“We are creatures of fear and greed.”
So says Kabir Sehgal about the human race. And while such an observation on its face may seem cynical, the elemental truth is an essential one in understanding people’s relationship with money: not only in how it can bring out the worst in us, but also how money, and its evolving forms, can illustrate the good in humankind.
In his recent conversation with MPD CEO Karen Webster, Sehgal — the author of "Coined: The Rich Life of Money and How Its History Has Shaped Us" — talks about the psychology involved in monetary transactions, the latest step in money’s evolution into digital form, and the future of humans’ relationship with it.
When Sehgal set out to write his book, he wanted to answer one question: What is it about money that makes the world go 'round? The answer, Sehgal discovered — in exploring more than 25 countries over the course of four years — comes down to one simple fact: money is a symbol of value. It affects us biologically, it affects us psychologically; it even affects us theologically.
In short, says Sehgal, “it defines us.”
Sehgal acknowledges that the transformation of money into the digital realm certainly changes people's relationship with it. “Any time you change the technology of money, [it] changes the behavior of people.”
He points to the invention of coins in Ancient Lydia and Ancient Greece as perhaps the earliest example of this phenomenon. With coins, poor people could hold a “movable fortune.” For the first time, persons of a lower class could “go to the marketplace and they didn’t have to rely on…a broker [or] a literate middleman; they could do trades themselves.”
Says Sehgal, “coins democratized the marketplace.”
And we’re seeing such a change again today, he observes, with digital payments. A prime (and familiar) example can be found in Kenya, with the innovation of M-Pesa — the mobile money platform that allows people without access to any other form of banking or financial entity to use their cellphones to pay for different commercial activities.
“As more and more people use mobile phones,” Sehgal remarks, “it’s going to bring more people into the global marketplace. And that’s going to have a ripple effect throughout the world.”
While agreeing with Sehgal on the point that the mobile device democratizes how money is moved, Webster asked him how people’s relationship with money will change as it becomes more digital and less tactile.
To this point, Sehgal brings up (as he does in his book) the field of neuroeconomics: “basically,” he says, “neuroscientists that study financial decision-making.”
One of the related experiments he describes dealt with the effect on a person’s brain when he or she pays using a credit card. What scientists learned, say Sehgal, is that when a person pays with a credit card instead of cash, there is less activation in the insula (the insular cortex) — “the part of the brain [that] deals with anxiety or fear.”
What that goes to show, as Sehgal puts it, is that “if you’re using a credit card more often, it’s not as painful of a purchasing decision as when you pay with cash.” Describing a credit card app, then, as a sort of anesthesia for the consumer in the process of monetary transactions, Sehgal sees the technology as ideal from the merchant perspective.
Webster points to the observation that even when primarily cash customers are given the opportunity to use a card — such as a prepaid one — they often do not.
Sehgal contends that the mitigating factor in this dichotomy relates to availability, which itself can be linked to cultural causes — both in developed and developing countries.
He points out that there are (approximately) 85 million people living in Germany, but only “15 million credit cards or 10 million credit cards.” China, says Sehgal, bears out similar numbers, in terms of a sizable gap between the number of citizens and the number of credit cards.
The reason for this, Sehgal asserts, is cultural. “In Germany, the word for debt is ‘schuld’ — meaning ‘sin’ or ‘guilt.’ In China, there’s not much of a social safety net.”
Sehgal believes that countries such as China and Germany and Japan “could certainly incorporate more digital payments, but you’ve really got to look at the [societal]” and cultural implications first.
“A lot of times,” he continues, “payment companies think that they can integrate a solution, but it really takes an anthropological eye to figure out, ‘Well, even if we bring in this technology, will people use it?’”
The answer is not as clear-cut as it may seem, says Sehgal, because of the many cultural considerations that have to be taken into account in making such a decision.
As innovators are trying to figure out how to create new payment technologies, Sehgal emphasizes the importance for them to “study the use cases of particular societies” and formalize consumer applications based on that transaction data.
Webster asks Sehgal if, based on his observations, he thinks that the days of cash are numbered; Sehgal states that he does not.
“Eighty-five percent of transactions in the world are still based in cash,” he says. “[That] may be surprising to hear in America, but…if you travel the emerging world, it’s tough to find credit card readers. Indeed, it’s slowly becoming digital. But if you believe money’s going to be increasingly invisible, increasingly digital, you also have to believe that society’s going to continue unabated; [there is] going to be a lot of progress [and] technological innovations. If there’s any setback — meaning, if there’s any economic crises, if there’s any monetary problems — what ends up happening is people lack confidence in the institutions that issue money.”
Sehgal points to what happened during the recession in 2008, which led people to hoarding cash because “they didn’t know if the banking systems were going to hold.”
Of humans and their relationship with money, Sehgal remarks: “We’re always going to want something that’s intrinsically valuable, even as digital payments continue into the future.”
Webster asked Sehgal whether he believes bitcoin will play a role in this future.
“I think bitcoin has a future in terms of a technology,” responds Sehgal, “but no so much as a currency.”
Because the U.S. government has the ultimate authority to determine what is and what is not currency, Sehgal believes that risk will prevent bitcoin from ultimately succeeding as one. However, he states that the base technology of bitcoin “has tremendous implications” and could prove to be an “incredible” asset in the realm of file transferring.
Sehgal believes that money influences everything about a human being. The bad behavior that it can bring about is perhaps obvious. What, asks Webster, are the good things that Sehgal has seen come from money and people’s relationship with it?
Being a symbol of value, says Sehgal, makes money a tool. And “a tool can be used for good or it can be used for evil.”
Muhammad Yunus, founder of Grameen Bank (which earned him the Nobel Peace Price), wrote the foreword to "Coined" (in addition to further involvement, Sehgal notes). Having spent time in Bangladesh — where Grameen is headquartered — for research, Sehgal observed firsthand how positive of a force money can be.
There are “over 8 million people that [Yunus’] bank…has lent money to. These poor [people], they can borrow money, create a little business, and then pay back the money — these small loans, basically microfinance — on friendlier terms. And [Yunus has] been able to usher in a huge way to prosperity.”
So, despite the stark truth that Sehgal expressed about humans and money, his money – so to speak – is on there being a bright side.
“As we look across the emerging world” — continues Sehgal — “India, China, Latin America — they’re experiencing an incredible wave of prosperity.” Mentioning the significant drop in severe poverty over the last 30 to 40 years, Sehgal attributes it to “freer markets, capitalism,” and people being “free to use money.”
Looking to the future, Sehgal believes that “as money becomes easier to use, and more digital, we’re going to be seeing even more prosperity, because people will be able to save time, and have more prosperity defined in terms of leisure time. People will be able to spend the time how they want to…because the money will have created more wealth for them.”