Snigdha Kumar is head of product operations at Figure.
Slogans such as “eliminate the friction”, “one-tap access” and “easier, faster, better” are ubiquitous in financial technology product marketing. Fintechs, whether banking, lending, saving, budgeting or investing, have always focused on simpler, faster and hassle-free products. Handling money is difficult and scary for most people, which is why fintechs’ efforts to simplify products and make them frictionless are absolutely noble.
But is friction always the enemy? No.
Friction, if used carefully and intentionally, can be a useful product feature rather than a product bug. It gives fintechs the opportunity to build trust with their consumers and prevent consumers from making costly mistakes.
Preventing consumers from making an expensive mistake
Fintechs deal with one of the most vital and sensitive aspects of a person’s life: money. Even the smallest money mistakes can cause users irreparable harm. I believe that the likelihood of making such mistakes increases in a low-friction or low-friction environment.
For example, if a peer-to-peer payment application makes it really easy and quick to send money to a friend, it can also increase the chances of money being sent to the wrong person and never returned. If a robo-advisor lowers the barrier to investing, it can also enable novice investors to make potentially financially catastrophic trades. If a company that buys now, pays later makes it hassle-free to “pay” for something at the click of a button, it can also give customers the opportunity to take on more debt than they can afford to pay back.
Is the answer to make fintech apps incredibly difficult to use and add friction for every step? Of course not. However, adding speed bumps before high-stakes actions is vital to the success of the overall user experience. A few ideas on how to introduce strategic speed bumps into the product experience include:
1. Gate complex financial products for novice customers. Let’s take an example of a robo-advisor. If a retailer wants to conduct options trading, the solution he uses may require that he demonstrate his understanding of the subject. Perhaps they can answer a knowledge questionnaire or upload a certification that confirms their understanding. Alternatively, if a retail user wants to learn by doing, he or she may be given a small limit to invest in options for “X” months or until he demonstrates his understanding of options trading.
2. Add a cognitive barrier to a sensitive action. Suppose a user wants to transfer a large amount of money using a peer-to-peer payment app to a first recipient. They may be presented with a confirmation screen with the amount of the transfer and details of the recipient’s address/handle before sending the money. This can solve the “zero” error problem or prevent money from going to the wrong beneficiary.
3. Make users aware of the consequences of incorrect use. Consider the example of BNPL loans, in which case a user may not understand that he is incurring ‘debt’. In addition, the consequences of repeatedly using these products and failing to refund them are not clear to all users. Not only can this put a customer into a debt spiral, but it also increases the potential delinquency for the BNPL provider. A win-win solution could be to have a screen that summarizes all costs and includes a notification that a customer is taking out a loan before agreeing to the terms. Let’s face it: no one reads the long terms before making a purchase.
Building trust with customers
The foundation of any fintech’s success is trust, as they handle people’s hard-earned money. The expectation that customers have from fintechs is a fast and seamless experience. However, if any friction is communicated and contextualized as friendly friction, it can give customers confidence and create trust. Here are two specific ways friction can be used to build user trust:
1. Protecting users from malicious parties: When friction is applied to protect customers’ money, financial information or identity, it can be seen as a security feature versus customer friction. Research suggests: that customers want their financial institutions to put additional guardrails around account opening and money transfers for added protection. However, the answer here is not to have customers fill out lengthy forms or require authentication for every transaction, but to get more bang for their buck for every frictional contact introduced to the user.
For example, when opening an account, most financial institutions require users to enter know-your-customer information. This is needed friction for compliance, fraud and legal reasons. Fintechs can extract more value from this friction if they reuse bits of KYC information and run alerts for email, phone verification and identity theft. By leveraging multiple fraud signals from the same data set, fintechs can provide more robust protection against fraud and protect users’ identities and funds, building trust.
2. Giving Users Control: Money is so personal on an individual level that no matter how “intelligent” fintechs become, they will make mistakes and miss edge scenarios. Therefore, it is imperative to give users control over the course correction. For example, if users in an automated budgeting application have the ability to adjust their invoice amounts, payment schedules, and transfer and spending limits, users gain more control and build trust.
In the fintech industry, strategic friction can help protect and build consumer trust. When done thoughtfully, this friction can be done in a way that ultimately provides a seamless and enjoyable user experience. Just like in physics, friction is the force that helps us move forward stably. Similarly, in the fintech industry, strategic friction is essential to move the sector forward.