BID® Daily Newsletter
Jan 24, 2019

BID® Daily Newsletter

Jan 24, 2019

Customer Behavior And Digital Payments

Summary: Banks are paying attention to behavioral economic studies as they seek to understand how people make purchases in order to inspire desired actions among their customers. We have some highlights to help.

Everyone knows the old saying of putting yourself in someone else's shoes to better understand their perspective. We were interested to find out though that a study surfaced last year that covered 25 experiments to see if you could do that. It found that there was no consistent evidence that trying to take someone else's perspective increased accuracy. It appears stepping into someone else's shoes is more difficult than previously thought.
Over time, behavioral economists have long puzzled on the issues of how people react to money and payment. Increasingly, banks are paying attention to these findings too, as they seek to know more about how people make purchases in order to inspire desired actions among their customers.
This makes sense when you consider the core way people shop and spend has changed radically in the past decade or so. People now browse and buy on computers, mobile devices, and soon perhaps by just speaking into a gadget like Google Home.
To incent preferred payment behavior in banking though, behaviors that are most cost-effective or profitable are the focus. Here, community bankers may want to consider:
Where and how customers initiate digital payments. The biggest bonus for online shoppers is convenience. Favored eCommerce sites not only present people with a ready selection of available options, but an easy process (often via one-click purchasing due to stored payment vehicles). As digital spending increasingly moves to other smart devices (like refrigerators), consumers will expect more visual or auditory cues for quick and easy checkouts, from various locations and connected devices. Following the development of this progress is important, even if you aren't matching this level of innovation, so that you know the potential customer expectations.
How long it takes to ingrain new behaviors. If a person can embrace a new habit for roughly two months, they can change for good, according to University College of London research. It's not easy to get cardholders who have been "swiping" all their lives to "dip their chip", never mind to use new payment platforms. This is good to know, as you think about your customer base and keep tabs on where they are with new payment options while you plan ahead.
How to sway customers' views on payment. Payment modes are definitely changing, but banks will never be as successful at changing consumer habits as they will be at forming payment options to fit the way consumers already behave. In a blog post, behavioral scientist Jeff Kreisler discussed how, when creating or marketing new payments options, banks should consider basic behavioral economics principles. These include: emotional accounting, where consumers 'categorize' their money into different accounts mentally, based on how they get it and spend it; payment 'pain', where buying certain items can create mental or even physical discomfort for shoppers; and anchoring, where a seemingly irrelevant piece of information can influence a buying decision.
While these are pretty high-level ways to tackle payment options, they could provide you with some further insight as you continue down the payments path.
Subscribe to the BID Daily Newsletter to have it delivered by email daily.

Related Articles:

Small Business Digitization Leads to International Payment Needs
The pandemic caused many smaller companies to adopt digital technologies that expanded their ability to reach customers across the US and in other nations. Many of the companies say that cross-border commerce is a way to grow businesses and keep up with the competition. As a result, CFIs with international payment solutions may have opportunities to strengthen relationships, add new customers, and grow fee income.
Password-Less Authentication Offers Safety and Convenience
A recent survey indicates that 89% of IT security leaders at financial services firms think authentication systems that use biometrics, push notifications, and other alternatives are more secure than passwords. Though CFIs will have challenges implementing password-free systems, the reward could be safer data and better customer satisfaction.