Beware! Digital addiction can be more harmful than cigarette addiction. With a higher digital and financial literacy than other generations and a tendency to “bank” through their smartwatches instead of going to a physical branch, Gen Y and Z are more exposed to fraud cases than ever. This danger is becoming more prominent, especially since the distinction between gambling and investment seems to disappear.

Screen addiction has been transferred from television to smartphones. We are consuming more and more mobile internet in almost every corner of the world. Smartphone addiction even made it to the medical literature as “nomophobia.”

We can grasp the magnitude of this danger by comprehending that this increasing state of addiction is designed to waste billions of people’s time and energy rather than producing any individual or social benefit. Moreover, the abuse of this digital addiction, which is likely to harm the world even more than the tobacco addiction, is no longer rare.

Smartphone (and smart device) addiction seems to be much more critical in regions such as China and Mexico, where digitalization is embedded right in the middle of day-to-day life, and smartphones are used to manage all processes related to daily routines.

Generation Z might not be as “sharp” as they claim to be

According to the research commissioned by the American Federal Trade Commission (US FTC) in February 2021, 4.8 million fraud cases were reported in the United States last year (1). While the report proves that one out of every five people is the victim of a fraud case, it also reveals that the younger generation aged 20-29, born in the era of the technological revolution, lost more money in fraud cases (44%) (1). This age group is followed by the 30-39 age group with 37%, the 40-49 age group with 33%, and the 50-59 age group with 27%. Accordingly, consumers over the age of 70 lose much less money in fraud cases than Generation Z (1).

What is the reason for Generations Y and Z, who is known to have higher technological and financial literacy compared to other generations, and who “bank” through their smartwatches, being more exposed to fraud cases?

Is it possible to ignore the potential side effects of billions of people spending hours on stock, FX, or crypto asset trading, regardless of their income and education level, as if these products are just another social media channel?

First, it should be emphasized that the consumers over 50 with less technological and financial literacy tend to be more risk-averse and, therefore, might be already limiting the use of digital products and channels. So, naturally, there is already an adaptation gap. However, the lack of digital adaptation does not explain that Gen Y and Z with solid information access are victims of fraud cases, with rates approaching 50 percent.

The answer to the question becomes evident when the number of hardware used in the households of the consumers and the weekly average screen time data are combined.

Gamification processes adapted to financial technology with the aim of superior customer experience have been recently discovered to be harmful, especially for consumers under a certain age, and therefore been on the experts’ radar lately.

Although fintech products and services are increasing access to banking and finance and making services more inclusive, the uncontrolled lowering of barriers through technology is beginning to mislead a generation that has been heavily exposed to easy monetization stories on popular social media channels such as TikTok and Instagram.

As a matter of fact, we know that this generation with a big desire to destroy the status quo quickly, sees being an “influencer,” establishing brand advertising partnerships by increasing their number of followers on social media, as an ideal profession. This being the case and considering that the earlier generations were swept up in various pyramid schemes, it is not surprising that this generation fearlessly tries out the unverified stock market and crypto applications that promise short-term wealth gained by cutting corners.

The disappearance of the distinction between gambling and investing

Millennials have been growing up with the stories of their peers getting millions of dollars from shampoo commercials. So naturally, the odds of millennials pursuing random online sweepstakes (except for classic tricks like the Nigerian Prince), clicking on prize notifications and fearlessly trying out new digital and financial products to make a career change are higher than in other generations.

Considering that the number of television, radio, and social media commercials with the theme of neobrokers, bitcoin, and digital asset providers is increasing day by day, it is becoming inevitable that consumers want to experience such products. Therefore, we observe the new generation of investment tools becoming more widespread regardless of socio-economic factors and generation gap.

As a matter of fact, more and more daily day trading addicts are calling the helplines working for the rehabilitation of gambling addicts in the USA, according to the news published in the Financial Times. This situation has also alarmed the securities regulator (2).

This new type of addiction is thought to be caused by mobile brokers using gamification and constantly attracting customers with new features, reducing the distinction between gambling and investing. The fact that the pandemic period, during which individuals spent more and more time in the digital world because they couldn’t go out, also poured fuel on the fire. However, considering that the customer services of neobanks are provided only through the application, and even two-factor authentication for web banking must be performed via smartphones, we see that every digital banking user, whether they use a mobile broker or not, is forced to live dependent on their smartphones.

At this point, although one of the missions of financial innovation is to encourage and facilitate finance and banking, Banks and FinTech startups also need to step up to protect consumers and the ecosystems as a requirement of their user-centric culture. This duty is valid, especially when regulators do not have the necessary digital know-how or capacity. This kind of approach only will extend the idea that the Silicon Valley-induced user-oriented culture is not just limited to the front-end, and there is more to it. A protective balance factor must be observed for users, especially during this highly competitive period in the financial sector, especially in cases where Financial institutions have the responsibility to educate customers, particularly those that are a part of a specific age group, about fraud prudent investing. Financial service providers should warn their customers via in-app notifications and offer customer service support when user data indicates over-use or addiction level use. Such above-and-beyond user support mechanisms will protect customer loyalty in the long run and ensure that the regulators that deal with the issue will not take it more strictly than they should, preventing the establishment of rules that would or could hinder innovation.

We are currently at crossroads. The Capital Markets Board in the USA recently started investigating whether digital design can be interpreted as investment advice, as reported by the Financial Times. It is undeniable that such restrictions will not be desirable for any financial institution in this regulatory maturity period. In this period, during which all players compete to offer new services to their customers outside of their sectors, trying to reshape banking by providing services in lifestyle-related areas such as health and travel, the fact that they protect their customers by closing the financial and digital literacy gap helps institutions to maintain their customer portfolio in the long run. It is also essential for customers not to turn away from digital innovation. Undoubtedly, organizations that manage this process well will start an exemplary trend both contextually and responsibly.

*          This piece is an updated and translated version of the article originally featured in the November 2021 edition of PSM Magazine.

Bibliography

FinTech Istanbul Advisory Board Member, Digital CEO
Gazi University Faculty of Law graduate Ş. Elif Kocaoğlu Ulbrich has degrees in Private Law from Galatasaray University and MBA from WHU – Otto Beisheim School of Management, and is also a fellow of Jean Monnet, Joachim Herz Stiftung. After working as a lawyer in various international law firms in Istanbul and Ankara for more than six years, Denizbank A.Ş. He started his banking and finance career in 2013, specializing in business development, project management, FinTech regulation and lobbying activities at FinTech startups (FinLeap, Cringle, Lendico) in Hamburg and later in Berlin. Co-author of The PAYTECH Book, The AI ​​Book and The LegalTech Book, which are planned to be published in 2020 in cooperation with FINTECH Circle and Wiley, Kocaoğlu Ulbrich has been providing consultancy, training and publishing services since 2019 through Berlin-based Contextual Solutions, which she is the founder of.