The modern smartphone is a technological wonder, cramming into its compact form factor multiple functions — phone, pager, computer, camera, calculator, diary, multimedia player, radio, TV, clock, maps, GPS, voice recorder, eBook reader, gaming device, WiFi hotspot, flashlight etc. etc. — that required over a dozen separate devices a couple of decades ago. No wonder, then, that most people want one, and would like to buy a model that offers all these features. However, in many parts of the world, the price of a good smartphone represents a big chunk of their annual wages. The obvious solution is to take out a loan, but that typically requires a credit rating, and many people in those countries lack a credit history, and may not have a bank account. To get around that problem, companies have come up with a new kind of smart loan for the “unbanked”, as they are known. A fascinating article on the Rest of the World site, about the Indian Datacultr app, explains how the system works:
the easiest way for retailers and online stores to get high-end devices into working-class people’s pockets has been through a new method of lending: collateralizing smartphones. Vendors are selling smartphones to first-time borrowers on high-interest payment plans financed by loan companies, but only after users install an undeletable app at the point of sale. The apps can then monitor repayment behavior throughout the duration of the loan. One late payment leads to instant blocking of the phone, rendering it useless. For loan providers and smartphone sellers, this form of lending opens their products to a new class of consumers. But users purchasing phones on loan are bearing the brunt of the coercive repayment tactics built into their devices.
The lack of formal credit scores is addressed by using the undeletable loan app to spy on the smartphone user. By looking at how people are using the smartphone, and accessing their texts, images and location, the app can gauge how likely the borrower is to default on the loan. To prevent that, software like the Datacultr app uses “nudges” of increasing severity:
The app starts by sending audiovisual prompts in regional languages as reminders. If the user misses their first repayment, it forcefully changes the wallpaper on their cellphones. If Datacultr’s data scrape reveals a user to be a prolific selfie-taker, for instance, the app will send notifications every time the camera function is opened. If the user continues to default on the loan, frequently used messaging and social apps like Facebook or Instagram are progressively blocked, severely restricting the use of the device and ultimately shutting down all of the phone’s functionalities.
It’s not just India where these loan apps are being rolled out. The Rest of the World article says that the US company PayJoy has licensed its smartphone locking technology to lenders in over 20 countries, for example in South America and Africa. Google, too, is active in Africa with its own app called “Device Lock Controller”.
Although “collateralizing smartphones” may indeed allow the “unbanked” to acquire models that would normally be well beyond their budget, there are some obvious problems. The first is the intrusive and coercive nature of the nudges and shutdowns. Secondly, the approach requires people to give access to personal files on their smartphone in order to assess their creditworthiness in real time. In other words, they must give up their privacy in return for the loan.
Finally, it’s worth noting that the use of undeletable apps that can take over control of the smartphone at any time means that people don’t fully own their device. That’s not a new problem: Techdirt was writing about it back in 2011. And in 2014 the New York Times noted that companies lending money for cars required starter interruption devices to be fitted that could immobilize the vehicle if people fell behind on repayments. What’s new is that nowadays all that is required is that most mundane of 21st-century artifacts — a smartphone app — which not only watches you constantly, but can punish you for “bad” behavior with a variety of tailor-made digital tortures.