In the winning essay of the 14-15 age group in our Young Financial Journalist competition, Zaki Mustafa looks at the impact of technology on money and the risks that come with it.
How has money changed over time?
Money has been a part of human life for thousands of years, with the first known currency being used in ancient Mesopotamia. Money has for the last few centuries held the form of coins and notes. But with the advent of the Information Age, humanity began to shift away from this material form to the immaterial, stored on computer systems, yet still available in its traditional form.
Now, the use of entirely intangible currencies, known as cryptocurrencies, are on the rise. In this essay, I will explore the different ways in which technology has changed the way we use money – and the consequences.
Managing money has never been quicker than it is now. What once used to require a trip to the bank can now be achieved almost anywhere through a few clicks on your mobile. We’ve gone from cheque books being an everyday essential to today’s almost cashless society, and during the COVID-19 pandemic, we’ve become virtually digital.
This has had a huge impact on day-to-day life. For example, you can pay for a morning coffee with a tap of your card, or maybe you’ve already pre-ordered it through your phone. Yet, the amorality of technology means that it has the potential to be used for both good and bad.
The risks of digitalisation
Firstly, this ease of money transfer has led to people becoming far more detached from the value of currency. What once required meticulous coin counting is now done with the tap of a finger, the less “real” money becomes for people, since they are no longer keeping track of their financial status.
Similar tactics are employed in casinos – people gamble with plastic chips because then the experience becomes less serious to them, and they are more inclined to carry on spending. This issue is particularly prevalent in the US. More than half of Americans (57%) have less than $1,000 in a savings account and more than a third have nothing saved, according to a 2017 GoBankingRates survey.
Another problem is the rise in fraud and cybercrime. In the UK, fraud is now the single most common crime, according to the National Crime Agency, costing the economy billions of pounds per annum. In 2019, there were 3.8 million incidents of cyber fraud, and that was before the number surged to 24% during the COVID-19 pandemic.
Fraud is reliant on the use of technology because of the high numbers of potential targets, and the ease of being able to steal.
It is now an almost daily occurrence for individuals to receive messages telling them that their parcel wasn’t delivered, or that they have won an iPhone. However, all these messages end with the same line: “click on this link to…”. Many are victims of such scams, and the anonymity provided by technology is behind the rise in this crime as people are hoodwinked into giving money willingly to criminals.
This problem impacts the elderly disproportionately, as many are swindled out of a lifetime’s worth of savings, just by transferring money to what they thought was a new ISA – individual savings accounts – or to an investment agency. Sadly, the only defence against such a crime is to act vigilantly.
The pros and cons of non-traditional data
There are also significant data-related risks associated with technology in finance. The availability of non-traditional data can bring tremendous benefits, enabling financial companies to authenticate identity and safely underwrite loans to people with complex credit profiles.
However, concern is rising that these same processes could be misused or abused as financial companies leverage new data and AI in algorithmic analysis, to guide business decisions like:
- targeted marketing,
- pricing,
- whether and how people qualify to open accounts or receive loans.
Due to the digital nature of transactions, information regarding it is inevitably stored, and the availability of this data is becoming an increasingly scrutinised area. Our transactions, tax history and assets are all used by large corporations to persuade us to use their products. As Aaron Sorkin wrote in ‘The Social Network’, “private behaviour is a relic of a time gone by.”
In summary, technology has provided huge benefits to the financial world, namely making payments far more efficient and traceable than hard cash. In spite of this, one must always remember to be vigilant, in light of the increasing risks that are associated with such a luxury.
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