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Providers Rush to Adopt P2P Payments, but Consumers are Skeptical

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“What’s your Venmo?” You have probably heard this question before, whether it be from friends splitting a bill or family sending you birthday cash. Peer-to-peer, or P2P, payment methods like Venmo are becoming increasingly popular as platforms that intersect social and transactional lives of consumers. While traditionally P2P payments were used for personal exchanges between friends and family, these payment methods are rapidly gaining a presence in commerce. Businesses believe that offering P2P payment methods will bring more business: eMarketer predicts total P2P transactions to reach $396.48 billion, a 27.9% increase from 2019 (qtd. in Forbes). According to Forbes, Dan Schulman, PayPal CEO, also plans to focus more on Venmo’s presence in business transactions this year. Schulman believes that “Pay with Venmo”, a feature allowing consumers to pay for goods and services through Venmo, is a “very big opportunity”.

A recent paper co-authored by two researchers from Better Decisions Lab along with colleagues from University of South Carolina and published in the Journal of Association for Consumer Research July issue, demonstrates that service providers may lose potential customers because of the payment method they use. When there is no direct information available regarding the service’s quality, consumers look for other signals such as price, availability of warranties, and difficulty of processing information as indicators of the expected quality. This paper investigates the role of P2P payment methods as an additional indicator of service effectiveness, or lack thereof. The authors ran several studies in which they compared services requiring either a high level of competency or a high level of warmth in conjunction with P2P vs. non-P2P payment methods, i.e., cash or credit card.

Consumers judge service providers based on two prominent facets of a service experience—warmth and competence. These characteristics are typically inversely related, such that when a business appears warmer or more friendly, it also appears less competent and less effective. The paper demonstrates that consumers are more likely to hire businesses offering P2P payments where warmth is pertinent because when businesses offer P2P payment methods, they evoke a social environment and enhance their warmth. Conversely, consumers are less likely to hire a business requiring a high-level of competency if the business requests P2P payment. Additionally, these businesses are perceived as less competent when they request payment via a P2P method compared to non-P2P.

As a business, what can you do to mitigate the consequences of adopting P2P payment methods? “Pay Me with Venmo: Effect of Service Providers Decisions to Adopt P2P Payment Methods on Consumer Evaluations” offers a solution: consistent positive interactions between the business and the consumer. If there is ambiguity in the service’s quality over time, consumers will retain their preconceived notion based on the payment method. The interactions must also feature competence, not warmth, to effectively enhance the perceived service quality. Based on these findings, it is possible to mend the disconnect between consumers and businesses, but also difficult. It may be tempting for businesses to adopt new technology, but it is important to consider how it will affect consumer perceptions.

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