Payments and privacy don’t mix — understanding the logic of ‘embedded finance’

The cashless society is upon us, or so we’re told.

Author: Nym

August 18, 20225 mins read

The cashless society is upon us, or so we’re told.

Just last morning the UK banking body UK Finance released its latest report on the use of cash; some 23 million people in the UK did not use coins or notes at all during 2021, a huge increase on the 13 million recorded in the previous year.

According to the financial services industry, this is good news. Cash is unwieldy, it’s expensive to produce, and it’s logistically inefficient — think, for example, about the hundreds of thousands of armoured trucks carrying bank notes along the streets of towns and cities around the world every day.

Many commentators point out the continued importance of cash for demographics that are not comfortable with or used to digital payments; the example that is constantly given is pensioners’ attachment to cheques. And they are right, of course. But cash is dying regardless — and this is as a result of a concerted effort on the part of financial services businesses.

Convenience at any cost

The transition away from cash is part of a broader tendency that is part of and necessitated by the stage of capitalist development in which the world finds itself. In the field of payments this philosophy manifests as the privileging of ‘convenience’ over all else, including privacy. The convenience imperative is used to justify systemic demands for the integration of every individual and every aspect of their lives into the logic of financialisation.

Consider this ‘convenience’ from the perspective of the businesses marketing it. Internally, these products are talked about in terms of ‘embedding’ and ‘integration’. The nascent ‘Embedded Finance’ industry tells every company on Earth that they can ‘be a fintech’ by integrating financial services into their products, the idea being that they can generate new revenue streams through financialisation. The Embedded Finance industry is an organising layer that allows correspondence between non-financial companies and the financial system at large by leasing access to banking infrastructure. Today, for ambitious wannabe fintechs, even licences are a thing of the past. Don’t have a banking licence, or regulatory permission to operate as a financial institution? Don’t worry — just lease it from your Embedded Finance provider, who in turn is leasing it from the Tier 1 banks who operate the ‘pipes’ of the banking network. We’re told the cashless society is ‘frictionless’, and to an extent that is true — the modus operandi is to remove any barriers separating consumers from the global financial system, and to create new ‘touchpoints’ through which consumers can be woven into large and growing networks of financialisation.

Diminishing returns

As the financialisation of the global economy reaches its peak, and as the associated returns diminish, the scramble to integrate more and more functions into its rubric becomes increasingly urgent.

This is another example of the logic of global capitalist expansion — capital moves into ‘emerging markets’ in an attempt to generate new consumers (where it used to generate new, cheaper workforces). When it runs out of new consumers, it has to embed itself ever more deeply into the existences of those that it has already created.

The result is the concentration of financial power — and, crucially, the data generated as a result — within a vanishingly small number of hands. ‘Rebundling’ is one of the favourite current buzzwords of the payments industry. By this they mean the integration of multiple, disparate services and transactions within a small set of umbrella brands. The best current example is the crop of ‘superapps’ that are growing in popularity in South East Asia, as partly pioneered by Jack Ma’s Ant Group. These apps are a ‘single point of access’ through which you can not only book a ride-share or get groceries delivered, but also borrow money, do your banking, send remittances to family abroad, and so on.

Tornados and transactions

So, as we’ve seen, cashless societies are a necessity for the continued enfolding of all human behaviour into the financial system. They’re sold to us on the basis of convenience, and the implications for privacy and both private sector and state overreach are studiously ignored.

It is extremely difficult to return the genie of convenience to its bottle, and challenging the logic of convenience seems politically impossible in the current climate. The obvious alternative, therefore, is to build systems that are both convenient and equitable; that maintain privacy and keep the financial institutions at bay while also enabling people to transact as they wish, on a global basis, and at speed.

There are many attempts to achieve something along these lines, and it should come as no surprise that these attempts are being met with crackdowns and repression. The recent sanctioning of Tornado Cash, a prominent privacy-minded coin mixer, is a good example that will have significant implications for the DeFi space at large.

Crackdowns of this sort are excellent illustrations of the fact that financialisation is another vector through which power can be exercised. In the next parts of this series on privacy and payments, we’ll look in more detail at some of the alternatives.