The Venmo Effect: Digital Payment Platforms (Part 4)

7. Conclusion This paper is the first study to examine the impact of a specific digital payment platform on consumer willingness to pay, building on existing literature about the role of payment form in consumer spending decisions. We find evidence that a Venmo Effect – a higher willingness to pay with Venmo – exists in college students’ spending behavior. This is an important expansion of our understanding of the role of context effects in economic choice. More specifically, we find that Venmo increases WTP in comparison to debit or credit cards, though not statistically significantly. In our exploration of three potential mechanisms behind this Venmo Effect, we find evidence of two specific social influences on WTP with Venmo: 1) the Friends Only privacy setting decreases WTP while the Public privacy setting increases WTP, at least in this particular experimental context, and 2) browsing the social feeds exacerbates the effect of privacy setting, regardless of whether that causes an increase or decrease in WTP. These findings have important implications for Venmo users, retailers, and Venmo itself. First, the Venmo Effect is causing consumers to spend more money than they would with another form of payment. This is an important discovery as Venmo users seem to be unaware of this phenomenon; surveyed Venmo users claimed that they are not influenced to purchase goods on Venmo by others’ transactions (Caraway et al. 2017). Given that we find the Venmo Effect to be driven by social influences rather than mental accounting, consumers who want to avoid this Venmo Effect could: 1) avoid the social feeds on the Venmo app if using the Private or Public settings, as we found that the priming treatment increased WTP, or 2) change the default privacy setting to Friends Only because it led to lower WTP than the Private or Public settings and even debit cards. On the other hand, retailers could take 37 advantage of the Venmo Effect in order to increase profits. While more retailers have begun to accept Venmo in recent years, it is far from a universal option. By accepting Venmo, retailers would be able to make more money without needing to expand their customer base. Venmo’s seller fee structure (1.9% of the transaction value + $0.10) is similar to that of credit card companies, so retailers could capture the full increase in WTP at the same cost as other payments with lower associated consumer WTPs. Venmo, which is owned by PayPal, makes money through the transaction fees it charges on payments made via credit card and on instant bank transfers. Thus, Venmo’s revenue is tied to payment volume, which already benefits from the existence of the Venmo Effect. However, Venmo could attempt to maximize the impacts of the Venmo Effect through the privacy settings and the social feeds (i.e., the signaling and priming mechanisms). Our findings suggest that Venmo could increase payment volume if more users were on the Public or Private settings; the current default privacy setting on the Venmo app is Public, but disincentivizing or even eliminating the Friends Only setting could lead to more spending on Venmo. Additionally, given our finding that browsing the social feeds leads to higher levels of spending, Venmo could attempt to increase traffic on the social feeds. While we are confident in our findings of a Venmo Effect, we recognize that more indepth study of Venmo is needed. There are three particular extensions that we think should be prioritized. First, this experiment was conducted completely online, which is not fully representative of Venmo transactions as many people may use Venmo when they’re physically with their friends or in a more traditional retail setting. Thus, exploring how this Venmo Effect translates to an in-person experiment is of interest. Second, we recognize that the specific context of our experiment could be responsible for our finding that the Friends 38 Only setting decreases WTP; paying a third-party experimental Venmo account for a bar of soap does not have the same social implications as, say, paying a well-regarded peer for a transaction that would be regarded as “cool” by others. Modifying the experimental design so participants would pay a friend – or at least a decoy account that participants believe belongs to a peer – would allow us to determine whether the Friends setting has a general downwards effect or if our findings are only applicable to this specific experimental context. Third, our experiment only examines the Venmo Effect for low-cost consumer products. Existing literature finds that the credit card premium increases with the value of the item being purchased (Prelec and Simester 2001), and the effect of Venmo on WTP could similarly increase at higher prices. Alternately, the Venmo Effect could disappear at higher prices as Venmo is commonly used for smaller purchases. We look forward to better understanding this novel finding about the role of digital payment platforms on consumer spending, especially as digital payments continue to grow in popularity. 39 8. Appendix 8.1 Tables and Figures APPENDIX TABLE 1: Pairwise t-tests of the summary statistics presented in Table 1 (page 28). 40 8.2 Survey Interface FIGURE 1: An informed consent form is the first page of the experiment. This is followed by screening questions about age, college attendance, Venmo usage, and debit/credit card possession. 41 FIGURE 2: After the screening questions, participants are assigned to one of three payment forms: debit, credit, or Venmo. FIGURE 3: Those assigned to Venmo are then asked to change their default privacy setting to their randomly assigned setting of either Private, Friends Only, or Public. 42 FIGURE 4: Participants assigned to Venmo are then randomly assigned to either priming or no priming. Those assigned to priming are asked to scroll through the Public Venmo feed for two minutes while those not assigned to priming simply proceed with the survey. FIGURE 5: Next, the BDM lotteries are explained. A subsequent attention check question ensures participants understand how the lotteries work: “If you win the lottery, what is the price you will have to pay?” (Correct answer: “The randomly drawn purchase price, which is less than or equal to your stated maximum price.”) 43 FIGURE 6: After participants confirm that they understand the BDM lottery process, they are told a maximum of one item will be purchased. This is followed by an attention check question: “What is the maximum number of goods you will be required to purchase?” (Correct answer: 1) FIGURE 7: Once participants understand how the lotteries work, they are asked to name their maximum price for each of the ten items. This example shows the WTP elicitation for the pack of gum. The order of the ten items is randomized for each participant. 44 FIGURE 8: After the initial WTP estimate for each of the ten items, participants are given the option to revise their indicated maximum price. FIGURE 9: After participants indicate their WTP for a given item (regardless of whether they chose to revise), we ask follow-up questions regarding their preferences about the item. 45 FIGURE 10: After completing the WTP estimates and follow-up questions for all ten items, a random price between $1 and $5 is selected for each item. FIGURE 11: Participants are shown a summary of the ten random prices. 46 FIGURE 12: After the random selection of prices, participants are shown a table that summarizes the random prices, their indicated WTP for each item, and whether they won each lottery. Participants who won one lottery are asked to purchase that item and participants who won multiple lotteries are asked to purchase one item randomly selected from all their winning items. Participants who won zero lotteries just proceed to the final demographic questions. FIGURE 13: The final page of the survey debriefs participants. 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