There is speculation in the financial technology (fintech) industry that the deregulatory atmosphere embraced by the incoming Trump administration will allow for an upswell of innovative new products. But will innovation in banking be a curse or a boon for the underbanked among us, who both stand to gain from new products and yet have the most to lose?
With Republicans in control of both houses of Congress and the Presidency, it’s practically a certainty that the Consumer Financial Protection Bureau (CFPB), championed by liberal icon Elizabeth Warren, will be gutted, left to die, and given a sky burial that feeds the circling vultures. The CFPB is the organization that brought us regulations against the payday lending industry. Short term loans can be a godsend for the desperate, but high interest rates often lock them into rolling loans over when they can’t be repaid at the end of the term, causing the amount owed to soar. How is being trapped by debt any kind of help for people with little money to begin with? Perhaps ironically, and certainly sadly, the less money you have, the more you must often pay for needed products and services.
Without the CFPB to kick around anymore, and finally free to let out their inner sharks, the fintech industry could potentially find new ways to profit by reaching out to those who are poorly served by traditional banks. Following the growth in importance of smartphones as a way to bring financial services to people throughout the third world, apps are already springing up to serve the marginal and poor right here. However, will current and future apps be provided in a more ethical manner than payday loans? How well this goes for both fintech and their customers depends on how honest and desperate these groups are, respectively.
I don’t know about you, but when I hear people talk about innovation in banking, the same chill goes up my spine as Reagan-era Republicans must feel upon hearing, “I’m from the government; I’m here to help.” Innovation in banking brought us subprime lending and derivatives based on subprime loans, remember, and those are part of what brought us to the brink of another Great Depression (until the government stepped up and said they were here to help). So while fintech may well come up with innovative new apps and products we can’t even imagine, my faith in a good outcome is directly proportionate to my faith in these innovations not being the product of two-legged predators, which is another way of saying “not bloody likely.”
Another problem with innovation in banking, like other recent innovations that gave us “solutions” like Airbnb and Uber, is that it’s unlikely to do anything other than give banking a new GUI. Apps could make banking cheaper in the same way that Uber makes hailing a ride cheaper, by cutting out the middleman. The problem is that middlemen are people too, and while cutting them out of a job might affect app users’ personal economy positively for a while, it comes at the cost of economic upheaval for increasing numbers of people losing their means of making a living. Imagine a cadre of redundant bank clerks lining up beside former hotel workers and taxi drivers at the unemployment office, and you’ll see a downward spiral that makes it less likely that any of them will find stable jobs in the new economy. Automation that gives an advantage to early adopters drives wages down for all.
Likewise, recent innovations have been more process-based or cosmetic without making useful structural changes. In other words, innovation in banking is unlikely to reduce the need for banking. It only enables versions of the banking industry to continue sucking up profits in new ways. Perhaps what we need more than new financial products is to get away from finance altogether. When people have needs that are not being met in the money-based economy, are banking apps as helpful as finding ways to reduce the need for money altogether? Localized or gift-based economies might not form a basis for the kind of globalized capital base that provides smartphones on which banking apps can be accessed, but if we all had a share in some sustainable means of production, perhaps we wouldn’t need them as much anyway.