Commonwealth Bank behavioural economist Will Mailer says buy now, pay later platforms connect with Millennial consumers on an emotional level, taking away the “pain of paying” and forcing the financial services industry to adapt how it engages with younger customers.
Australia’s largest bank has for the past four years quietly assembled a team of data scientists, neuroscientists and psychologists to help inform product development and marketing to Millennials, including on the bank’s flagship partnership with Swedish buy now, pay later pioneer Klarna.
Mr Mailer, who leads the 15-strong team, said the bank had been doing some deep thinking about the money psychology behind the boom in buy now, pay later services, which has seen market darling Afterpay hit a growth rate of 20,000 new customers a day.
“New payment technologies are more in sync with how younger Australians are paid and the way they manage their money,” Mr Mailer told The Australian Financial Review.
Buy now, pay later tools tap into an emerging consumer desire to have a frictionless experience, especially when it comes to financial products and services. Their genius lies in removing the “pain of paying”, he said.
In this way, buy now, pay later adopts the psychological advantage that has made credit cards a lucrative part of banking business models and an attractive product to previous generations.
But when it comes to Millennials, it also provides a level of autonomy over their own financial affairs by allowing choice over the frequency and size of instalments, which again appeals uniquely to the generation, according to Mr Mailer.
“Compared to their parents there is more onus to design and run their own financial arrangements,” he said. “Today, younger consumers are having to put a lot of the puzzle pieces together themselves. We are seeing some level of demand for more control.”
Purchasing financial services or products is a particularly complex decision, one that often involves analysing thousands of investment or pricing options that you don’t ordinarily get much practice in.
The autonomy sought by Millennial consumers and the frictionless experience of innovations like buy now, pay later contain a risk trade-off whereby it is now “easier to overspend and get in trouble”.
For that reason, they have responded warmly to transaction and bill notifications, or design features providing feedback on progress towards a certain goal.
“It’s like hiring a personal trainer to stay in shape or telling your Facebook friends you’re committing to a new goal,” Mr Mailer said. “It is help to manage in a world that has become more complex.”
CBA has attempted to build other checks and balances into its app, such as the Bill Sense feature that presents future spending on the horizon to help users make difficult decisions about purchasing in the present.
Time, attention, will power
Mr Mailer said the feature stemmed from the understanding that “humans don’t think in terms of opportunity cost”. For example, they don’t ask themselves how many electricity bills the new iPhone will cost. It’s a common behavioural bias that the industry needs to “tackle”, he said.
He joined the bank in 2016 from PwC as it beefed up its resources in behavioural psychology in a strategy understood to have been spearheaded by current chief executive Matt Comyn when he ran the retail banking division.
One of changes that the team is responsible for is instilling in the bank a realisation that giving consumers more information can be counter-productive.
The financial services industry (and the laws that govern it) have often been based on the premise that if you give people enough information and disclose everything upfront they will make optimal decisions.
“But we know humans don’t operate that way,” Mr Mailer said. “We have limited time, attention and willpower. We are biased in decision-making and influenced by social and sociological contexts of decisions.”
The lightbulb moment may help reduce any regulatory headaches for the bank going forward, given the Australian Securities and Investments Commission has been making noises about what it sees as the deficiencies in the idea that disclosure protects consumers.
Mr Mailer’s team is working with experts at Harvard and the University of Chicago in the US and Sydney University locally to bolster the academic rigour underlying its work.
The goal is not just to create a better product or customer experience, he said, but to actively help customers live healthier and happier financial lives. And much of its research will continue to be centred on Millennials.
“Young Australians are in a difficult environment,” he said. “They face very different economic and career circumstances than their parents.
“The world is becoming faster. And more frictionless.”
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