Payments, Liquidity, Debt, and the Consumer

Plastic goes Digital

The payments world is all-encompassing as we make transactions at every level of our everyday lives. From the moment we swipe the card for that morning coffee, petrol at the gas station or that muffin on the go, we are transacting. What goes on behind the scenes; however, is much more complex than the naked eye can see. The majority of the grunt work is weaved through Mastercard and Visa. I will explain the inner workings of these behemoth card companies in my next article. This article is focused on the consumer and the understandings of money movement stepping into 2020.

Most of us have credit cards; a few of us have several — Visa, MasterCard, and other credit card companies, such as American Express Co make money by charging merchants and businesses a fee for accepting their card as a method of payment. The two leading credit card companies are Visa Inc. (V) and MasterCard Inc. (MA). Why is this so important to know? Well as it stands in America alone, American consumers owe roughly $870 billion total in credit card debt, as of February 2019, according to data from the Federal Reserve. These statistics are astounding and are proof that consumers carry much more liability then liquidity. Where does this take us as consumers when we are stretching far beyond the borders of stable debt? The economic debt ceilings keep expanding as well as household debt.

The world of money is a place that we cannot escape from, and it is crucial to understand how it affects us all. The effects of carrying any debt for consumers can be extremely burdensome. Banks and financial institutions make money from the hefty interest rates charged on card accounts when purchases are made or when your monthly card balance is not paid on time. Even though the penalties are high, and the risk is substantial, it does not deter the consumer from spending. Spending habits increased when cards replaced cash. The psychological mind game of not seeing the money and having to pay it out gave businesses and other institutions a leading edge when it came to enticing consumers to spend their money. Top that off with the massive amounts of data and analytics available and precision became the weapon of choice for financial institutions. These institutions are continually learning how we like to spend our money which provides the edge required to continue placing products or services that we desire in front of our eyes. The future will be way more calculating than you may imagine as money will be directly linked to your physical profile. When you start a new job, for instance, there will be a record of how much you earn, how much tax you will probably pay from your earnings and how much liquidity you have to spare. When you apply for a credit card, all these factors are taken into account when you fill out the very detailed application forms.

Now imagine there is an online profile of you that is continually updated by your traceable habits and income. Your online profile will be linked to your physical profile by a trusted brand or brands, and all your data will follow you from place to place. It may seem a far stretch for you to believe right now. Still, as machine learning advances and as algorithms perfect evaluation profiling, it becomes more of a reality than a "Minority Report." You may not realise it, but your mobile phones leave very identifiable information assemblages about all you do in your daily lives. So what is stopping all this technology from becoming mainstream? Well, there are governing bodies in every country that decides what data can be utilised by institutions and the laws, regulations, and compliance that encompasses. The laws are currently playing catch up as consumers rally to voice their concerns about who owns their data. In such a transparent world, there is no place to hide. Some might say, why worry when you have nothing to hide? Visibility is not a bad thing but being visible to everyone leaves us vulnerable to fraud, cyber-attacks, theft and identity theft.

Enter the world of "RegTech." (Regulation Technology)

What is it, and why do you need to know about it? To date, 20-30% of bank costs are dedicated to GRC ("governance, risk, and compliance" or "governance, risk, and control". Governance, risk, and compliance (GRC) refer to a strategy for managing an organisation's overall governance, enterprise risk management and compliance with regulations. Holding organisations accountable for handling and maintaining our data as referenced by the governing laws of every country. Companies like Google and Facebook have paid hefty fines for the mismanagement of data and have even sold off data sets to third parties for financial gain. Data breaches cost us all, and the consumer eventually picks up the bill when services are priced to accommodate losses incurred. Regulatory obligations are moving from a manual to an automated process as businesses seek to reduce cost via the use of automation, both Real-Time and Predictive.

As regulation authorities framework and begin to allow the use of private data, public data and interlinked data, in accordance with governing law, the availability and follow-through of technological advancements bring forth a new reality.




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