High Tech firms are fast becoming financial institutions

Apple’s Buy Now Pay Later Plan’ is the latest on the screen

How hard is it to spend money? With the advent of financial technology over the course of the last 40 years, we have moved from having to make regular trips to a bank to be able to use our phone to apply for credit, transfer funds, and Paywave up a storm.

Now, it seems that the tech giants are taking steps towards becoming financial institutions, with Apple recently announcing its own “buy now, pay later” offering, integrated with its Apple Pay feature.

Another signal of a shift

As someone researching how lending and new types of debt can affect vulnerable consumers, I see this move by Apple as signalling yet another shift in how we think about and use money. We are used to processing our financial decisions through a relationship with banks, institutions that are bound by local regulation and have built up consumer trust over centuries providing products and systems that promise security and (as BNZ likes to say) helps customers “be good with money.”

In general, though, banks have not been famous for convenience or brilliant customer experience. Conversely, tech companies are in a global business of disrupting the status quo, offering innovation that delivers more and more convenience to their customers, often by circumventing the regulations that have set the terms for local businesses.

Bringing our “banking” into the Apple ecosystem will likely offer consumers a frictionless financial experience, removing some of the complexity around our financial decisions. As a consumer, this sounds amazing, and for many, this innovation will feel like nothing but welcome progress. However, when I think about many people I have interviewed as part of my research into predatory lending, I worry about the link between convenience and complacency.

Apple’s “Pay Later” joins a plethora of easy to access, interest-free credit products that normalise spending money that we do not have and breaks down the traditional complexity that comes with having to apply to borrow money.

The complexity of finance

While we all appreciate the efficiency gains offered by technological innovation, our personal finances may be an area where we would be wise to hang on to a bit of the complexity and friction that forces us to be engaged in the process. The complex and inconvenient processes that banks and lenders have ensured that creditors are adhering to the Responsible Lending Code and doing their due diligence in assessing the affordability of a loan for a borrower, helping to prevent borrowers from obtaining interest-free credit that they ultimately will find very difficult to pay back.

In my work around predatory lending, I have seen the harm that comes when the convenience and simplicity these credit products offer to create an environment where it is all too easy for people to sign up as a “customer” to multiple creditors, sliding into vast amounts of debt because of the frictionless consumer experience.

Once they are over their head, however, they discover that what works to get out looks a lot like the practical, engaged budgeting methods that have served people well for generations. Not convenient, but sustainable, requiring their focus and discipline.

As consumers, we are right to welcome innovation that makes life easier for us.

However, we need to keep in mind what these new services are offered to us for and the trade-offs when we engage with innovation. We may need to become the friction that ensures that innovation doesn’t cause us or those we love to slip into consumer debt.

‘Alapasita Teu is a Researcher at Maxim Institute based in Auckland. This story has been sponsored by