Some thoughts on the Social, and Financial, Dilemma

An overheard conversation:

[Tristan]: “What I see is a bunch of people who are trapped by a business model, an economic incentive, and shareholder pressure. That makes it almost impossible to do something else

[Jaron]: “Financial incentives kind of run the world, so any solution to this problem has to realign the financial incentives.
[Joe]: “There’s no fiscal reason for these companies to change.

Amazing! Capturing the issue with retail banking in a succinct way. An industry that is beholden to profits made from large fees off the back of loans, overdrafts and the financialisation of consumers, while rewarding savers with virtually zero returns.

Was it a fintech conference, a university economics lecture or maybe a political debate?

Sadly not.

You might recognise Tristan Harris, Jaron Lanier and Joe Toscano, some of the Social Media / Silicon Valley insiders who recently starred in the Netflix documentary, The Social Dilemma.

(to see this conversation, FFWD to 1:22:40)

In fact they were talking about the behemoth giants of the ‘social’ age such as Facebook, Google, Apple and others.

There’s plenty to think about already in that documentary about how we allow our data, and our lives, to be filtered and potentially influenced by the networks we sign up to. However, it also raises broader questions, and that’s how a colleague of mine spotted the use of the phrase “realign the financial incentives.”

Incentive Alignment

You may recognise this as something we talk about a lot at Dozens.

One of the many themes running through this documentary is that even if the developers did not set out to manipulate or create social disharmony, their incentives are not aligned with those of the people and societies they operate in. If it gets them more traffic, clicks and users to stoke arguments, then this will happen.

This is similar for financial institutions. There is nothing wrong with lending money to someone who needs it, but defining a “need” is important. If the business gets more benefit than the customer for the exchange, then the business will be rewarded for encouraging a customer to borrow money they did not have to, but now have to repay - with interest.

If borrowing and spending is easy, and encouraged, while saving is worthless, why would you save? Why put money away to get 0.15% interest when inflation is closer to 2%? Why have an emergency fund (losing value) if you are told you can easily borrow money if you need it?

But what happens when the shareholders of those businesses want more profits? They need to find new ways to make their customers do what makes them money - and borrow more.

There is good news

We may not know how to resolve the ‘Social Dilemma’, but as it happens, we do at least have an idea for how to fix the financial one.

How about building a business that cannot make excess profits from lending money or overdrafts, but instead encourages you to put money away for the future, and looks after your interests by helping you explore appropriate, diversified and reliable investments that are designed to benefit YOU in the long term … and only by doing that will it make money as a business?

That is the Incentive Alignment that we have imagined, and may be missing from the Social media debate.