important for designers and developers involved in creating fin-tech and mobile banking apps? Well, based on the theoretical framework of the sociologist and philosopher Georg Simmel, money as a tool made modern society possible (Simmel, 1907) and combined with newer soft- and hardware technology, it will co-shape future human civilization, down to the smallest fractions of our daily lives. Therefore, we as creators hold a great responsibility in building fin-tech that positively benefit not just big and already powerful financial and monetary institutions, but also the people who currently struggle with money the most in our society – the majority.
Let’s take a step back and think about the phenomenon of money. What can we observe? We can discover that money is all around us. It acts as a mediator between us and pretty much everything we can feel, see, imagine and desire. Money helps us trade at great distances and it creates bridges with people and things that are far apart. At the same time, this distant trading alienates us from the people we trade with or the things we exchange. It dematerializes and delocalizes objects and individuals (resource). It makes partners and rivals. It brings freedom and dependence.
Think for a moment about the distant people who harvest the tea leaves or coffee beans you later purchase in a local store. What about your last food delivery; did you meet the person who prepared your late night snack? What percentage of your payment went to the delivery driver, the cook, the food-chain? How do you know you haven’t given your money to someone who supports right-wing fascist groups? I am sure by now you heard about the Oxfam scandal. People trusted the UK charity and hoped they will do the right thing with their money, but instead saw some of the charity workers make really bad and highly questionable investment decisions. Do you know where exactly does your tax money go? By now you should – was it a private bank, the central bank or the state? Does your startup salary come from an honest founder, corrupt investors, or a community of anonymous crowd-funders? Was your salary purely digital, or did it stem from a once physical commodity (e.g. founder traded his old family property to pay off the bills)? The point is, money makes people complacent and ignorant towards real issues that might be more relevant than immediate individual desires or corporate interest. Money makes supporting the good and the evil possible, both at the same time, with a swipe of a card or click of a button. It makes us both master and slave and it’s a test of human morality. Our power over money is real inasmuch as we are able to understand its power over us.
Money does not depend on substance. It is intangible and has been reduced down to a pure symbol and tool to unlock actions that make life in our society possible – for better or worse.
What is value? It depends on what we are willing to pay for something. How about yourself, what is your time and expertise worth? You immediately think of a pure inflated/deflated number, instead, you should think of what you are able to produce and can contribute to your immediate environment. But I understand, this is way harder to assess, inconvenient to communicate and varies greatly in context (location, time, effort, complexity etc.). Why is it that in our industry we pay someone to have a one hour lunch with the client’s CEO at $1000 and someone who actually does the real work in a twelve-hour shift a tenth of the above amount? Value in combination with time, in combination with money, creates a highly abstract and volatile world, but only for those who have limited resources, little power and no control. Georg Simmel wrote in his famous book The Philosophy Of Money (link) that money made salaried labour possible and also contributes to the division of labour. “If we can sell labour, we can also separate ourselves from it”. We can now start outsourcing our skills and electronically enhance our capacities (time-value-reality) to the extent where work is being replaced by the sheer movement of information (McLuhan, 2001) or a digital token. In a sense, the objectification of everything in the world has been completed. Money’s value stems not from its material form, but from the content of that social (productive) process which money mediates by its circulation and thus makes possible. Money as a social institution has unpredictable power and can influence people’s behaviour and thinking as we will discover next.
Money and it’s psychological and behavioural side effects on individuals
Have you ever wondered why people who have been assigned with the trait ‘modest’ are seen as good and gentle humans? Researchers at the University of Warsaw, Poland demonstrated that the priming of young children with money-related concepts or images negatively affected their social behavior and social preferences, leading them to make more individualist and less pro-social choices, and be less willing to help others. This was quite interesting to observe since the participants of the study were between 6- to 8-year-old kids who do not yet fully understand the instrumental function of money due to their young age. You can recognize by this example that money shapes new social norms, forms our way of interacting and living with others and constitutes our way of thinking – oftentimes unconsciously (resource).
Another interesting piece of research has shown that thinking about time rather than money leads people/consumers to evaluate a product more positively (resource). The neuroscientists who conducted the study discovered through fMRI scans higher brain activation in areas usually associated with psychological phenomena such as love, urging and loss aversion. These brain functions imply greater personal connection between people and the tested subject or object and, thus, help explain why time-primed consumers rate products more positively. Over the past two decades, other types of studies have been carried out leveraging the Dictators Game (resource), which is one of the most popular methods in cognitive psychology for measuring sharing behaviours. Most of the studies showed participating people return a favour of a small non-monetary gift more often than when given money to exchange. This pattern has been observed in many cultures, even the ones that live under the conditions of low market integration such as forager-horticulturists from the Bolivian Amazon. The last study I want to cite is one from the University of Zurich. Here, the results suggest that “prevailing business culture in the banking industry favours dishonest behavior” (resource, although revisited).
Electronic money and current mobile apps
I think we are now sufficiently prepared to have a look at some mobile apps and assess their functionalities, features and overall benefits for individuals and their modern, connected societies. I looked at roughly 35 of the top listed (link) and newly introduced mobile banking apps that are on the market right now and did a quick heuristic walkthrough their key functionalities and features. Here is a list of the most common features:
- View one/multiple account balances from one/multiple banks
- Transfer/request/receive money locally or globally
- Track spending, set goals etc.
- Use it as a payment card
- Real cash withdrawals
- Phone/chat with customer service
- Open and manage investment account, transfer funds etc.
- Apply for credit and manage
- Apply for a mortgage and manage
- Make deposits via photo (paper Cheque, QR-code etc.)
- Order foreign cash/exchange currency
- Freeze, close, apply for new card etc.
- Secure login via facial recognition etc.
What do you think of this list of features? Some of these commercial and challenger banking apps are pretty convenient, have great user experience and allow you to participate in the local and global exchange of physical goods and digital money. You can imagine that most crypto-currency apps work in similar ways; they allow you to exchange Dollars to e.g. bitcoins, request bitcoins, deposit them, transfer and sell them, track your transactions, observe market trends in real-time etc. – all easily accessible through the handheld in your pocket.
“We live in a world where everything becomes (digitally) expressible in a single quantifiable metric; it’s monetary cost.” G. Simmel, 1907
Let’s take a step back and look at those features again from a different perspective. Remember what we learned about the effects of distancing yourself from the physical exchange of goods and services, about the link between money and society, about the use of digital currency as a mediator for our needs and unfilled desires? Remember what we learned about the creation of money, debt and the banking system in general? Remember that we as designers promised ourselves to always apply a human-centred approach to the things we create and unleash on the world? All of a sudden, it should become clear, that the features listed above serve only partially the interests of their users, but first and foremost, promote and elevate to new heights the corrupt financial system we have in place today. Apparently, up to 400 designers worked on some of these apps, but the solutions and design results they came up with are quite primitive (link). Why is it that smart technology does not prevent people from falling into debt? Why is it that these apps only feature services that help you transact faster, more frequently, at greater distances, with money that you haven’t even earned, yet or should not even exist in the first place? Today, mobile apps and their monetary content give us the illusion of full control, endless convenience and access to unlimited opportunities. But like crypto-currencies, the usage of these tools will make us blind, entrench and disenfranchise us even further away from the people and the things that matter in post-capitalist lives. The ever-increasing use of digital currencies, tied to the US Dollar and ultimately connected to these apps demonstrate our denial of freedom, our willingness to become slaves to materialistic thinking and the objectification all things in the world. A world only represented by monetary symbols and quantifiable data.
What we need is the opposite; we need to make money real again. Tie it’s monetary, symbolic value to productive outcomes and physical assets with real value that benefit humanity and bring social justice. This would be true innovation and install the social transformation we so desperately need. For that, designers need to think outside capitalist hegemony. We need to ask how value relates to human experience. What is value and how do we get it.
… and you ponder: What current mobile banking apps do well? They transfer power.
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