Fintech: Agility, Accessibility, and Convenience
Fintech companies, which blend technology and finance, promise agility, accessibility, and convenience. Moreover, they have been crucial in financially including millions of people without access to traditional banking by enabling them to open accounts (Revolut, N26), make payments and transfers (PayPal, Bizum or Wise and through electronic payment gateways of traditional entities), invest (Investing.com, Betterment), or request credits (Lendable, Avant) via mobile devices.
Efficiency or Manipulation?
In the fintech environment, paying has become almost invisible with a click, gesture, or a tap on the wrist. However, be cautious! What appears to be efficiency is also a precise calculation based on the principles of behavioral economics, a discipline that studies how cognitive biases, emotions, and mental shortcuts influence our decisions. From the minimalist design of apps to notifications celebrating “savings” achieved through spending, every detail is crafted to influence our financial decisions, often without us being fully aware.
Behavioral economics was introduced by George Loewenstein in 1996 with the concept of “pain of paying.” Handing over bills causes immediate discomfort. Fractionalizing payments in an app or using the “Buy Now Pay Later” (BNPL) formula disguises this discomfort. Neurological studies in 2001 demonstrated that paying with a credit card activates fewer brain areas associated with pain than paying with cash. This means the brain reacts less emotionally when there’s no physical exchange of money. In practice, this implies that people tend to spend more when they don’t see or touch the money they use, especially in digital environments where payments are made with a click.
Why Are We So Easy Prey?
- Invisible Money Hurts Less: The “pain of paying” makes fractured payments in an app or BNPL options less noticeable. Neurological studies from 2001 showed that credit card payments activate fewer brain areas associated with pain compared to cash payments. This reduced emotional reaction leads to increased spending as people don’t physically see or touch the money they use.
- Loss Aversion: Daniel Kahneman and Amos Tversky’s 1979 prospect theory demonstrated that losing affects more than gaining. This explains the effectiveness of messages like “Don’t miss this opportunity,” “You’re missing 1,500 points if you don’t use your card today,” or “Today only, 20% off on your purchases.” These messages create a sense of urgency and reinforce the fear of missing out on potential benefits, even if they’re not economically significant or if the product/service wasn’t previously desired.
- Anchoring Bias: Our perception of value is heavily influenced by the first figure or reference presented. The initial figure acts as a benchmark. If a premium plan costs €10,000, the €5,000 plan seems reasonable. Without the initial anchor (€10,000), the €5,000 plan might be perceived as expensive and unattractive. Fintech companies use this bias when designing their payment plans, subscriptions, or cards. The initial, more expensive offer sets the benchmark, making the intermediate option (usually the most profitable for the company) seem balanced, logical, and even a “good deal.” What seems like a free and rational choice is subtly influenced by context manipulation.
Comfort or Trap?
The central question is whether the services offered by financial technology (instant payments, payment facilities, offers, and discounts) genuinely save us trouble or if we’re instead facing a system that distracts us from making unhealthy financial decisions. While regulators debate limits and transparency in BNPL solutions, users navigate between convenience and the risk of self-deception.
Technology promises comfort, immediacy, and solutions at our fingertips. However, it remains to be seen if the true cost will be our vulnerability as consumers in an environment where every business proposal aims to sway us into consuming without thought. Understanding how these biases are used isn’t just intellectual luxury; it’s a form of personal defense. Knowing this doesn’t make us immune, but it does offer a bit more freedom.
- Question: Fintech companies blend technology and finance, offering services like account opening, payments, transfers, investments, and credits via mobile devices.
- Question: Fintech companies use behavioral economics principles, such as the “pain of paying,” loss aversion, and anchoring bias, to subtly influence users’ financial decisions.
- Question: Risks include increased spending due to invisible money, loss aversion leading to impulsive decisions, and anchoring bias making users perceive less expensive options as more attractive than they are.
