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Finding the Right Friction in Payments

September 12, 2022 | Nick Holland

A word that is endemic in the fintech vernacular today is “frictionless.” We are led to believe that consumers want payment transactions to be without friction, allowing instantaneous impulse purchases and money transfers to anywhere in the world in milliseconds. In some areas, this friction reduction may indeed be desirable, or even table stakes – no one wants to wait three working days for settlement of funds in an age where we can order pretty much anything and have it delivered within an hour. However, some friction may be a good thing. The ability to “pay in four” for not just big ticket items, but the weekly food shopping, is symptomatic of an industry that is taking advantage of consumers that are not necessarily connecting the dots from current spending to future debt.

By contrast, cash is apparently seeing a post pandemic renaissance – the British Post Office published a report recently stating that its branches handled a record £801 million ($969.45 million) in cash withdrawals in July, up almost 8% compared to June, and 20% from the same period last year. While this may be indicative of more people being in public and reliant on cash than they were in the midst of the COVID-19 pandemic, the Post Office sees this as a bellwether of consumers being more controlling of their finances overall, resorting to the time tested method of putting cash in envelopes for weekly budgeting purposes. Convenient? Not at all, but it adds the friction that some consumers require to keep tabs on where their money is going in a very tangible way. Would these draconian measures be needed though if electronic money was less opaque?

Here’s an interesting exercise… think about how long it would take to count out $1 million at a rate of one dollar bill per second. That would take 11 days. Now consider the same exercise, but counting out $1 billion in ones. This would now take 33 years. I added this to provide some context for how we lack the ability to distinguish money at different scales — if we can’t grasp the magnitude of difference between 1 million and 1 billion if we can’t actually see the money, then it’s unlikely we will also grasp the difference between a little online spending here and the odd impulse purchase there. This is a feature, not a bug in the design of digital money – the less connected we are with the actual transaction (friction), the more ambivalent we may become and therefore spend beyond our means. Financial transactions without financial knowledge equals financial mindlessness — beyond instant gratification, this doesn’t benefit anybody long term.

Friction in payments is therefore a useful sanity check before we collectively put ourselves into positions where we are overstretched. Today, where there are genuine recessionary concerns, this can be beneficial in preventing debts from being incurred that could force greater financial instability at an individual and even national level should these fears be realized.

Perhaps then, the solution is in the degree to which a consumer has a clear dashboard for their overall financial footprint, allowing them to holistically see spending patterns today, as well as the implications of their actions tomorrow. The role of fintech will be in allowing consumers to define the degree of friction that is needed, bringing the visibly finite and tangible nature of paper transactions to electronic forms where these attributes have been obscured by design. This would explain the growing demand for solutions in WealthTech and RegTech that facilitate a ‘single pane of glass’ vista of where money comes and goes.

Friction isn’t necessarily a problem when the right level is found, but if consumers can’t find ways to have a 360 view and the ability to apply the brakes with digital forms, they may well return to clunkier but more transparent analog alternatives where they can own the friction. Frictionless commerce for many may be skating on thin ice.


  1. https://www.bloomberg.com/news/articles/2022-08-09/cash-is-back-as-brits-try-to-control-spending-says-post-office#:~:text=Britain's%20Post%20Office%2C%20which%20has,the%20same%20period%20last%20year.

Nick Holland

Global Head of Research

Money20/20