Reducing the pain of paying
These systems also make it easier for customers to let go of their money. In another sense, they eliminate what Duke professor Dan Ariely calls the pain of paying. Ariely states, "The agony of parting with our money has to do with the saliency of [seeing] this money going away." In other words, the less real money feels, the less painful it is to spend and subsequently, we spend more of it.
The payment processors have followed in the footsteps of another industry that has effectively reduced the pain of paying -- the gambling industry. Step into any casino on the Las Vegas Strip and you'll notice slot machines by and large no longer take cash. To take a spin on a gambling machine today, money must first be loaded onto a loyalty card. As soon as the card is dipped into the machine, it turns into points. Why did the casinos yank the cash out of their slot machines? Simple. They know gamblers will spend more when their money doesn't feel like money.
Similarly, whereas handing over a tip with cash once meant physically feeling the money as it left your wallet, digital payment systems obfuscate the act of paying into something much less tangible. With digital payment systems, customers simply press a few buttons with their fingers and the funny money is gone -- just like in a casino.
Yeung, the Iowa State study author, calls for government action to protect consumers from being taken advantage of by these systems. He states "policy makers should further explore alternative payment interfaces that can balance the convenience of paying and its corresponding spending-regulatory effect." The issue Yeung raises with these systems is that they make people pay more without realizing it.
Certainly, digital payment systems aren't all bad. For one, they improve customers' experiences by making transactions easier and faster, eliminating the antiquated card-swiping and pen-signing systems still used by most retailers today. They also give bad tippers and non-tippers an extra nudge to tip properly. Clearly, service workers deserve to be tipped, and tipped well, for a job well done.
However, for the average person just trying to do the right thing, these devices can mean hundreds, if not thousands of dollars spent unintentionally. As we quickly pay while getting out of a cab, for example, most of us don't have the time or mental bandwidth to think about how the way we're paying affects how much we are paying.
During these times, our brain is operating out of habit, and we quickly act with little or no conscious thought. We remain woefully unaware of how these interfaces leverage our deeper psychology to change our behavior by design.
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Nir Eyal is the author of Hooked: How to Build Habit-Forming Products and blogs about the psychology of products at NirAndFar.com. For more insights on using psychology to change customer behavior, join his free newsletter and receive a free workbook.