After billions invested, why are payments still so boring?
By Martin Gronemann and Ian Dull
We have been watching payments closely over the last several years – and waiting. After billions have been invested in start-ups globally, big banks have built competing services and big tech companies like Facebook, Apple, Google, and Samsung have entered the fray. Meanwhile, COVID-19 may be pushing people even further towards digital payments. But we’re still waiting. What are we waiting for? For a payments service that reflects the full richness of the connections people have with their money, every single day.
Payments are no doubt better than ever. Contactless cards and Apple Pay have continually lifted the bar for the ease of transactions. Venmo and others have made repaying friends, splitting the bill or covering a trip easy – even playful (cue smiley pizza emoji). Endless Fintech startups have added crypto offerings, multi-currency cards, textured and metal cards, spending analytics, new points and loyalty schemes, and more. And the Apple Card is now packaging it all into – as only Apple can – a prettier, simpler, and more helpful package. Improved as they are, the payments revolution has still only amounted to adding a veneer of technology and design to what banks have been doing for years – streamlining transactions.
As more providers fight harder for the same lucrative transactions, is simple and frictionless the only game to play? No. There are untold new value propositions in the payment space – beyond frictionless – just waiting to be discovered. But finding them doesn’t start with trend reports or tech conferences; it starts with looking at real, live human behaviors, through the lens of the science that has studied them for over a century. That is social science, and – as financial providers and tech companies alike have learned across their businesses in recent years – it speaks untold volumes to what will drive future loyalty, investment, and share of transactions. And when it comes to payments, the world of social science has much more to offer than nudges and dopamine-rushes: there are more profound and more durable human mechanisms to tap into – revealing opportunities for loyalty, relationships, and growth every provider aspires to.
We recognise that competition in the payment space is complex, and we don’t have all the answers. But we do know that social science is an untapped source of inspiration that could be driving new features – if not new platforms.. Here are just four examples of where our research and insights point to opportunities for the next version of payments.
I. Fueling Social Connection
Anthropologists have long noted that ‘trade’ is a universal core of establishing and sustaining social relationships. Trade often and generously, and you will find yourselves profoundly connected; trade too circumspectly or miserly, and you will find yourself alone. This isn’t only true in Polynesia or the Sahara, it’s part of life everywhere. Trade is even a key element of intimate personal relationships, seen when couples argue over balancing accounts too carefully, or when friends insist on giving back a little more than what was owed. Being imprecise in what we owe each other generates the goodwill that fuels relationships. And as the proverbial ‘settling of accounts’ makes explicit, when we balance things too exactly, we’re free to walk away and leave relationships behind.
Digital payments, of course, facilitate precise ‘trade’ better than ever – it has never been easier to pay someone back – but they have done little to turn ‘trade’ into lasting relationships. While a handful – like Venmo’s emojis – attempt to make transactions into something with more layered meaning, most services actually do the opposite: they enable precise check-splitting or sending exact requests for repayment. They apply the restaurant or hotel’s precise logic of accounting into the fuzzier world of social relationships.
Technology is poised to inject more social fuel to ‘trade.’ If ‘trading’ is what matters socially, what are the important metrics to track – the actual amounts or the ‘flow’ between people, like the ‘trade volume’ between countries? Could there be value in tracking how often people share with each other and (very roughly) how balanced that is? Similarly, not all ‘trade’ is the same: it’s much more important to remember sharing the cost of a bachelor(-ette) party than a pizza. Yet, payments today have not progressed in surfacing those social dynamics beyond expanding the number and type of emojis you can use. As a comparison, take what Facebook and Snap have done for the photograph: What if payments could capture, layer, and enhance what is being paid for, even half as much as social media has done for photos? If we only think of payments as precise transactions, we’ll always be making them a source of social awkwardness, not connectedness.
2. ‘Feeling’ Your Finances
It’s generally accepted that credit cards and digital payments make us forget about how much we spend. But that doesn’t mean we should not look more deeply at the drivers of that and how we develop awareness around our money. In one study, we asked people to use only cash for a week, and after days, they were flabbergasted at how quickly their money disappeared in a normal week. In another study on youth banking, we observed how the digital-first generation has even less of a feel for the numbers in their online bank accounts, payment apps, and at the register – and cash is a foreign concept, lost, forgotten, or even discarded. Philosophers call this ‘embodied’ knowledge – the kind of thing you feel in your bones, rather than think through. And while cash is in many ways inferior to digital payments, we see evidence piling up that cash offers something to (literally) hold onto – an intuitive sense of how much we spend and how we spend it.
While we aren’t nostalgic for cash, we would like to see digital payments do more to help people build a better sense of their money. There have been some fanciful solutions to this problem, like a textured coin that makes spending physically hurt. Yet introducing new devices likely won’t work in today’s ever-more-seamless user experience: solving the problem requires working within existing behaviors. Take for example the budget: Many people define rough budgets for their monthly spending, whether for food or guilty pleasures – a behavior especially common with parents teaching kids to manage money. For some, budgets might show up in banking apps as a record of their intentions, though without shaping their choices along the way. At worst, budgets are distant memories by the time the money is spent. What if budgets surfaced on your phone interface when you use Apple Pay, or on the many high-tech terminals now in shops around the world? Similarly, smartphones have enabled feedback of all kinds – with whole new languages of visual and haptic feedback for, for example, messaging. Why has no one built the same for spending, or saving? This might all sound a little too Pavlovian: yet as digital payments make spending a reflex, being smart with finances needs help to become one too.
3. Giving Better Gifts
Gifts have been present since the dawn of society – and appear to be a source of anxiety since at least the first one was received. Of course, what’s gifted has changed immensely: from the bounties gifted to kings in The Iliad to the elusive highly personal gift of the modern era, the re-gift, the group-gift, and, of course, cold hard cash. But as gifting has gone digital, something appears to have been lost. All-digital wedding registries have made choosing a gift utilitarian, and have made it easier to turn gifts into oft-dreaded cash; group gifting sites hardly make choosing a gift collaborative or personal, and they even make spending transparent and (thus) competitive; and, where cash is acceptable as a gift, digital payments can’t compete with a crisp new bill and a funny card.
What makes gifting difficult – and so anxiety-producing, as anthropologists have long pointed out – is that it is largely a performance of effort. And effort is largely anathema to the digital world as we know it. E-commerce has made it very easy to collect wish lists and registries, and buy, ship, and wrap gifts – but it has not made it easy to show why we chose a gift or how long we spent looking. Transparent, collaborative gifting exposes and ranks who gives the most, regardless of their means, while at the same time, making it impersonal. The increasing fungibility of gifts and cash – intangibly added to your bank account – make gifts forgettable; hard cash at least needs to be proactively spent.
Gifting is complex and shaped by a digital world well beyond payments, making quick fixes difficult to come by. But payments services and partners still have the chance to reintroduce the texture of effort that gifting has lost. What if gifted money, for example, felt different digitally, both in your account and at the register? What if receiving a package, collecting a registry item, and using real-life gifts, triggered new digital notifications that could extend the gifting experience? There is a world of digital gifting that is waiting to be explored.
4. ‘Caring’ for Transactions
Since the dawn of e-commerce, paying online has felt like the Wild West, and produced uncertainties for customers. While the experience has improved immensely over the years across most e-commerce channels, the explosion of peer-to-peer marketplaces, trading of digitally native goods, like skins in Fortnite, and new fraud schemes have created new spaces online that feel just as much like the old badlands of the internet. The battle can feel unwinnable: just as one space starts to feel secure, another pops up where customers feel exposed.
From what we’ve seen, solving for payment security can feel different – by helping calm the uncertainties people have around money. In every study we’ve ever done on finances, we see how money is one of the – if not the – biggest source of anxiety in people’s lives. People lack an overview of the accounts and cards they have, what they need to pay, and rarely know if they’re early or late with bills – making them more afraid to lose their money, than they are happy to get more (what psychologists have termed the ‘loss aversion bias’). That instinct to protect money gets flared up in transactions: when people pay for things, they are always worried about that money somehow getting lost. And the stakes are only amplified digitally, where the possibilities of buying globally and through newly discovered channels pits our appetite for consumption against our financial wariness: People love the opportunities but fear the risks.
This is an opportunity for providers. People aren’t turning away from new channels for purchases; they are often just looking for an extra safeguard of care for their money. People wax poetic about a single time their provider proactively stopped a transaction to protect them; and they love digital solutions that make security feel tangible, like something you can do to protect yourself – like website blockers and virus scanners. Most payment security today feels reactive, like reimbursement, or hidden, built into the software – leaving people worrying if everything gets caught. Why has no one made a ‘virus scan’ for payment services or card accounts, allowing customers to actively have their transactions reviewed or verify a potential seller? Similarly, with so many new inputs – like tracking data and product serial numbers – why has no one changed the cadence of when payments go through – only releasing funds when the right object arrives, a kind of digital escrow? These simple ideas will not eliminate fraud, but they can help reduce it. More importantly, they offer an opportunity for payment providers to build greater value and meaning into their services. An opportunity most miss today.
From a tech and commercial point of view, payments may feel like they are already maturing. Yet we see the situation differently. From a social perspective, payments are only in their infancy: we’ve added speed and ease to payments, but the most interesting, valuable, and meaningful ones are waiting in the wings.
