Behavioral Economics draws from the fields of psychology, neuroscience, and economics to explain and potential influence human behavior. I became interested in the field when I realized my UX background prepared me to design so people can do a task but it did not always equip me to design so people will do a task. Over the last several years, I have immersed myself in the study and application of Behavioral Economics through the Yale School of Management and numerous other resources, and have been able to apply various principles to positively influence customer behavior. One such application is below, which resulted in $2.2M/year in profit for PayPal.
Linking a bank account to a customer’s PayPal account is mutually beneficial to the customer and PayPal. For customers, it enables services such as free Send Money and the ability to move money to and from their PayPal Balance. For PayPal, these customers are correlated with higher engagement and have a significantly higher lifetime value. It is challenging, however, to encourage customers to see beyond the time and effort required to link a bank and help them recognize the long term benefits they will experience if they complete this process.
Several past projects had a goal of influencing this behavior using a variety of standard value proposition messages in contextually relevant flows. All of them had negligible results.
While researching how we might move the needle on this goal, I came across an article describing an experiment that used messaging to convince hotel guests to reuse towels instead of having them replaced each day. This experiment by Dr. Robert Cialdini looked to see whether including “social proof” (messages that draw upon the appeal of social norms) would be more successful in directing behavior than appeals to consider environmental values alone. The guests in the control group encountered messages similar to those often displayed in hotel bathrooms such as “You can show your respect for nature and help save the environment by reusing your towels during your stay.” The guests in the experimental group encountered social proof messages that emphasized the number of guests who reused their towels: “75% of the guests who stayed in this room participated in our new resource savings program by using their towels more than once. You can join your fellow citizens in this program to help save the environment by reusing your towels during your stay.”
Guests who saw the social norms message reused their towels at a significantly higher rate compared to the control group.
It struck me that this towel reuse goal was similar to our goal to convince customers to link a bank, in that it required a short-term effort for a longer-term benefit. Would we see similar results if we tried social proof messaging?
As a graduate of Arizona State University, I knew that Dr. Cialdini was a Professor Emeritus. I emailed him and asked if we could meet for lunch to discuss what we were trying to accomplish at PayPal. During lunch, Dr. Cialdini and I discussed his social proof experiment and other principles from his book Influence: The Psychology of Persuasion. He agreed that the similarities I drew between his social proof experiment and our link bank goal could have some merit. We arranged for me to work with him and one of his consultants to craft a link bank message.
I was excited for an opportunity to work with Dr. Cialdini and his partners. I still needed to convince my stakeholders, however, to let me test a social proof message since the prevailing thinking at PayPal was that it was just a matter of presenting facts in the right way that would lead to the desired behavior. To influence these stakeholders, I compiled a summary of several past experiments with the message variants we had tested, showing none of them led to a significant improvement. (The only exception was paying customers $5 to link a bank, but even that resulted in limited ROI.) Why not let me try something new?
Ultimately, I got the OK to own one message variant during two experiments we ran, one via email and the other during new user onboarding. We tested a total of six messages against the current control message. The message variant we put forward using social proof was “Join over 30 million customers who have Verified status.” (“Verified” is a term for users who linked a bank that is no longer in use at PayPal)
With just 9 words, we stunned the analytics lead who was accustomed to telling us none of our messages made any difference. After six months of testing and watching the behavior of customers exposed to the message variants, he noted that the social proof message variant led to significantly higher conversion. Moreover, in tracking payments, these customers led to significantly improved margins compared to control.
What did this mean to PayPal? From simply changing our messaging in these channels, we generated $2.2 million per year in margin. When word got out, groups started using this messaging in many other channels. Even now, the first page of our signup flow reads “See for yourself why millions of people love PayPal.”
If you’re applying behavioral psychology principles to unsuspecting customers to get them to do something, the potential for abuse is high. I asked Dr. Cialdini about this and I agree with his answer: It’s ethical if it’s true. If you tell people that others who stayed at that hotel reused their towel, there’s nothing wrong with that as long as the numbers are factual. Similarly, if you tell customers that 30 million others have linked their bank, that can actually be quite helpful: if so many others have done it, maybe it’s safe and beneficial. For this reason, I insisted that we take the time to only use true numbers (today, the number is much higher).