Consumer Transactions: Consumer Banking
Abstract and Keywords
This chapter considers formal banking from the perspective of consumption, drawing on the sociology of money and finance and focusing on three aspects. First, it examines how transactions are organized in ways that keep consumers engaged in banking. It highlights the need to study the marketing and selling practices in finance and the lived experience of credit. Second, it shows how the assumed intermediary function of the banking system, as neutral carrier of impersonal funds, has been challenged by studies of financialization and discrimination, and substantively by fintech innovation. Third, the chapter turns to payments as a richly explored, yet neglected area of sociology, from closed informal circuits and the multiplicity of money forms to the large-scale infrastructural “rails” of finance. Finally, the chapter considers to what extent banking should increasingly be studied not as conveyor of finance but as an instrument of generating consumer data.
Banking is most often equated with money or credit, instrumental for consumption but not to be studied with the tools with which we study consumption itself. For example, credit has often been viewed as the historically necessary condition for the rise of consumer societies, or as a means to incite, or in fact discipline, consumer excess (for a detailed critique, see Deville 2013). Banking has been seen as the background of consumer transactions, providing the means and the “audit trail” of purchases. Another functionalist view of banking in sociology, economics, and finance is that of the intermediary that channels consumer savings into consumer loans, often in exploitative ways. In this chapter we probe into these notions of transaction processor and funding intermediary, and develop a different view of banking that takes into account both the construction of meaning and of infrastructure.
How are consumers’ financial transactions organized and conducted in practice? In turn, how is money itself consumed, when it is borrowed or invested? Pursuing these questions means studying the massive infrastructure of banking, its construction of the consumer, the social interactional dynamics between banks and customers which constitute the selling of money, and how meaning is constructed and used in banking and finance. From the perspective of banks, insurance companies, card companies, or wealth management firms, consumers are customers of money who must be served. Banks strategize over, design, and control the social and physical aspects of conducting transactions—from apps to branches, from conversational scripts to ads and mortgage calculators. This perspective leads us to consider banking as a collective material practice in which consumers and financial experts participate, but one that is entangled with other concerns of everyday life. Banks experiment with extracting value not only from the fees of financial services but also from assessing the expected future value of individual consumers and from the types of collateral these consumers are able to bring into (p. 322) the transaction—not only economic capital but also social networks or cultural and moral capital. Increasingly, value may come from the data customers leave behind.
Consumer transactions typically take place through the retail banking system and the consumer finance industries through cards, bank accounts, electronic fund transfer, cash machines, retirement plans, or loans. How do consumers relate to the institution of banking? This is a question banks themselves ask, pursuing customer affect; the answer is that of reluctance. Unclear charges, blocked accounts, or other disagreements and glitches often pose an obstacle to routine consumption patterns, so that encounters with banking appear to consumers as threats and a nuisance to “deal with.” To merely address these difficulties or to initiate spending on consumption, by visiting the bank branch or logging in online, requires ordinary citizens to enter an expert world and subject themselves to its technical and bureaucratic terms. Witness the difficulty of grasping the small-print terms and conditions of loans or investment contracts. In addition, branches in many countries use automated queuing systems, which ask customers to declare the purpose of their visit from a technical list that is often alien to the way people think about money—using words such as “retail transactions.” Only after indicating their business are they issued a number, which allows them to get in the waiting line. This step interpellates consumers as subjects to be slotted into a bank’s efficiency-oriented procedures. The digital queue ironically provides less transparency to consumers about who gets served when.
A dramatic example of consumers’ reluctance to deal with banking is unpaid debt. Dreading the consequences of late payment leads many debtors to leave bank letters unopened and phone calls unanswered, in a physical detachment from communication and from the entanglement of debt. Deville (2015) has shown that these affective relations do not escape debt collection companies, which buy rosters of debtors from banks and profit if enough debtors repay. They put a lot of pressure on consumers but also calculate when and how they can change people’s affect during a phone call, for example, in order to reattach them into the debt circuit, where they can be made profitable again.
Despite the misgivings that structure the affective relation of consumers to a powerful technical system on which everyday life depends, the strategy of banks in the past two decades has been to turn banking into a “Customer Experience,” which has become a key performance indicator in the consumer industries. Frequently, this has meant formatting the venues of banking to make them akin to a shopping experience. Bank branches worldwide were redesigned in the mid-2000s to exude a nonthreatening, warmer ambience. The experience of interacting was to be stylish and accessible, and one of clear and simple product comparisons. Recent design strives for a community experience in the relaxed and informal style of cafes or start-up office spaces. Assistants (p. 323) move freely around the branch wielding tablets, and the transactions themselves are less visible—mere back-office processes.
Transactions are thus far from being side functions of consumption, and selling, marketing, and maintaining client relationships are important aspects of finance, not only in retail but also in professional trading and investment (Arjaliès et al. 2017). Sociologists can productively analyze banking as acts of market exchange, where products are bought and sold. Indeed, that is the banks’ perspective. When people sign up for a service such as a checking account or a credit card, that transaction is recorded in the bank’s accounts as sale of a “product.”
Attuned to the market exchange dimensions of banking, some sociologists have in fact used theories of markets from Weber to actor-network theory and neo-institutionalism, to examine how banks and other financial organizations attempt to attach consumers to financial products (on embeddedness see Chan 2009; for an overview on marketing credit, see Langley 2013). Ossandon (2013) showed, for example, how department store credit cards are offered in ways that amount to “sowing” customer value. The cards combine multiple kinds of credit (credit card, cash advances, and consumer loans for large items), with the idea that people would use small amounts of credit on their many lines and, being inattentive to the low quantities, might default. This arrangement allows the credit relationship to continue, on changed terms dictated by the creditor. Such “sowing” techniques cannot merely be described as technical risk management, argues Ossandon, but rather as marketing strategies.
Interacting with consumers and engaging them in financial services has involved what I call technologies of persuasion: from low-tech face-to-face encounters such as door-to-door salespeople (Leidner 1993; McFall 2014) and hand-drawn demonstrations of financial plans (Vargha 2011b), to the high-tech, data-driven, “personalized” banking offers that reach individuals on mobile phones and digital platforms. There is not necessarily a historical shift or linear change from personal to automated engagement and persuasion. Although a broader shift to digital social interaction is under way, the activities that are routed to digital versus physical “sales channels” are also changing. While routine transactions are increasingly automated, open-ended inquiries and those that may yield high-value transactions have been kept for personal meetings. Such “sales channel management” and directing of consumers is being replaced with an all-points view, however. This again does not simply correspond to cost savings, which have invariably meant branch closure, but rather, forms part of a larger marketing philosophy. Many large banks now aim to be available for customers what they call “seamlessly,” through any and all channels.
Banking has relied on the carefully crafted performance of its salespeople to explain financial plans to prospective customers. This explanation is rather a showing and a product demonstration, not dissimilar from physical consumer appliance demonstrations. What bankers demonstrate, however, is not material: how a product which cannot be seen or touched in the present will behave in the future. Therefore, the technologies of persuasion—the calculations made with customers, the brochures and printouts, the (p. 324) sales scripts—materialize these properties and the change over time. But selling involves an additional step that some have called “singularization” (Callon, Meadel, and Rabeharisoa 2002). In the demonstration, the mass financial product’s behavior is shown to coincide with the personal needs of the individual customer, for example, of obtaining the exact value of loan that is needed to buy the chosen home (Vargha 2011b).
The work of the sales interaction, built on question-and-answer sequences, visuals, and calculations done for the customer on the spot, using “their” numbers, forges an attachment to mass finance, one by one. However, this attachment is not a trivial step, as structural accounts of markets have suggested (e.g., White 1981). Financial selling situations are fraught with not unfounded doubt and scepticism on consumers’ part, and most sales pitches fail. (Also see Robin Leidner’s  telling account of insurance salesmen.)
That said, salespeople sustain ambiguous interactions whose underlying morality alternates between a situation defined as representing the customer’s interests and a situation where customers are exploited for the salesperson’s advantage (Vargha 2011a). This dynamic is richly described in Chan’s ethnography (2009) of insurance selling in China, where the social obligations of family and friendship were successfully mobilized to ask for support by signing up to a policy. When a public scandal clarified that agents were directly benefitting through commissions per policy sold, it set up a conflict of interest between agents, and clients and interactions became more ambiguous. Financial regulation increasingly requires sellers to disclose their fees and commissions to reveal conflicts of interest. Nonetheless, sellers try to frame a win-win situation with customers, insisting that they benefit when their customers’ interests are served.
But banking cannot be understood as a series of unrelated transactions, of pure market encounters, partly because the nature of financial services keeps customers in a relationship, and partly because bank strategy has increasingly focused on cultivating relationships with customers, embedding them in commercial relations. This has resulted in finely segmented and individualized views of the customer and the aim of providing personalized services. These emphasize that broad-based marketing for the masses works against customer loyalty, and a fine-tuned approach is needed.
It is important to note that customer loyalty has often been interpreted by banks less as an emotional and social concept than as a hard fact of selling. Loyalty has been seen as the outcome of entangling customers in a web of products, making it difficult for them to calculate and switch to competitors. Cross-selling is a crucial tool for this strategy, which has been made infamous by the recent Wells Fargo fraud case (United States House of Representatives, Committe on Financial Services 2016). With banks increasingly providing a broad range of services (sometimes through partnerships) from insurance to investment, bank representatives were asked to pile product offers into every encounter with customers.
Interestingly, credit appears in this constellation as a “gateway product”: not only valuable on its own but also as a product which allows for adding on a long list of other services such as loan insurance, home insurance, or credit cards. When cross-selling was reinforced by extreme performance expectations for sales goals—the partly arbitrary “eight is great” policy to achieve eight products per customer—and by penalties (p. 325) for underperformers, some employees at Wells Fargo opened fake accounts without customers’ knowledge or consent.
Consumer Financial Needs
Through the many mundane banking interactions and sales pitches, financial consumers are constituted, by articulating their concrete financial needs. Banking services are largely inaccessible to consumers in their full array and properties, so that products are actively matched to individuals in the daily running of banks. Bank employees are taught to interview their customers in ways that as the latter’s needs are assessed, they match the bank’s array of products. Open questions become more focused, although not necessarily technical, as the employee leads the customer through various options known only to him, sizing up individuals in terms of the available products, creating relevance. A customer inquiring about mortgages in Hungary, for example, would be asked whether she has already selected the property to be purchased, whether it would be a first home, whether she is married, has children, and even whether she is planning any! These personal and seemingly unrelated questions are meant to exclude variations of the bank’s products, which are tied to eligibility criteria, as in mortgage subsidy programs for families (Hegedűs and Somogyi 2004).
Consumer financial needs emerge as such, and stabilize, in part by design and in part as the ongoing by-product of these interactions. Consumers learn to work with some of the technical terms, while employees are continuously translating customers’ mundanely phrased answers to the financial (technical and bureaucratic) terms in which the bank’s offering is formulated and replacing the customer’s words with their own. Thereby they change the terms of the conversation to those the organization and its systems can “understand.”
Consumers go through other moments of questioning, self-questioning, and slotting into mass banking options, a process captured in the concept of market formatting developed by Michel Callon (1998). The individual needs cultivated in consumer culture become articulated in line with a limited set of standardized products, in a way that has to make sense to consumers enough to sign on to the services. Formatting takes place, for example, through the design of the shopping experience. By arranging the vendor stalls and price displays according to microeconomic competition theory, uniform prices and rationally calculating “Homo economicus” may emerge (Garcia-Parpet 2007). In self-service supermarkets, store designers attempt to direct the movement of shoppers and their abilities to calculate and compare (Cochoy 2008; De Grazia 2005). The shopping cart itself was seen as a material space that could regulate consumer behavior and the capacity to amass goods and not recalculate or return them. But formatting also occurs in financial education, which has been criticized for its emphasis on fostering risk-based subjects who do not question that financial distribution and outcomes are the sole matter of individual responsibility (Marron 2013).
(p. 326) For a sociology of consumption, however, we must recognize that formatting is not deterministic, as critics have noted, but the outcome of a collective practice in which consumers have agency. Therefore, a study of banking must include how people walk away from banking encounters, accounting for themselves in new terms, telling themselves they are indeed “risk takers,” and engaging in new practices while keeping up old ones.
Mortgages and debt should therefore be seen not only as prescriptions for risk-taking subjects or exploitative constraints but as “lived experience,” whereby “different forms of credit and debt reach into and attach themselves to domains often coded as private, domestic, mundane and non-economic” (Deville and Seigworth 2015:621). Studying the designers of finance, such as mortgage securitization teams, provides limited understanding of these mechanisms: “[f]or all the analysis that social scientists have produced of consumerism and credit, the consumption of consumer credit itself is rarely considered” (Langley 2013:418).
Intermediation: Connecting or Transforming Needs
Banking has often been legitimized by its social and economic function of channeling funds from one population to another: collecting available funds from small disparate sources, such as deposits from citizens, and redistributing to borrowers commonly in the form of loans. This function of financial intermediary came under scrutiny after the financial crisis. The consequences of deregulation from the 1970s onward were seen to have facilitated mortgage securitization and subprime lending. Retail and investment banking, Main Street and Wall Street, became directly connected, so that cheap consumer borrowing was fueled by obscure credit derivatives traded in financial markets. Arguments of financialization, variously defined, have emphasized that traditional intermediation by banks, of collecting deposits and providing loans for consumers and for the real economy, has been sidelined in favor of proprietary trading and income generation within the banking sector (Arnold 2009; Davis and Kim 2015; Hopwood 2009; Krippner 2011).
In light of research into the sociology of money, we must qualify this argument concerning the troubled intermediary role of banks. In many ways, banks have never been the sole circuits of finance. In fact, their intermediary position could exist because there were other circuits that incorporated formal monies into their moral exchanges. As Zelizer has argued, circuits of commerce emerge and become bounded areas of transacting around shared meanings of money and social values. A circuit would have “a well-defined boundary with some control over transactions crossing the boundary; a distinctive set of transfers of goods, services, or claims upon them occurs within the ties; those transfers employ distinctive media; and ties among participants have some shared (p. 327) meaning” (Zelizer 2004:125). For example, different levels of compensation packages in corporations may create different circuits of social relationships among high- and low-level employees of a firm, and formal and informal exchanges among them. Circuits may use specific transactional “media” such as credit cards, air miles, mobile phone minutes, or “complementer” currencies such as the Bristol Pound in the United Kingdom. In this sense, banks are the strongest but by far not the only intermediaries participating in so many circuits of commerce—taken in the sense of conversation and relating—which interweave and even help constitute the formally organized ways of handling money.
Banks may not only be less than but also more than intermediaries. The concept of intermediary assumes that it is a neutral connector or carrier such as a pipe through which content flows. But upon closer inspection, many intermediaries may turn out to be mediators (Cochoy and Dubuisson-Quellier 2013; Hennion 1986; Latour 2007): they transform the entities they are supposed to carry and those who engage with them at both “ends.” If we accept that money is not neutral but is inherently part of moral consumer practices, as Zelizer and anthropologists have argued, this point seems natural.
Rather than accept that banks should return to their role of collecting and channeling funds from depositors and investors to those in need of credit, and stay embedded in the real economy, we can pursue a different set of relations and look at what gets transformed in this process. Banking money comes in great variety from checking and savings account types, card versus cash, check or online payment, and it has different meaning both for the banks and their customers, in terms of profitability and in terms of moral classifications. Investing carries even more symbolic significance. At the other “end” of the bank’s intermediation are borrowers—again a subjectivity that does not readily exist but rather, as sociology of finance has shown, comes into being by engaging with the financial system.
The performance element is important in these transformations, and this was highlighted earlier in the discussion of banking interactions, and in the concept of formatting consumers. Performance should be understood both in the sense of dramaturgical interactional sequences and in the sense of making certain ways of being real (performativity). This theme of mediation, the transformations of consumers and how performances bring them on, runs throughout the chapter.
For example, risk-bearing consumers are not given as such, but consumers’ relationship to risk becomes more and more of a “fact,” accessible to consumers about themselves, through the process of banking. The regulation of financial advice has struggled with adjudicating whether a consumer’s financial needs have been served and has turned to risk profiling. A protective measure in the European Union is the requirement that advisors only offer products that are suitable to individuals. A key question in this suitability (p. 328) is the risk preferences of the customer, so that risk-averse people are not offered high-risk investments. Influenced by economics and psychology approaches to risky decision making, which impute a stable core, “attitude to risk,” as it is called in the United Kingdom, is most often measured through multiple-choice questionnaires that banks ask customers to fill out.
The psychometric questions simulate situations of investing money in the abstract and probe into the feelings that scenarios of loss or gain might generate. In contrast to these clean-cut procedures with scientific appeal, a very different practice persisted among high-end wealth managers. These experts of other people’s “relational work” had their clients talk to them about how they have invested their money, and they drew conclusions about their risk preference from this discussion, arguing that people may report one thing about themselves but their past transactions reveal who they really are. This approach was not favored by the regulator, the UK Financial Services Authority (today Financial Conduct Authority), on the grounds that it was not possible for outsiders to audit whether the risk preference has indeed been assessed properly. The automated “risk profiling tools” have become so widespread in mass banking and financial planning services, however, that the UK regulator decided to review the benefits of this sort of compliance. The review found the validity and accuracy of these tests questionable.
These difficulties of assessing a person’s attitude toward risk exemplify how financial need is constructed in the encounters between bank and customer, and organization and individual (Vargha 2016). In fact, what is fabricated in these encounters is a regulatory object, the attitude to risk score—nothing more and nothing less. This object has greater or lesser “fact value” for the regulator depending on how easily auditable its assessment is. Its effects on consumer identity cannot be inferred; and this takes us back to the need for studying the lived experience of banking.
Inequalities: Exclusions from and within Formal Banking
Participating in the most powerful circuit of commerce, the formal financial system, has not been authorized for individuals in different market situations in equal terms, and even participation has yielded different life chances (Fourcade and Healy 2013; Weber 1978). Sociological research has extensively documented exclusion from formal banking, and in conjunction, the organizations that orbit around consumers offering alternative access to finance in return for exorbitant rates, with predatory lenders being a (sub)prime example (Langley 2008a).
Financial inclusion, however, has also meant inclusion in banking operations which themselves generate inequalities, in the way they link profitability to certain customer features. Sociologists have identified calculative discrimination by statistical procedures such as customer profitability measurement and credit scoring, and found geographical (p. 329) inequality in financing (French, Leyshon, and Wainwright 2011; Leyshon and Thrift 2009; Wainwright 2012). At a minimum, customers classified as “high risk” receive worse borrowing terms, incur higher interest rates and fees, and are channeled into different follow-up services such as debt collection. But sociologists have shown more specifically that risk classification in the United States has been strongly linked to racial discrimination and the “redlining” of neighborhoods, facilitated by unequal credit access (e.g., Light 2011), which in turn has long-term effects on wealth transfer and life chances. Geographies of finance have also shown that even in a period of expanding branch networks, the distribution of bank branches concentrated on affluent neighborhoods, marking out financial deserts.
Similarly, the way banking is performed in service encounters has had the capacity to reproduce class, gender, and racial-ethnic inequalities. Building on the sociology of worth developed by Boltanski and Thévenot (2006), Jeanne Lazarus analyzed the assessment of a customer’s credit and credibility by bank staff as a “test” which sustains different regimes of worth and modes of valuing at once (Lazarus 2012). The unequal trajectories dealt out by the financial system to customers of different social status did not escape Bourdieu’s attention. His team’s early study found robust inequality in the banking opportunities offered by branch personnel to people deemed appropriate or less appropriate customers (Bourdieu, Boltanski, and Chamboredon 1963). Bourdieu later called attention to practices of cultural distinction in the conversations of salespeople at construction and mortgage companies with potential customers. Salespeople strategically and unconsciously aimed to match clients’ class habitus and economic opportunities, through their style of speech, in the desires they evoked, and the financing solutions they proposed (Bourdieu 2005).
Including more groups in the credit economy has involved expanding the notion of capital beyond the “hard” economic assets codified in loan collateral. Moral behavior in the community (Wilkis 2015), earmarked financial resources such as social security benefits or foodbank tickets (Villarreal 2014), can all be “capitalized” and drawn into the debt relation. Companies’ claims to serve the underbanked often rely on such inclusion of “domestic” capital. The promise of a quick loan may involve approval models built from the private traces users leave online (Deville and van der Velden 2015).
The Financialization of Everyday Life
A broadening access to banking has raised the question of how consumers’ immersion in the financial view of the world affects their lives. Financialization scholars have argued that as finance permeates everyday life, it successfully implants a sovereign investor mentality, transforming social relations in all domains (Martin 2002). People come to treat life decisions as investments, evaluated according to their risk and return—whether they are buying a home, spending on their children’s education, or dating someone (Langley 2008b).
(p. 330) But does a risky investment necessarily assume or create a risk-taking actor? While financial products may have technical “scripts” (Latour 1992), such as repayment schedules or interest rates that can rise or fall, which shape their users’ possibilities for action, scripts are not exhaustive and do not prescribe what to do in daily life. Meanwhile, the sociology of consumption is based around the idea that consumption practices almost by definition subvert design (de Certeau 1984).
The concept of domestication captures this dynamic of formal finance and domestic relations. Moving from the “hostile worlds” approach (Zelizer 2005) of financialization arguments, which see market rationality contaminating intimacy, we may ask how “untamed” market goods such as mortgages or insurance, little known or knowable, come into contact with the habits, structures, and meanings of the home economy. The domestic sphere is already saturated with economic rationalities and financial calculation, which correspond to the social relations among household-family members. Financial “products” come into and come to coexist with these relations, and new studies suggest that a mutual adjustment takes place (Halawa 2015; Lehtonen 2017; Pellandini-Simányi, Hammer, and Vargha 2015). For example, borrowers’ mortgage planning and budgeting practices are not simply upended but correspond with marriage horizons and routine money management.
Relational Work in Financing the One Percent: Long-Reaching Closed Circuits
In a financialized economy where ordinary citizens are encouraged to be and think like investors (Langley 2006) managing their lives as portfolios of assets (Guyer 2014) through valuation practices of assetization (Birch 2017), members of the elite are tracked onto a secluded world of financial opportunities. In the higher echelons of wealth defined as high-net-worth individuals, an industry and profession of wealth management cares for the preservation and growth of assets. To be sure, financial planning is also offered to retail banking customers, but it is structured by a bank’s limited offerings and time allotted to each mass customer. In wealth management, however, teams on the client and advisor side work out long-term plans for “tax-efficient” savings, pensions, insurance, investment, and inheritance in a comprehensive framework.
Wealth managers have built their industry on the social meaning of money, as if Zelizer was required reading. What transfers are allowed in certain relationships? Should couples pay each other for doing housework? Is it appropriate to buy a personal gift for one’s dentist? What is an appropriate allowance for one’s unemployed adult child? These questions are partly regulated in law and accounting, such as inheritance and taxation, and answering them provides a productive opening for the wealth management industry.
(p. 331) To provide their high-end services, wealth advisors explore their client’s relational work—knowing that monies and morals relate. For example, Supriya Singh showed how for a majority of couples, the joint bank account embodies the marriage, and not kinship relations, as the “domestic boundary of money.” It projects an egalitarian relationship where money is shared and pooled, glossing over unequal incomes and divisions of labor (Singh 1996). Wealth managers explore these boundaries and what they conceal through long personal conversations and by cultivating long-term relationships with their clients—in a sustained series of craftful personal performances (see Harrington 2016). They let clients tell their life story, which inevitably includes family members and judgments of them, and their worries; they ask very open-ended questions about how their client wants to live in twenty years, and they listen. From these relatively unstructured conversations they glean a lot of seemingly incidental, relational information about what matters to their client—which relationships, which material belongings—and build wealth planning around that. For example, wanting to benefit a favorite nephew will change the allocation of trust funds. Wealth managers would also be privy to their clients’ illegitimate relations and deal with the financial consequences, such as concealing a client’s insurance contract for his mistress (see also Zelizer 2005).
Disintermediation: Breaking Down Large Circuits
Coming back to the question of intermediation and inequality, discourse after the financial crisis of 2008 proclaimed that disintermediation is taking place: finance will circumvent the banking system, which cannot be trusted not to exploit consumers. Alongside alternative funding models such as microfinance and crowdfunding, a legion of financial technology start-ups have sprung up with the “mission” to provide better, cheaper, more trustworthy, and more equitable access to money, finance, and banking. Online mortgage lenders promise fast loan approval based on wider data such as applicants’ social media profiles (Aitken 2015). Payments services are too many to count, while financial planning apps such as Nutmeg in the United Kingdom argue that investment can be simple and direct. We must note that many of these services—peer-to-peer lending and payments (think PayPal), or international remittances—appeared before the crisis.
The new financial platforms tend to hold up a techno-optimistic ethos of equal access—wresting power from large institutions and handing it to consumers through simple or transparent business models and user-friendly interfaces. For example, peer-to-peer lending platforms eschew the regulated financial institutions, encouraging individuals to invest their savings online, in other individuals’ projects. The parties agree on an interest rate, which can be more affordable than bank loans and may yield more for the “investor” than a bank deposit.
Ideals of equitable finance, however, are countered by users’ experience of old biases reproduced in ways specific to the new financial media. Behavioral finance studies of (p. 332) peer-to-peer lending sites show that when finance is personal, potential borrowers must post photos and narratives about themselves and their project, in addition to financials. Potential lenders make moral judgments of which project merits their money. While aesthetics may lead to better loan terms and smaller penalty for nonpayment (Jin et al. 2017), female beauty disadvantages women seeking to crowdfund conventionally male projects such as business (Kuwabara and Thébaud 2017). Incidentally, emancipatory models may result in more financialization of daily life, encouraging an investor and entrepreneurial view of small endeavors, which become “projects” to fund.
To put disintermediation into perspective, we must remember that intermediation has never been exclusively the remit of banks, and “circuits of commerce” in Zelizer’s sense operate everywhere. These either incorporate banking or run parallel to it. At the same time, banks have responded by “banking on” their incumbent market power to acquire and absorb challengers on the back of new technologies. The start-up innovation model facilitates this response. Instead of becoming profitable one day, technology firms have increasingly aimed to “go public” via an initial public offering (IPO), or simply grow enough to be attractive to the large incumbent. The start-up dream is to be bought by Google.
Algorithmic Inequality: What Is New
Whether carried out by new fintech companies or large banks, an important type of inequality is produced by algorithmic discrimination, put in the spotlight by the increasing automation and personalization of consumer transactions, starting with Amazon’s shopping recommendations and on to transport by Uber, and the self-tracking of health by Fitbits. Banks have been using data mining from the late 1990s, well before Big Tech and fintech, to separate profitable customers from unprofitable ones, compiling and costing a customer’s banking activities from ATM use and direct debit, to conversations with customer service representatives. Later, algorithms were used for the cross-selling opportunities mentioned earlier. By comparing customer profiles, banks could generate product recommendations for each customer who contacted the bank. Programmatic statements of Customer Relationship Management suggested that loyalty should be cultivated with profitable customers, which allegedly constituted only 10 percent of all bank customers. The rest were not lost: they could be turned into profitable customers by selling them more products and encouraging them to use fee-generating services more intensively.
Algorithms were hailed as the solution to making financial decisions free of erratic or biased human judgment and self-serving intermediaries such as brokers (Pasquale 2015). A growing interdisciplinary scholarship has documented the exploitative intent and racial bias of algorithms; how data inputs and algorithmic designs reproduce discrimination (p. 333) in ways which are difficult to detect or even predict (O’Neil 2016; Rosenblat and Stark 2016; Zook et al. 2017). Delving into the mechanics of mystified and glorified Big Data analytics and machine learning, studies have shown, for instance, that when algorithms are trained to recognize patterns on an initial data set, they generalize from the characteristics of that selective set—from skin color to styles of speech and decision making. Algorithms programmed to find similarities and differences calculate “distances” between sets of features and create clusters of customer profiles. They thereby structure opportunities consumers can have, the kinds of products they are offered, and the kinds of channels they can participate in.
Forms of Money, Circuits of Commerce
Long before alternative payments have become insignia of a fintech start-up era, sociologists and anthropologists have devoted much attention to the way people pay each other, and how different modes and kinds of payments are used to draw boundaries around different types of relationships. Contrasting regimes of value and modes of valuation are associated with different materialities of money. Not only that, but these different forms of money, currency, and payment coexist within the same household and community.
These studies tackle the duality of “formal” and “informal” sectors of the financial economy, showing that communities use and interchange between multiple payments and monies simultaneously. They may form relatively restricted circuits even across borders, parallel to, but also cross-cutting, the systems of banking. People still use the official means of payment such as cards, online transfers, or cash, but they use them for their own purposes of maintaining the relations they are embedded in. Ossandon (2013) describes how Chilean families combine multiple department store cards and other types of loans and extend these among their wider circle of friends and families, managing the manifold obligations of kinship.
Empirical studies of especially low-income communities reveal the complexity and diversity of financial transactions and the calculations people conduct just to manage everyday life. Skills and invention of new solutions become crucial in working out equivalences when people change from one form of money or currency to another, from one circuit to another. Villarreal’s ethnography of border crossing between the United States and Mexico reveals that people are “juggling currencies,” which can be monetary and nonmonetary. These currencies circulate across the border, embodying in their different materiality different “calculative frames,” ways and schedules of meeting obligations, and ways of valuing. This makes them difficult to keep track of, account for, consolidate, and settle—whether to repay a debt in money and in which currency, or as a tangible favor, or by offering other types of resources, such as social security benefits.
(p. 334) Sometimes managing multiple circuits involves different techniques of seeing value, as with the “imaginary currency” the Haitian dollar that is widely used for vernacular accounting instead of the official Haitian gourde. The dollar as historical tender and gourde are fixed at 1:5. For small transactions in the “informal sector” but also in formal retail businesses, “[c]ashiers ring up the prices in gourdes, but quote the price in dollars” and count in the coins and banknotes of the gourde (Taylor 2016:10). To cut across this duality, and because more Haitians had mobile phones than bank accounts, mobile money was introduced, in a state program of financial inclusion, centralization, and liquidity.
Private Money and Closed Circuits
For the average consumer, there is a sprawling array of alternative currencies and nonmonetary currencies to physically handle, manage, switch, and convert between, besides the many forms of legal tender money. Some of these currencies become payments systems. In the case of some mobile money, it was airtime—a nonmonetary unit of account—that was made exchangeable with, and technically transferable to, the national currency.
Mobile money became popular and often supported by government programs in places labeled as financially underdeveloped. To send money for relatives when cash could not be safely transported, family members started storing value in prepaid phone minutes. A daughter could send airtime to her mother, and the mother could cash that in with her local merchant. This grassroots consumer practice became formalized and promoted by regional phone companies, such as Safaricom in Kenya and neighboring countries (Maurer 2012a).
With mobile payments, money enters and exits in and out of a realm which is outside financial regulation and official accounting for money and banking (Maurer 2012a). This is less the case with one-way loyalty points, such as air miles, which can be accrued with purchases but can also be purchased for dollars. But the problem remains that significant portions of the money supply cannot be tracked. In contrast, policymakers in Haiti viewed mobile money as the very tool of standardizing currency use and controlling money. “In terms of consumer goods, it could be argued that mobile phones are one of the major means to institute a centralized currency lexicon, cutting across all geographic areas and age groups” (Taylor 2016:10).
Consumer loyalty programs and their currencies—the points accrued—may originate not from explicit customer orientation but due to changes in market structure. An example is the invention of frequent flyer programs, which followed new airline regulations (Araujo and Kjellberg 2016). These strategic corporate reactions, in turn, have generated circuits of commerce which are relatively closed, and their porosity is controlled. The currencies are restricted for use within the space defined by a given set of companies—air miles are “awarded” by flying and “rewarded” (spent) on flights. To increase the appeal (p. 335) and traffic of the circuit, points were extended to ground purchases in qualifying shops, while airline-branded credit cards accrued miles with every transaction. These nonmonetary currencies of loyalty remain closed if their use for payment is restricted to certain goods (flights or Starbucks products) and their exchange is strictly regulated by internal prices (flights are worth certain amounts of miles).
The capacity of alternative currencies to become closed circuits, producing their own inclusions and exclusions, becomes visible with cryptocurrencies such as Bitcoin, which are conceived and popularized as disintermediation. Advancing an ethos of cyber-libertarianism of open and free services to all, they aim to eliminate centralized governance and intermediaries. In what Nelms et al. have called “the economy of ‘just us,’ ” trust is placed in the blockchain (a distributed ledger technology), the “infrastructure for payment and accounting that does the supposedly social work of providing participants direct, unmediated access to one another and securing their interpersonal credibility” (Nelms et al. 2018:11) What results, they observe, are closed user communities with restricted access for outsiders, “perpetually recentralizing, not in the form of democratic collectives or representational polities, but as companies and corporations, now with a novel ‘social’ mandate” (Nelms et al. 2018:12).
While the sociology of money following Zelizer has shown the moral circuits that payments between people organize, the payments systems of the formal consumer banking industry are much lesser known to sociologists who have focused on financial markets, credit, and investment. Yet formal payments networks are crucial for both and constitute the bona fide infrastructure of finance.
Anthropologist Bill Maurer argued that “you can’t have finance without the act of value transfer—payment, the seemingly small, mundane little technicality that sets the world of finance, high and low, in motion” (Maurer 2012b:20). Clearing and settlement systems are the “rails” on which payments run to enable commerce globally; transferring value by technically making funds move, connecting different proprietary systems of accounts, consisting of hardware and software. When we pay “at the point of sale” at the supermarket or an online shop, those consumer transactions are transferred by a network of organizations including card companies, which generate fees from interchange points in the network, defining payment “as the work of settling an exchange” (Maurer 2012b:17). Payments platforms make money typically from processing payments consumers make to merchants, by settling the accounts of the bank or company that issued the consumer’s (debit or credit) card and the bank that processes the merchant’s transactions.
From a sequential view of market exchange, Millo, Muniesa, Panourgias, and Scott (2005) argued that economic sociology needs to understand better how transactions end. We should study the “detachment” between parties to an exchange, which happens (p. 336) in market-type transactions. The earlier focus in the sociology of finance on traders should also shift to “post-trade” activities integral to trading, such as clearing and settlement (similarly Riles 2004), which are the basic methods in contemporary banking for netting (consumer) payments between banks. While for Maurer payments are orthogonal to exchange, what is important for Millo et al. is that payments follow up the agreement to exchange with the concrete act of moving funds, and thereby provide closure to it. Ironically, detachment of this kind aims to actually continue trading relations: “the evolution of the various detachment mechanisms was embedded in a strong institutional motivation to encourage and maintain active trading” (Millo et al. 2005:232).
Interestingly, the card network and its fees dent the equivalence of market exchange in consumer banking. They can do this because they are “generally invisible to a consumer when using a credit card or other payment technology that is not cash or a paper cheque: a gift card, a pre-paid card, a telephone airtime card or airtime itself, Facebook credits . . . the list is growing daily, as new technological means of transferring value proliferate” (Maurer 2012b:15). Card or electronic payment becomes a nonmarket exchange, which deep down lacks the equivalence of buying and selling: “It is a revenue stream based on a toll on the means of value transfer, on the means of payment, that renders that payment a non-par transaction, non-equivalent to the market price of the good purchased with the payment” (Maurer 2012b:22–23). A card network (platform) like Visa wants to attract banks that will issue cards and process payments through the Visa network. It does this by raising the price the card-issuing bank receives from merchants who accept Visa cards. Competition here raises the prices for merchants and consumers, instead of lowering them. Thus, the card network charges interchange fees for traffic (funds) passing through it from one bank to another and sets this “price” not based on market mechanism but by a rather arbitrary and private bridge toll.
In the growth of the infrastructure that is behind payments, a very visible, customer-facing piece of hardware also played a role. The ATM machine or cash dispenser was crucial in the implementation and expansion of electronic fund transfer systems (EFTSs). As a history of banking technology revealed (Batiz-Lazo 2009), previously proprietary payment networks became standardized, and in the United Kingdom, this took place by connecting different banks’ ATMs. For consumers, payments standardization resulted in free wire transfer and withdrawals from competitors’ ATMs.
The circuitous aspect of formal payment systems is becoming visible and central to the mushrooming fintech alternatives, such as an app advertised to help friends settle small cash debts quickly. Incumbents and start-ups try to formalize the informal payment practices of consumers, the circuits of commerce that have eluded banking institutions, by embedding payments in “ ‘social’ experience through novel technologies of accounting for trust” (Nelms et al. 2018) Disintermediation has targeted payments perhaps more than any other area of consumer banking, through a swathe of apps by small start-ups such as Square, for merchant transactions at deli counters, or TransferWise for international wires, to mobile payments by Big Tech such as ApplePay and AliPay.
Payments are fast becoming an object of consumer choice between comparable apps. The apps aim to create their own circuits of commerce through the validation of certain (p. 337) payment types, the possible payment media, and the types of relationships in which they are used. At the same time, they advertise to be inclusive—for scaling up their operations—and ensure interoperability with select elements of global payment systems, such as electronic fund transfer (think of the link that needs to operate between PayPal or ApplePay and banks). But business plans and consumer practices may diverge, so that user-consumers may abandon circuits which are too restrictive. This was the fate of Facebook money. In turn, friends, family and acquaintances may start favoring different apps to pay each other, and their use can become boundary defining, when certain apps start to correspond with different kinds of intimate relations.
The growing scholarship on the history of financial systems also calls attention to a common mistake that assumes linear historical development which charts human transactions dealt successively in barter, coins, paper, and most recently, credit. Historical anthropology argues that the credit economy is not a modern invention and, in fact, coin economies and credit economies have alternated over long periods. In fact, coin appears to have become salient in unsettled times and receded (Graeber 2010). The linear developmental view is in fact internal to the banking industry itself, which had dreamed of a “cashless society” (Bátiz-Lazo, Haigh, and Stearns 2014). Meanwhile, sociologists have observed that a multiplicity of monies and currencies persist despite financialization and digitalization.
This chapter focused on how banking engages the consumer, through marketing and sales strategies, and how it constitutes the financial consumer, investor, debtor, and more recently user, through these practices. Investigating the intermediary function of banking, I argued that from a consumption studies perspective, the crucial process is mediation. Instead of being an intermediary, banking transforms the entities and monies which are supposed to be connected and channeled. I showed some examples of how consumer financial needs are constituted in this banking process.
Financialization, from this viewpoint, appears not as a one-sided intervention into the lifeworld of consumers, but as mutual adjustment—domestication—whereby financial products are incorporated into existing temporal practices, social relations, and consumer rationalities. Banking organizes transactions both as orchestrated performances that singularize and personalize mass banking for each customer and as payment systems that operate as invisible infrastructure and enable, but also dent, the equivalence of market exchange. Credit appears here as part of a larger marketing strategy of banks and increasingly as a data-generating machine for data markets.
Banking as the key mediator of funds generates inequalities, through categorical exclusions but also through algorithmic discrimination at the heart of its operations, whether in credit assessment or in customer relationships. To dispel the inequalities of banking, disintermediation is taking place which deliberately aims to create new circuits (p. 338) of finance through fintech and alternative monies. Fintech bypass traditional institutions and allegedly correct its wrongs, according to specific moralities about payment and social obligations. Despite renewed efforts by financial firms to capture consumers’ transactions, on their part consumers are always juggling multiple monetary and non-monetary accounts and “currencies”, calculating equivalences and settling debts accrued in different regimes of value.
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