There are two big freedoms that liberal democracy is built on: free markets and a free press. The freedom to be right or wrong, the freedom to fashion our lives, the freedom to exchange goods — freedoms that many of us are unwittingly giving away.
The way we behave online in even the shallowest ways can have deep effects in the real world. Facebook and big tech companies have been constantly in the news for the past few months over concerns relating to the way that they treat users’ data, as has Instagram for the way that it manages posted content.
While most of us are aware of the dangers that the internet can pose to our security, it is still disturbing that the decisions we make online are tracked and morphed into a glob of ones and noughts on a computer screen and stored there forever.
Online payment systems and credit card companies are part of this picture, but maybe not in the way that you thought.
The first thing to note about this is that Europe is going cashless fast. ATMs are closing at a rate of 300 a month in the UK , where over £81.3trn in cashless payments were made in 2016. In the Eurozone cashless payments are growing year on year, particularly in Germany where 48.7trn euros were spent electronically in 2017 according to the European Central Bank, a 3 per cent increase on the previous year.
Electronic payments are growing and they are here to stay. Along with social media, it is difficult to see any other internet-based innovation that has so comprehensively changed the world. Online shopping, credit cards and the ability to shift vast amounts of money anywhere at the press of a button have fundamentally altered the way that we behave. However, it also involves a surrender of control to companies many of us don’t know much about.
We’ve already seen instances of payment platforms engaging in what are fundamentally political decisions. Last year PayPal stalled the account of the far-right activist Tommy Robinson from processing donations made to fund his legal battle after pressure from an online effort by the campaign group SumOfUs.
In the US, Visa stopped processing payments for the writer and journalist Robert Spencer, who edited the magazine Jihad Watch. Other payment services in Europe have refused to clear payments to conservative fringe groups and far-right activists. The militant campaign group Southern Poverty Law Centre has pushed for these bans in the US as have many others in order to silence those that engage in ‘hate speech’.
Now, these companies may well be right to stop these people from expressing views that are beyond the pale. The battle lines of this debate may simply be drawn on the extreme fringes of political discourse where tribal rivals are matched in levels of intolerance and hypocrisy. It may be that the majority of us, who rationally go about our lives and do our best to behave and speak decently have nothing to hide and nothing to fear.
There is also a strong argument that these are private companies, entitled to approve or deny custom to whoever they see fit, in the same way YouTube, Facebook and Instagram have control about what can be posted on their site. It is very easy to see how opinions and prejudices get caught up in the moderating process and payment surveillance is extremely important in identifying culprits of fraud and money-laundering. From most angles, the payments industry looks like a free market working well.
The problem is the idea of tech companies take the law into their own hands or manipulating the law with their market power to directly impact on the rights of consumers. There is already a long-running argument between government institutions and tech companies concerning encryption in the US. These are big, complicated questions without any real precedent. All we have for reference are old property laws that are useful as far as they go, but cannot contend with complex cross-border payment systems and the fact that breaking into the personal data stored on an iPhone in the 21st century is akin to breaking into a home in the 20th.
There is a further dimension to this. Two weeks ago, the European Central Bank made explicit its intention to loosen legislation in order to encourage its TARGET Instant Payment System (TIPS) to become more competitive.
It has also directly stated its intention to take on the likes of PayPal, Facebook, Apple and Amazon and the infamous duopoly Visa and MasterCard who currently process 80% of all card transactions in Europe. Its aim, like so many EU aims, is to make the borders between states even more frictionless by speeding up the time that it takes to make payments. Crucially, instead of using corporate money to clear payments, these funds come directly from the ECB. Should they achieve their goal, it could significantly strengthen the ECB’s power as the sole arbitrator of the Euro with everyday banking sway to boot.
Government keeping a close eye on the workings of Facebook and YouTube may now be essential in the modern world, but a Central Bank having control over digital payments is a different matter. Changing a service provider is simple enough, monitoring a service provider with democratic bodies can be done, but changing or monitoring a currency provider is not so easy. There are similar systems to TIPS in the US and Australia that have their own issues, but for the European Union with its dreadful democratic record and its political reign over 27 sovereign states, a government-controlled payments system feels like a power grab.
Although progress so far has been slow, there could be a substantial market for TIPS. The service offers quick and effective P2P bank transfers within the eurozone at a very low cost and is a branch of the seriously problematic Target2 clearing system. The ECB has the power to make their service a very competitive option for cross border banking and with looming debt issues, this is the obvious ‘more Europe’ solution for federalisers.
While ideas about corporate power and shutting down free market access might sound conspiratorial, there is no real precedent for the situation we are in now. This week the government has acknowledged the need for more competition in tech industries, but there ought to be similar provision for payment services too.
There must be a broader range of options for contactless payments now that cash use is falling; a duopoly is never a good thing in a market economy even when it is freely won, but it is especially bad when it covers an area as fundamental as market access. The fewer the players, the less choice there is for consumers and the more power those that control the big bodies have. This can be a fine and convenient thing when democracy works and when the market is open to innovation, but pretty nightmarish when it doesn’t and it isn’t.
However, government controlled payment systems could make this problem a lot worse. Payment companies playing politics is one thing, but political bodies getting their hands wrapped around free market transactions could have an even more severe impact on our liberties.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
