Communicating colours in e-commerce
How better technical product description could pay off through improved customer experience
“The colour of the couch that looked red on the website is actually pink, but, thankfully, it matches the colour scheme of my living room anyway,” wrote a reviewer with a positive attitude. However, not all online customers feel so relaxed about colour discrepancy between the digital image and the physical product.
Surveys on customer dissatisfaction and attrition in e-commerce invariably point out the importance of colour accuracy, especially with regards to product lines of cosmetics, fashion, furniture, soft furnishings and paint. Many shoppers would never ever consider buying these kinds of colour-critical items online for the same reason.
In the past five years, however, both colour-specialist companies and software developers have made great strides in ensuring that the physical colours of designs, prototypes and products, as well as their online representations across different screens and browsers, match.
The root cause of the colour communication gap lies in the two prevailing languages, or so-called colour profiles, which developed separately based on distinct colour models: Pantone for physical surfaces and sRGB for digital images.
The number of colours covered by these two profiles differ radically. As sRGB creates colours by combining the reds, greens and blues of the screen (hence the name) in varying proportions with 255 shades of each, its gamut comprises more than 16 million colour values. Meanwhile, Pantone’s colour count, with its 2020 additions, is 2,625.
This would suggest that all the Pantone colours, used by product designers in their creative processes, can be converted into sRGB values. But Pantone 17-5641 Emerald, the Colour of the Year in 2013, proved that there are hues perceived as rather common by the eye which lie outside the sRGB gamut. That year the colour that was meant to guide designers and fashion trends had no digital equivalent, only a close approximation achieved by a digital workaround.
Fast-forward to 2021, and the illuminating yellow and ultimate grey of the year already come with their sRGB values. Colour management software in middle and upmarket electronic products can ensure that identical hues look the same on camera, mobile and laptop screens, as well as in different browsers. Designers adverse to being bogged down by the technicalities of colour manufacturing can rely on apps that make the conversion between digital colours and their equivalents on various surfaces – whether cotton, plastic or metal – effortless.
Colour, the bottleneck in e-commerce
Meanwhile, visuals in e-commerce have become more sophisticated too. While in 2016 one product picture sufficed, today six pictures per product are becoming the norm. Not only are available colours listed in product descriptions, but they can also be seen “on the model” at the click of the mouse.
Brands are increasingly going out of their way to leverage advancements in digital technology to make online shopping a more exciting experience. With the help of augmented reality, customers can see how a new wardrobe would fit into their living room, how they would look with a new hair dye or whether the new soft furnishings will blend in with the wall paint.
Augmented reality applications nowadays are increasingly enabled by 3D rendering, a new, easily scalable and less expensive way of creating product images than photography is. The photorealistic pictures it can generate via 3D models enable online customers to get a 360-degree view of the product or to customise it for their needs using the 3D configurator feature.
It’s not a question of if but rather when virtual photography becomes mainstream in creating product images for e-commerce sites. Leading furniture manufacturers already use the technology in their catalogues, but many other businesses also take advantage of having a publishable picture of the product before manufacturing starts.
But even all these cutting-edge technologies are dependent on colour accuracy. There is no point in seeing a piece of furniture from all angles or even checking out how a canvas painting would look on your wall if you can’t have a truthful rendering of the product colour as well.
A way forward?
The acute need for a consumer’s converter between physical and digital colours has already been identified by the of colour specialist market. A few years ago, a colour-matching app combined with a calibration card had been released with a view to bridging this ever-narrowing but persistent gap, albeit with moderate success.
One can’t help thinking that a reverse approach may be more viable. Instead of trying to capture physical colours through photography, which makes them elusive, a more extensive use of the colour language could stand a better chance to square the circle. A standardised, clear version of the colour language spoken between designers communicating with manufacturers and brands, or retailers and the online marketplaces that they upload product image to, should be also shared with customers.
With Pantone codes or sRGB values included in product descriptions, colour-conscious customers could get their hues right by simply relying on those or applying them to colour-matching and augmented reality apps. Including some more numbers alongside product dimensions on e-commerce sites would definitely take up much less precious processor capacity than embedding colour profiles into product pictures to achieve accuracy across screens.
Moreover, a shared language of physical and digital colours with a standardised conversion system between the two could embolden customers who have so far been deterred by the vagaries of colour to shop online.
The future of the customer experience
Consumers today are mobile with a digital fluency that is ever-expanding and evolving. Businesses need to prioritise offering their customers a digitally resilient brand experience.
The world of business is ever-changing and constantly evolving based on our societal landscape. For a business to grow and thrive, it must also evolve. Transformation in business is inevitable – as new technologies are introduced that make consumers’ lives more convenient, expectations for businesses evolve and adapt. For example, as the introduction of emails, websites and video conferencing have launched the business landscape forward into new standards of practices, the future of business is dictated by evolving technologies. Pivoting a business model to adapt to new generational expectations will future-proof business offerings.
As businesses grow and evolve into new generations, it is important to note that implementing new strategies does not mean alienating past generational thinking but rather expanding horizons and creating space for new methods of effective communications. Businesses can encourage a more convenient experience for all by matching new technology with intuitive practices.
New expectations for a new generation
While new generations of consumers are attuned to the digital age and accustomed to its digital offerings, the landmark speed in which technology is evolving and introduced into the market has lessened the generational gap for digital users. In the same way cars have replaced covered wagons, the future will only build upon new foundations. Today’s generation of business is particularly exciting in its transformation to the mobile era and businesses can now be accessed by customers wherever they are. With one-stop apps that act as virtual collaboration workspaces, organisations can provide their customers with branded engagement experiences from their pockets. The shift from expensive brick-and-mortar locations to expansive remote connections opens new freedoms to businesses and meets customer expectations where they already are. With intuitive technological translations of the service experience, organisations can mirror their traditional structures and provide just-in-time responses for today’s new generation by deploying their own consolidated digital application for messaging, meeting, document sharing, digital signature and more in one secure space.
The importance of evolving with technology
To remain successful in business, undergoing digital transformation to stay current with the ever-changing nature of technology is critical. By incorporating potential technological shifts into a business model, businesses set themselves up for a successful relationship with their customers.
Implementing digital solutions is beneficial for a business to grow and thrive, while also keeping the customer’s best interest in mind. When innovating for the customer with forward-thinking technology by implementing a digital strategy that speaks to new expectations, businesses are setting the standard and showing they are willing to adapt and meet the needs of their customers – first and foremost.
While there are many disparate technological tools on the market, the key is to recognise the value in providing customers with a client-centric, consolidated, convenient digital solution that improves their experience with a business and brand and appeals to how they use technology. Technological solutions offer businesses the opportunity to experience a successful digital transformation, improve the customer experience and promote customer satisfaction. Additionally, building business applications on a platform that is built to scale and evolve with rapidly growing technology saves costs over time and allows businesses to stay current into the future.
In the age of digital transformation, companies not only want to keep their customers satisfied and engaged but also need to evolve with technology to stay relevant. Evolving with the new generation and improving technologies in your business will help your company remain digitally resilient. The goal of maintaining adaptability is to improve customer experience, loyalty, retention and overall growth. Providing clients with a newly imagined digitally convenient customer experience is not only the future of business but the new normal.
Moxtra powers OneStop Customer Collaboration apps for just-in-time service delivery and persistent customer relationships. Each branded app serves as a one-stop digital destination for complete business wherever, whenever, and can be deployed as a mobile and web application or as a fluid extension to an existing digital strategy. Get in touch today to get started with an app for your business.
INDUSTRY VIEW FROM MOXTRA
Making virtual assistants sound human poses a challenge for designers
There’s a scene in the 2008 film Iron Man that offers a glimpse of future interactions between human and artificial intelligence assistants. In it, Tony Stark’s virtual assistant J.A.R.V.I.S. responds with sarcasm and humour to Stark’s commands.
Contemporary voice assistants such as Siri and Alexa are yet to offer such natural, nuanced social chatter. To that end, our team of computer science researchers at the University of British Columbia investigated what might be missing.
We found that voice interface designers dealt with an interesting dilemma: the tension between offering social conversation and getting things done.
Friendly or efficient?
Linguists classify human conversations into two categories: social conversation such as greetings, humour and small talk for expressing social relations and personal attitudes, and “transactional conversation,” which transmits factual or propositional information.
People can effortlessly combine these two types of conversations in a natural manner. However, this magical blending is done somewhat subconsciously. Voice designers often fail to find the ideal blend because the two types of conversations are complementary but also conflicting.
The problem becomes pronounced when designers create voice assistants to help users complete tasks such as checking the weather or making a restaurant reservation. Designers try to enrich their voice agents’ dialogues with social courtesies such as sympathetic responses or chit-chat to enhance the naturalness.
Our study also showed that designers encounter challenges in finding an appropriate trade-off between designing for an effective assistant versus an affable companion. One participant highlighted that the more personality added, the longer the dialogue becomes, and results in either an overly chatty or cold and robotic voice agent.
Tool and design guideline support for voice designers can be helpful in solving this problem. A proper scripting tool for designing voice assistant dialogues should help designers balance the trade-off. For example, an advanced dialogue-authoring tool may suggest the designers add friendly remarks to the script or also issue a warning if the social chatter is too lengthy.
Also, design guidelines should provide prescriptive directions on how to combine these two types of conversations for different situations. For example, voice assistants should only use witty sarcasm when the user’s voice tone is detected to be in a good mood.
Collecting our emotions
To provide natural conversational experiences with voice agents, tech giants such as Apple, Amazon and Google will need to collect a lot of information about users’ conversation contexts, such as where they are, what they do, what they want and even how they feel. Indeed, scientists at Amazon are trying to understand our emotions based on our utterances.
By listening in to conversations, corporations can learn a lot about users’ health, finance and social life. Are users willing to give extensive data away to these tech giants in service of more natural conversational experiences with voice agents? What is needed for a more ethical and desirable future with voice agents?
Through natural conversations with voice assistants, we should handily be able to unlock cutting-edge AI technologies without the tedious learning process often experienced with graphical user interfaces. Recent technological advancements such as the development of nearly human-level language-generation models and speech synthesis promise the advent of truly natural voice agents.
Striking a balance between a benevolent assistant and a friendly interlocutor is within reach, but it will take more research to generate significantly better tool support for voice interface designers and will require users to share their data.
Yelim Kim, a user experience researcher at Ubisoft and who was involved in the research, co-authored this article.
The future of contact centres is technology, amplified by empathy
Everyone knows customers can be extremely demanding. And they are getting more so. That’s not a big surprise. Unfortunately, customer care is also under greater pressure due to cost and staffing constraints.
Many organisations address this issue by focusing on customer service teams. They look for humans to solve the problem while ignoring the absence of tools that customers might use to serve themselves; tools which would alleviate pressures on customer service teams.
The absence of these tools can lead to customer service agents being put in very difficult positions. Imagine an agent contacted by a frustrated and angry customer. But the agent doesn’t have the information they need to deal with the complaint. They don’t know who the customer is. They don’t know what action they should be taking to best help the customer.
And yet with the right tools this information could be made available to the agent in the contact centre, easily and in real time.
Omni-channel customer experience management
Contact centres are a key touchpoint for customers. Most customers will use several different channels to engage with a brand: stores, advertising, websites and social media, for example, as well as the contact centre itself.
All these channels are important. And certainly, the consumer sees them no differently: they are viewed as part of the same brand experience. That is why organisations need to consider their communication strategies holistically. They need to combine all their channels into one experience that reflects one single brand.
The problem is that, historically, many organisations have managed these different communications channels separately. The teams responsible for online self-service have been different to the teams managing the contact centres, for instance.
But because of changed customer expectations, this is no longer acceptable. Customers demand a single experience, irrespective of the channel they are using – an omni-channel customer experience. And the technology powering the best contact centres is at the heart of this.
Building brands with empathy
Contact centres have always been brand ambassadors. A poorly designed Interactive Voice Response journey will be irritating to most customers. Worse though, a frustrating experience with a contact centre agent who does not know who you are can be very damaging to a brand. But an agent empowered with Calling Line Identity software who welcomes you as an individual, and perhaps even predicts why you are calling, can build a powerful connection between brand and customer.
Contact centres need to leverage technology as well as human talent in order to deliver the best outcomes for the business and its customers. Technology can guide individual consumers, helping them solve their problems by themselves, or with the support of an automated virtual agent. And where that proves impossible, a human agent, supported by technology that delivers the right information will be able to advise on the next best action for that customer.
Importantly, contact centre agents who have relevant data at their fingertips will be able to relax and listen to their customers actively. When someone actively listens to you, they are treating you as an individual. When they acknowledge your feelings, they are showing that they have heard and understood what you are saying. And when they have appropriate data about you, they can be even more empathetic.
Showing empathy is a very powerful way of establishing a connection between two people. When a customer is looking to buy, it is an effective way of closing the deal. When they are expressing unhappiness, it is a potent way of dispelling anger and even generating gratitude.
Enabling empathy through data
To be empathetic, contact centre agents need access to data about the person who is calling them so that they can easily and quickly respond to that customer’s situation.
If they have this data then they can be guided towards hyper-personalised results, where their script is specific to the correct demographic and even the likely customer need, as well as to the organisation’s requirements and limitations, such as delivery times.
In some cases, customers who call a contact centre will be best served by being routed through to an automated system. For example, in some situations, when making an insurance claim to a machine for instance, people often prefer speaking to a machine than to a human.
In addition, automated processes can be simpler and more accurate, especially when data such as an address must be captured. In these circumstances, routing a caller through to a human only after the relevant data has been input may well be a better experience for both the organisation and the customer.
Helping the agent to a better job
By influencing customers to use the most appropriate channel for their requirements (for example, a web form, Interactive Voice Response, chat, SMS, email or voice), those routed through to a human contact centre agent, either immediately or at an appropriate stage of the transaction, will benefit most from the agent’s time.
With automated call routing, customers can be put through to a customer service agent in the right department, someone who is able to take appropriate decisions without having to refer the customer elsewhere.
With the right tools, agents can be empowered with relevant data about the customer. For example, they can know the caller’s history with the brand and why they reached the agent without being able to serve themselves. And the agent can be given information on how to best serve that customer and what is likely to please them most.
If the agent is empowered in this way, their experience of serving customers will be enriched: a motivated agent engaged with their role is likely to be far more empathetic, and effective, than a bored and frustrated one.
The appropriate use of technology will build stronger connections and trust between consumers and the businesses they engage with. This does not mean responding to all customer contacts via the telephone. Instead, organisations should collect data from all channels, generate insight about an individual customer with the assistance of AI, predict their needs, and then use that insight to route the customer to the appropriate channel where they can be given the most applicable information.
For those customers best served by an automated process, customer experience will be improved. And when customers need attention from a human agent, providing that agent with the appropriate data will enable them to display far greater empathy, driving customer satisfaction and loyalty. A win-win both for the customer and for the business.
Hexaware works with organisations looking to improve their customer experience or planning to modernise their contact centres, helping them select the right technology to enable a true omni-channel experience.
Rapid delivery grocery apps have flourished during the pandemic – but will they permanently change how we shop?
Billions of dollars are flowing to support companies you may never have heard of – startups with memorable names such as Zapp, Deliveroo, Getir and Gorillas. These speedy delivery companies have become the go-to for many grocery shoppers trying to avoid busy supermarkets during the pandemic, and have caught the eyes of venture capitalists.
Investors have closed over US$7 billion (£4.9 billion) in deals backing these companies in the first quarter of 2021, nearly four times the value in the previous quarter.
But is there still a place for these rapid delivery services in a post-Covid world? Much of that depends on whether shoppers can – or want to – change their delivery habits.
Changing consumer habits
As the pandemic hit in early 2020, consumers quickly shifted their grocery shopping habits. Instead of risking disease exposure and waiting in long queues, consumers started to rely on delivery services, and for many, it became a habit.
These services’ relatively small markup for groceries, given the convenience of the almost immediate delivery, is exactly what these companies need to achieve their goal of changing consumer habits. In contrast, the more traditional delivery services of large supermarket chains typically deliver groceries without a markup, as long as the minimum spend is met.
Research has shown that many consumer decisions, such as which coffee to buy, are habit-driven. After all, consumers would take hours in the supermarket if they had to ponder anew each product choice. Instead, they typically buy the same pasta they bought last time without much thought.
Like these choices, ordering groceries via app has become a habit for many people that doesn’t require much deliberation. Rather than planning meals for the next few days, consumers might factor in the option to rapidly order anything they need. This might create a habit of following every whim or satisfying every ice-cream craving.
Habits are difficult to break, especially when the habitual behaviour seems to carry little cost. Every smoker knows this logic: a single cigarette has virtually no harmful impact on a smoker’s health, so it seems not worth the effort to resist temptation. However, the costs of having multiple cigarettes add up, ultimately endangering the smoker’s health.
For rapid food delivery, the costs to the consumer are also relatively small – at first. Prices might be a bit higher, but the convenience seems worth it. Ordering easily via app becomes tempting, and there are no obviously compelling reasons to resist. Many companies will also throw in initial discounts for first-time customers.
Once a consumer has ordered rapid delivery a few times, the service is likely to replace past behaviour, like a quick trip to the corner shop. If the consumer then continues ordering rapid delivery, a habit is formed. In fact, research shows that consumers who perform a behaviour regularly for about six weeks have created a habit.
Currently, rapid grocery delivery is only available to consumers in large cities. Despite the stereotype that such services would mostly be used by tech-savvy younger consumers who are experienced with app-based services, many older consumers also value rapid delivery.
The long-term costs
At the moment, the future costs of a rapid delivery habit are relatively invisible, but after the pandemic, you can expect to see costs – financial and social – materialise.
As delivery companies gain market share, they might hike prices up slowly. So far, rapid delivery companies have been backed by venture capital to finance their costs, but they will need to be profitable in the long run to survive. So some price increases in the future seem inevitable, as has been the case with other venture capital-backed consumer apps.
Also invisible are the social costs. Smaller grocery stores and restaurants that are often family-owned may be pushed out of the market. Although rapid delivery creates jobs as well, delivery drivers face tight deadlines and receive low wages with little job security.
Forming new habits
Once a habit is formed, it’s difficult to break. But transitional phases, such as returning to the office after a long time working from home, can nudge people to rethink unwanted habits. As life slowly returns to pre-pandemic normality, consumers have an opportunity to reevaluate which business models they want to support.
Consumers wanting to reevaluate their habits should do the following:
Covid-19 changed consumer lives dramatically and rapidly, with little time for reflection on these changes. Now, the reopening is slower, and consumers have the opportunity to anticipate and actively plan for the coming changes. This opportunity should not be wasted, but should be used to change consumer shopping for the better.
How customer convenience builds brand loyalty
For any customer-facing organisation, creating an all-in-one digital strategy, where customers can conveniently engage from wherever they are, is critical to future-proofing the business and establishing a digitally resilient brand identity.
Being responsive is key
Customer loyalty depends on how convenient they find a business. Generating customer loyalty is all about offering a convenient experience that provides clients with the needs and services they are looking for from your business. Consumers today are highly connected, and they forge a strong connection with the brands they choose to do business with, based on how their needs are met. This means that optimising the customer experience and customer journey is key to ensuring clients remain loyal to the brand.
It begins with meeting your clients where they are. Be responsive. Take a look at the market, get to know the pain points, and provide a direct solution to your target audience’s needs.
Digital technology drives the consumer experience
Businesses in today’s digital world must examine the need for digital transformation. Consumers remain ever-connected and ever-dedicated to web and mobile technology, with expectations rapidly shifting to digital-first accessibility.
Uber was able to propel the ride share via app movement into a multi-billion-dollar industry simply by improving the ordinary taxi experience through the use of digital technology in one actionable application. Users can download the app, choose their location and instantly hire a driver to pick them up in minutes. They can pay directly through the app and add a tip, all in a single, easy-to-use mobile application. Similarly, drivers have their compensation deposited right into an account from the app, without having to ask for payment.
This convenient experience is what makes customers keep coming back and fosters loyalty.
Adopt a strategic digital solution
The most optimal strategy for developing reliable customer loyalty is to offer clients a complete and comprehensive one-stop digital experience. Consumers demand convenience because their entire digital and mobile experience is based around conveniently available access. When a brand doesn’t offer enough convenience to complete their business, consumers will turn to competing brands that better fit their needs for accessible service.
The best way for businesses to meet consumers where they are today is to pivot their attention to a digital strategy. Embracing the freedom digital offers consumers to engage with businesses by packaging the interactive experience in one secure digital channel is the most convenient offering your brand can adopt.
By deploying a branded web or mobile app on a platform that is built to scale, businesses can future-proof their service offerings by meeting and exceeding customer expectations. Moxtra powers OneStop Customer Portals for businesses, allowing organisations to digitally manage their internal teams to deliver just-in-time service. The all-in-one suite of interactive features enables complete business accessibility wherever and whenever, within a controlled and secure environment.
Each Moxtra-powered private digital channel acts as a fluid extension of your business, either as a standalone website or mobile app, under your brand. Deliver persistent communication to your clients, while maintaining human touch over a digitally resilient strategy.
Moxtra’s just-in-time platform powers branded OneStop apps for customer engagement and collaboration in today’s digital age. Get in touch today to get started with an app for your business.
Why the future of customer experience lies in the present
I remember flying from London to Barcelona five years ago to speak at a conference. On entering the departure lounge, I was notified that the plane I was due to fly on had broken down and was still in Barcelona.
To fix this situation, the airline had to source another plane from its European network, fly it to Barcelona, pick up its passengers there, then fly them to London before picking us up and flying us to Barcelona.
That meant a flight delay of about five hours.
Now, normally that would not have been too much of a problem. But in this case, it posed a real problem for me as I was due to speak first thing in the morning.
If my flight had left on time, I would have arrived at my hotel ready for the next day by around 11pm. However, with the delay, I wouldn't now arrive until about 4am, and I was due to speak at 9am the next day.
No problem, I thought. I had prepared well for the event and was convinced that with only a couple of hours of sleep and a big cup of coffee, I should be fine.
And that's how it worked out.
However, on the morning of the event, the client asked me also to participate in a panel discussion later that morning.
Wanting to please my client, I said yes.
As the panel's time approached, I could feel myself flagging, so I decided to take on more caffeine to keep myself going.
At the start of the panel discussion, the MC gave a bit of a preamble about what we had heard so far that morning and then started to frame his first question around gathering perspectives about what we would expect to see concerning customer service and customer experience if we transported ourselves five years into the future.
To my surprise, once he had finished framing his question, he came to me first and asked me to share my perspective.
Stunned, ill-prepared and in my sleep-deprived and slightly addled state, I scrabbled around in my head for an answer.
After floundering for a few seconds, the following popped into my head, and I said, "I believe, in five years, we'll still be excited about the future and the possibilities that are available to us, but we'll also be equally frustrated at the slow rate of progress that we've made".
Reflecting on that utterance now, I would say that it still holds, but it also presents a challenge to us to do better.
To do better at delivering a great customer experience today but also preparing for the future.
And that's what experience leaders get. And one that many others – followers, if you will – fail to realise.
Followers often, in their excitement, tend to get caught up in what the future holds, fixating on the possibilities of technology and the idea that they may get disrupted out of existence. However, they fail to realise that if they do not deliver today for both their customers and themselves, they put their very future in jeopardy.
On the other hand, leaders know that while they need to pay attention to future trends and prepare for changes in technology and customer behaviour, they also know that delivering a great customer experience today is the foundation stone on which their future sits.
The truth is that the future (of customer experience) is always built in the present.
The Klarna conundrum: why treating buy-now-pay-later apps like banks will not protect consumers
Whether you use Klarna all the time or have barely heard of it, it’s time to start paying attention: the buy-now-pay-later app has just become the biggest private fintech company in Europe. Klarna has completed a new round of fundraising, valuing it at US$46 billion (£33 billion). That’s four times what it was worth last September, and on a par with fellow Swedish tech giant Spotify.
Klarna offers interest-free credit on purchases with participating retailers, including Decathlon, Desigual, JD Sports and Oasis. It allows shoppers to delay payment, or split larger purchases into manageable sums, and does not perform traditional credit checks, opting for a more permissive “soft search”. Retailers cover the cost of the interest as if it was a sales discount.
Klarna operates in western Europe, Australia and the US, and has exploded in popularity during the pandemic. It claims to have 90 million customers, including 13 million in the UK, and has numerous rivals such as Clearpay/Afterpay, Affirm and Sezzle. Traditional retailers such as M&S and John Lewis are also reported to be looking at entering the fray.
Such offerings are controversial, however. Critics allege such schemes encourage overspending and can potentially ruin customers’ credit histories if they fail to keep up on payments. Many see parallels between these schemes and notorious “payday lenders” from years gone by such as Wonga.com.
Four in ten customers in the UK who have used these apps in the last 12 months are reportedly struggling to repay. A quarter of consumers reported that they regretted using these platforms, with many saying they cannot afford repayments or are spending more than they expected. Similarly, Comparethemarket.com reported earlier this year that one fifth of users couldn’t repay Christmas spending without taking on more debt.
In the UK, the concerns prompted a review published in February by Christopher Woolard, formerly of the Financial Conduct Authority (FCA). As a result, the FCA is now subjecting these operators to the same regulations as more traditional creditors, requiring things like affordability checks and making sure customers are treated fairly.
Some might argue that this solves the problem, but I disagree. Insights from behavioural psychology can shed light on this, and seemingly dusty debates from ancient Greek philosophy reveal why it’s wrong.
The psychological risks
Klarna claims to offer a “healthier, simpler and smarter alternative to credit cards”. It primarily targets millennials, with an average customer age of 33. Marketing material presents the app as the choice of the savvy shopper, with a clean wholesome aesthetic, reminiscent of a Scandi-style ad agency or hipster café menu.
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 – known as present bias. Research shows that this bias increases in response to instability and stress, raising the worry that such services disproportionately target consumers who are already vulnerable.
You could argue that credit cards also do this, but buy-now-pay-later lenders operate without hard credit checks, and go about this in an especially concerning manner. The service is offered at the online checkout, and often set by the retail partner as the default payment option. As Nobel prize-winning economists Richard H. Thaler and Cass R. Sunstein argue in their influential book Nudge, altering defaults is particularly effective at changing behaviour.
Lenders primarily focus on consumer goods such as clothing and cosmetics, which are typically the subject of impulse buys. Focusing on products related to physical appearance, and targeting a particular age group, could shift social norms regarding consumption within the demographic, making higher value clothing items the norm. Once established, such norms are difficult to avoid.
These lenders also take advantage of “loss aversion” – the universal human tendency to prefer avoiding losses to acquiring equivalent gains. They do this by promoting their services as a way for online shoppers to order multiple items and then return those they don’t like. Because of the bias, shoppers may not return products once they have them at home – even if that was their original intention.
Thank you, Aristotle
One might say these strategies manipulate customers. Yet one person’s manipulation is another’s persuasion, and all commercial businesses employ persuasive strategies to encourage customers to spend.
Ancient Greek philosopher Aristotle and his followers can help us draw a meaningful distinction between persuasion and manipulation. In a debate with the Sophists (specialists in the art of persuasion), the Aristotelians argued that the difference between manipulation and other persuasive strategies is that it bypasses or subverts the target’s rational capacities.
On that rationale, buy-now-pay-later apps are arguably manipulative as they rely on our irrational psychological biases. The concern is therefore less that they encourage us to spend, but how they do it. Some might argue that manipulation is everywhere, especially in advertising, but that doesn’t make it right. This is an ethical issue that simply classifying Klarna as a bank won’t solve.
What, then, is to be done? An outright ban would unfairly impact responsible users of the service. What is needed is regulation sensitive to the unique nature of these lenders, their service and the risks. It needs to include a duty to inform customers of the psychological biases that these services take advantage of (unwittingly or otherwise), to help consumers to make rational financial decisions. Apps would therefore need to point, for example, to the risks of consumers being tempted to keep more items once they have been bought, and the risks of default payment options.
Alongside this, we need a new professional body dedicated to overseeing this form of lending. It would need regulatory powers, and a commitment to act in the public interest enshrined in a code of conduct reflecting the unique ethical risks involved.