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Buy-now-pay-later: Consumer law must acknowledge consumer psychology

Deakin’s consumer-behaviour expert, Dr Paul Harrison, has provided key insight at a recent government inquiry into Australia’s buy-now-pay-later sector.

A senior lecturer and unit chair in Deakin Business School’s (DBS) Department of Marketing, Dr Harrison was invited by the government to provide specialist commentary to a Senate Economic References Committee investigation into how credit and financial products (such as After-Pay and Zip-Pay) target Australians who are at risk of financial hardship.

Dr Harrison, who is also co-director of DBS’s Centre for Employee and Consumer Wellbeing (CECW), is a widely sought-after researcher, consultant and adviser across government, industry, the media, and NGOs in the field of consumer behaviour and marketing.

During the inquiry, he provided evidence to the committee as to how credit and financial organisations are able to target those who are most likely to use pay-later products.

‘Because the (financial) providers have significant data analytic capacity, they are able to adapt their offer as it virtually follows and tests consumer responses. And through technology such as neural networking, (the financial providers are) able to anticipate consumer responses and intervene to lead the consumer to make choices that suit business … Businesses aren't necessarily in the business of consumer wellbeing; they're in the business of making profit and selling their product,’ he advised.

Dr Harrison’s research focuses on emotional and rational behaviour, and how our biology and the environment interact to influence the way consumers make decisions.

At the inquiry, his research provided unique insight as it was the only contribution which explained the psychological elements and influences that come into play when consumers make decisions in the context of financial services.  

‘The senators wanted insight and knowledge about consumer psychology. It’s rare that these sorts of inquiries call experts who are thinking about consumers,’ he says.

Dr Harrison emphasised to the senators that with online shopping and its speedy technology 'the goal is to get consumers to make the decision as quickly as possible'.

He also pointed out the ease with which young people can now access new models of e-commerce.

‘In general, there are public social norms now around avoiding credit whereas there is not a lot of discussion about avoiding the buy-now-pay-later type of approach. It’s also more difficult to get credit… so, for a young person who hasn't had a lot of experience with credit, this offer is much easier to transact, at both a practical and psychological level.’

In addition to his roles with DBS, Dr Harrison is Special Counsel on Consumer Behaviour at the Australian Competition and Consumer Commission (ACCC), a director of the Telecommunications Industry Ombudsman (TIO), former chair of the Asylum Seeker Resource Centre, and a member of Consumer Affairs Victoria’s Advisory Forum, and VicHealth’s Expert Panel in Social Marketing.

His work has been published in a wide range of international journals and conference proceedings and has also informed policy and business practice in Australia and internationally.

Reflecting on the inquiry, Dr Harrison says he was able to draw on his research and industry experience to help the policymakers understand what happens in the online shopping environment.

‘It’s about understanding the process behind consumer decision-making. The senators were particularly interested in the AfterPay concept because it’s a new area that has not had much research. They were interested in how the AfterPay form of transaction was different from, say, lay-by.’

Dr Harrison suggested to the senators that from a psychological perspective these finance models were very different to lay-by because of their ability to deliver an ‘endowment effect’.

‘With lay-by, you don’t receive the goods until you’ve paid for them so you don’t feel like you have ownership; whereas with AfterPay the whole idea is to ensure an immediate purchase in the moment. The critical point I made was that the whole process is about getting people to “not think too much” when they’re making the purchase; to move people through the steps without them being aware of them.’

One of the key messages he was able to communicate to the inquiry was that online shopping consumer behaviour is psychologically complex and simply introducing laws that overlay current legislation around credit is unlikely to be adequate.

‘If we’re thinking about consumer harm then we actually have to put the consumers at the centre of the regulation or law. The usual approach from lawmakers is to say, “well, here’s the law, let’s just adapt it to what’s best for consumers”,’ he says.

Dr Harrison believes academia can play a crucial role in contributing to public policy and the broader community, but opportunities to speak directly to senators or parliamentarians are rare.

‘Through the Centre for Employee and Consumer Wellbeing’s research and connections we’re respected by policymakers as an authority on consumer behaviour and wellbeing issues. As demonstrated by our connections to the ACCC, ASIC and other government institutions, the CECW is viewed as being an apolitical, reliable source of information. Ultimately what sits beneath this is an enhanced understanding of consumer decision-making and consumer wellbeing. Our ultimate goal is about finding better outcomes for consumers.’

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