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Friction Is Your Friend
The power of inconvenience to improve our purchasing decisions
“A bargain ain’t a bargain unless it’s something you need” - Sidney Carroll
Reducing Friction ⤵️
It’s never been easier to spend money.
With just a few taps on our phone, we can buy nearly anything. With tools Apple Pay and Face ID you don’t even have to tap - just look at your phone to transmit your credit card information and shipping address to a seller… that’s completely normal and still absolutely crazy when you step back for a minute.
Much of the innovation in the Fintech and payments space is focused on reducing the friction between your desires and your purchases.
The goal is to provide payment options so convenient and fast that you move from want to transaction seamlessly. Whether you’re in Amazon’s app, scrolling through Instagram, or watching a Hulu ad, you can make a purchase within a few moments of experiencing that want.
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Buy Now, Regret Later? ⏳
One of the more recent waves of innovation is Buy Now Pay Later (BNPL), which offers sleek apps, minimal or no usage of standard credit reports, and interest free installment plans. And it’s a wave that is building quickly.
“In 2020, $97 billion worth of global e-commerce transactions used BNPL schemes. This accounted for just over 2% of all e-commerce purchases… By 2024, an expected 4.2% of e-commerce transactions will use BNPL.”
Certainly, there are potential benefits - for example, populations with no/low credit due to systemic issues have the same access to BNPL as everyone else. And there are legitimate cash flow-related use cases that could make financial sense.
However, I’ve given this a lot of thought and I actually don’t think that’s the motivation for BNPL companies. Call me crazy, but this is simply the latest innovation to separate you from your money.
And it looks like the government agrees:
“A survey by the Federal Reserve Bank of Philadelphia found that contrary to popular belief, convenience, not lack of credit access, was the primary reason people chose BNPL as a payment option.”
Many of the previous payment innovations have been about getting you quicker access to your money. Way way back, you had to carry around cash. Then we had checks. Then credit cards and debit cards. Then PayPal and other online wallets like Apply Pay. And then Bitcoin solved everything - just kidding, that’s a work in progress.
Where BNPL doubles down is behavioral science.
Can you afford those sweet $160 sneakers? Nah, that seems a bit much.
How about 4 payments of $40 spread over the next two months? Oh that’s much better.
Chalk it up to present bias.
“By offering goods immediately and delaying the pain of parting with any money, buy-now-pay-later lenders exploit the human tendency to undervalue future losses and overvalue present satisfaction...”
It’s highly unlikely, especially for discretionary purchases, that a few weeks makes a difference in affordability. But in the moment, our brains don’t have to work logically. That’s our System 1 thinking at work, as Daniel Kahneman outlined. And that quick thinking is very susceptible to biases.
So what should we do to counter this?
Reintroducing Friction ⤴️
If our goal is to build wealth, we need to take active steps to reintroduce friction to our buying process. We have to sacrifice some convenience to give our System 2 thinking a chance to intervene.
Here are a few tactical ideas to consider.
Write it down ✍️
For discretionary purchases over a pre-determined dollar limit, write it down in a journal or note app on your phone. Add a comment on why you want it. Then, revisit it in a few days.
I routinely eliminate items in my list once I’ve had more time to consider them. And sometimes I find a better option or a sale which changes my thinking.
Move the apps 📲
Your phone’s home screen holds a lot of influence on our decision making. Move the relevant apps to a back page, hide them in folders… anything to get them out of sight.
Or delete the apps 📵
The more extreme option here is to remove the apps from your phone. For example, only make certain types of purchases on a laptop or tablet - the goal is to avoid the always accessible shopping cart in your pocket.
As technology advances and we gain access to ever more convenient payment options, it’s important to evaluate whether that convenience truly benefits us. Easy doesn’t mean optimal!
Have any strategies you’d recommend? I’d love to hear them!