One thing about finance nowadays is that we have a lot of tools and technologies for finance, but one fact that sometimes tends to be lost in the complexity of the modern world is that everything is still based off of olf fashioned bartering and trade. So, let’s take a look one personal financial technology stack t hat is fairly common nowadays.
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At the very base of economics is bartering, bargaining, and trade: the idea that you can exchange two different, incompatible goods and services as if they were of the same value.
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As an abstraction of the direct trade of goods and services, goods and services can be exchanged for a quantity of a single type of objects, and these abstract objects can then be exchanged again in other trade transactions. This facilitates a large range of trading options with the new abstract intermediate quantity.
The most pure form of “a single type of objects” is a single, pure element, of which the easiest to obtain is a non-reactive pure metal such as silver or gold. The exact quantity of this element can then be easily and empirically determined by means of its weight.
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As an abstraction of the weight of a pure elemental metal, metal coins can be symbolically assigned arbitrary monetary values regardless of their physical weight.
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As an abstraction of coins, “bank notes” or paper money can be assigned an arbitrary monetary value.
However, forgery is a high risk issue with paper money, as paper contents that are conventionally visible to unaided human eyes can be printed with ease. Security printing is used as a countermeasure to counterfeit paper money, but it is only effective where the security markings are verified, which may only happen long after the original counterfeit transaction, negatively effecting an unrelated third party user of the counterfeit currency.
There have been some efforts to create the electronic equivalent of paper money, but forgery has generally been a more extreme problem for the electronic equivalent. One of the notable efforts, is Bitcoin, termed as cryptocurrency. It uses a cryptographic proof of ledger to counteract forgery, making it more similar to a centralized bank, but still attempts to be closer to the properties of distributed anonymity that physical money is famous for.
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As an abstraction of paper money, cheques can be written as instructions to a bank to apply a money transfer of a specific quantity between two bank accounts, rather than having the account holders exchange the equivalent amount of paper money.
For convenience, the “pay from” entry of a cheque can be filled out in advance, and bundled into a “cheque book.” This makes it easy for a single person to pull out a cheque from their cheque book and fill out the rest of the fields to satisfy any needed payment.
Alternatively, instead of writing and filing cheques on paper, it is also possible to do electronic cheque transactions. The old notable version of this method was “wire transfers” of money between banks by the means of telegraph and telephone lines. The modern method used by most banking customers is electronic cheques that are filed on the Internet.
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As an abstraction of a cheque book, a “credit card” or “debit card” assigns the “pay from” stationary element copied across several cheques in a cheque book to a single card. Therefore, the card is smaller and easier to carry around than the case of a cheque book. This card identity can then be used by a cashier to fill out either a paper cheque or an electronic cheque to complete the banking transaction.
Similar to cheques, there is also an electronic Internet banking equivalent for the use of credit cards: a credit card identity can be entered online, rather than on paper, to complete an online transaction.
More advanced credit cards contain embedded electronics that allow the identity of the card to be ascertained more easily. For example, RFID or near-field communication may allow a card to be identified by simply being in proximity of a cash register, rather than needing to remove it from a wallet so that it is optically visible to a human or can come in direct contact with a magnetic stripe reader.
Modern smartphones can also satisfy a payment function similar to a credit card or debit card, but without the need to acquire the specific physical card as provided by the issuing financial intuition. Rather, generic smartphone hardware can be used instead.
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As an abstraction of a credit card, debit card, or smartphone, biometric identification can be used instead. Once the biometric identification of a human has been asserted, it can be checked to see if it is tied down to an account in an appropriate financial institution. If it is, the financial identity can be retrieved, which basically amounts to the virtual equivalent of a credit card or debit card that can then be used to complete the financial transaction.
However, some forms of biometric identification are at high risk of forgery. For example, if face recognition is used for biometric identification, and transactions can be completed on a smartphone, then it is very easy for a con artist to hold a photo of someone else’s face in front of the smartphone camera and go undetected.
Finally, when the highest level abstraction technology is combined with automated inventory checkout mechanisms in a store, or even in someone’s home, it is fully possible for someone to just walk into any building they want, pick up whatever they need or want, walk out, and the machines will automatically handle all the monetary transactions for them. If there are sufficiently able-bodied robots, and the taking of an object is unauthorized, then the robots can automatically police that person and prevent the theft automatically.
Sure, these automated systems handle the automated exchange of goods and and well, but what about services? For services, don’t you still need to make a manual request?
Not so, if the adequate technology is available. An automated computer system continuously surveys the Earth at the highest level. It determines the locations where there are humans, but it needs more data to make effective decisions regarding those humans. It then deploys worker robots to correspondingly install new sensors to gather more detailed data, and the overall inferencing process on data detail and collection continues. The system builds detailed models of all human behaviors to determine human needs and wants. When the environment that the humans live in change significantly for there to be a threshold event to perform a service, the system automatically issues a service request. If there are sufficient robots and automation to fulfill the request, then the request is fulfilled completely automatically. Otherwise, a service request is automatically scheduled to a corresponding human who will manually complete the request, and once the request has automatically been determined to be complete, the human will automatically get paid.
“Wow, this is really something,” you’re thinking.
But what will the next generation of children who live in such a world be thinking about in their early age? It’s already enough of a problem that modern children don’t have a good understanding of modern money at a young age, and it is not unusual for there to be one point in the early childhood of many people where they try to walk out of a store carrying something without paying. Similarly, it is not unusual for modern children to not understand why their parents can’t keep paying for additional expensive toys X, Y, and Z. And if you’ve been following the news, you’ll realize the money management problems don’t stop there. A minority, though still significant number, of young adults also tend to have trouble with managing their own money, and it is not unusual for them to face issues with debt. Wouldn’t all these modern “fintech” financial technology advancements only complicate the understanding of personal finance and therefore exacerbate the personal financial problems we observe today among modern humans?
Wow, you’ve got some very good points there, you must truly be a philosopher of a sort. It is true that increased technological automation tends to further displace people’s understanding of how things actually work in the real world compared to how people think things work from the standpoint of their own head, but there is a far larger problem that essentially overrides that one: “humans are creatures of habit.” Unfortunately, despite what we would like to think about more manual money management, they do not, in fact, help people better understand money and personal finance, except at the very beginning when the habits are set up for the first time. Once the habits havbe been built, the human brain operates on autopilot, until the end.
For a small minority of people, this happens naturally as part of their daily habits. But for most, they need a bit more of an external push before they start to change their habits. So, if you start by making the statement that some people have bad habits that need to change, and this change can be facilitated by learning XYZ, back up. First you need to realize that you need a practical means to entice someone to break the bad habit. As it turns out, this is a function of psychology that can be understood completely independently of financial technology.
So, you ask, what is the future of financial technology? Well, from what it looks like, the future of financial technology will increasingly focus on the differences between human psychology and technical practical realities. The technical practical realities will be automated away as heavily as possible, but the human psychological aspects will be approached more head-on. The next most valuable financial technology innovations, it appears, are not in abstracting payment methods, but in trying to de-abstract physiological phenomena and make those more concretely understood by the people who are affected by them.
Or, at least that’s my own blurb on the subject. This last part of my blog article could be overly speculative.