I’m about to commit heresy in the eyes of most financial services professionals—so I might as well do so in the company of my credit union friends, where I’ll have at least a fighting chance for a few nods of agreement.
For some time now, mobile payments and digital wallets have been the bright, shiny objects of the payments scene. Whether Apple Pay, MasterPass, Venmo, M-Pesa, or countless other solutions, their ultimate goal is to simplify the process of paying anyone, anywhere, at any time.
And while the myriad players—banks, merchants, fintechs, handset providers—may also have their own agendas, the underlying objective of streamlining a low value-added consumer process is a valid one.
The next step of this journey is quickly coming into focus in the form of beacon technology. Imagine being able to bypass the checkout line altogether at your brick-and-mortar grocer, convenience store, etc., with beacons tallying up the contents of your cart and seamlessly charging the card on file in your app.
Suddenly, grocery shopping would become an Uber-like experience, with the resulting payment a mere afterthought. The recently launched Chick-fil-A One app has delivered something approaching this experience in a fast food setting.
The Holy Grail in this quest is a truly frictionless payment, one in which the consumer need apply no effort or mind share whatsoever to the payment process.
After all, no one sets out to make a payment—it’s merely the mundane ride-along event required to complete the transaction for a good or service that motivated the consumer in the first place.
This is where I get uncomfortable.
Who decided that a little bit of friction is a bad thing? It’s clear enough why banks and merchants would pursue such an endgame. Studies long ago established that consumers spend more on average at checkout when using a card as opposed to cash or check.
It’s a core piece of the value proposition card networks pitch to merchants to justify their interchange rates. Retailers sell more and banks earn more fees. What’s the harm in extending this model a step further?
But what about the consumer? First off, based on digital wallets’ tepid adoption rates to date, consumers don’t seem to find the legacy payment processes all that onerous—or at least they don’t see enough incremental value in the new ones being offered so far.
Eventually, some savvy innovator will crack that code. Then what?
Is it a good idea for the average consumer to put less thought into how much they’re spending?
The 2008 financial crisis exposed the extent to which some consumers outspent their means, leading to the first meaningful aggregate reduction in credit card debt in U.S. history.
Of course, much of this “deleveraging” came in the form of write-offs, meaning that banks merely unwound their earlier inflows—and then some.
Even when consumers opt for debit rather than credit, is it wise to encourage less attentiveness to spending patterns?
Most economists believe America’s savings rate remains below desired levels, carrying implications for spending power in retirement years.
A case can certainly be made for letting free will and market forces prevail. However, a fair number of credit union mission statements refer to enabling members’ financial well-being and security.
I’m reminded of the old joke about how there must be money left in my account because I still have blank checks left. Or Wilma Flintstone and Betty Rubble running down the street, waving a stone-chiseled credit card in the air and gleefully yelling, “Charge… it!”
Sadly, such jokes exist because they have some basis in true consumer attitudes.
On the other end of the spectrum is Dave Ramsey, the author and radio host who exhorts his substantial following to live debt-free and to pay for everything with cash, forcing adherents to carefully consider each purchase—in other words, maximize friction.
Ramsey’s approach has undoubtedly helped many people dig out of financial holes. But on the other hand, there are certainly plenty of constructive uses for responsibly managed debt.
As with most things, there’s a happy balance somewhere between these two extremes of friction-free and friction-filled payments. The details of that sweet spot likely vary by individual and by financial institution.
That’s where market forces enter the equation.
I recently spoke with an Uber zealot who had nonetheless returned to taking old-school taxis home from the airport. He eventually noticed that thanks to Uber’s supply/demand-driven pricing algorithm and the hassles drivers face in making airport pickups, he was paying more than double the typical taxi fare for these trips.
But it took several rides and a close audit of his card statement to realize this.
Here’s hoping consumers learn to navigate a low-friction payments world before racking up more expensive lessons.