to the white paper

THE BEHAVIOURAL
ECONOMICS OF SHARING:
How technology is impacting consumer
spending habits in Canada.
ABSTRACT.
Sparked by a demographic shift in Canada’s population, Capital One® wanted to explore how consumer
spending is changing within the sharing economy. To do so, Capital One examined the following key
areas: aggregated Capital One cardholder spending, a consumer insights study exploring what motivates
Canadians’ spending and opinions from top industry experts.
In the summer of 2015, Capital One hosted the first meeting of the C1NDX, its forward-looking think-tank.
The event brought together six of Canada’s leading journalists and industry experts, including those
focused on tech and personal finance, along with a professor of economics, to take a deeper look at
trends in Capital One’s anonymous cardholder spending from 2014 and 2015.
In order to generate additional data to help explain why Canadians’ spending behaviour is shifting within
the sharing economy, Capital One also partnered with Vision Critical to conduct a consumer insights
study, which surveyed 1,500 consumers (representative of the population) from across Canada.
The results of the discussion and an analysis of the C1NDX findings are presented within this white paper.
ABOUT THE C1NDX THINK-TANK.
The first C1NDX industry expert panel included:
•W
inston Sih, a digital journalist and consumer tech expert who’s also a regular on-air
correspondent for Breakfast Television, Cityline, CityNews and Entertainment City.
•P
rofessor Joshua S. Gans, Professor and Area Coordinator of Strategic Management
(cross-appointment in the Department of Economics) at the Rotman School of Management
(University of Toronto). Joshua holds the Jeffrey S. Skoll Chair in Technical Innovation and
Entrepreneurship.
•T
ed Kritsonis, a tech journalist and TV personality. Ted has been covering the tech industry
since 2003. Over the course of his career, he has written for many publications, including
The Globe and Mail, National Post, Toronto Star, CBC.ca, Yahoo! Canada, Marketnews,
WhatsYourTech.ca and MobileSyrup.
• Barry Choi, a personal finance and budget travel expert. Barry is also the founder and editor of the
blog Money We Have, and a CityNews Director and media personality.
•M
ark Richardson, former editor of Toronto Star Wheels and a continuing contributor for the
section, as well as the Autos section. Mark was named Journalist of the Year by the Automobile
Journalists Association of Canada in 2010.
•M
ichelle Summerfield, a successful personal finance blogger who focuses on getting out
of debt, frugal living, saving and living a simple life. Michelle is the founder of the blog
Budget Bloggess.
The session focused on the following areas: 1. Consumers’ New Perceptions of Luxury; 2. The
User Experience and How We’re Moving towards a Cashless Society; 3. How Sharing Creates a
We-Based Culture; and 4. Trust and the Sharing Economy.
All of the Capital One figures in this report reflect anonymous credit card transactions by
Capital One branded credit card customers in Canada.
ABOUT THE C1NDX STUDY.
To take a deeper look at how consumers’ values are shifting, and how those values are influencing
their spending within the lens of the sharing economy, Capital One partnered with Vision Critical
to poll a group of Canadians representative of the country’s population.
Statistics included throughout this white paper can be accurately quoted based on age range
(e.g., 18-34 (“millennials”), 35-54 and 55+), location and income. Canadians polled were also assigned
to one of two self-selected groups: influencer and non-influencer. For the purposes of this study,
an influencer is someone who enjoys being in the know about services offered by the sharing
economy (e.g., Airbnb, carsharing, kitchen appliance libraries, etc.) and who talks to others about
those services.
INTRODUCTION.
The term “sharing economy” first appeared in the mid-2000s, as new business structures and
technologies began to crop up at a rapid pace, all in response to evolving economic times and
the simultaneous depletion of resources. Some prefer to call it collaborative consumption, while
others deem it a pure economy or exchange. However we may define it, it’s clear that the ideals
all allude to one thing: Canadians’ perceptions about the ownership of products are shifting, and
they’re focusing on sharing experiences as a new type of status symbol.
Companies that enable those experiences are generating big business. Including the likes
of eBay, Airbnb, Etsy and WeWork, there are now 17 different billion-dollar companies with
60,000 employees and $15 billion in funding in the sharing or collaborative economy alone,
according to VentureBeat. Put into perspective, VentureBeat states that “the collaborative or
sharing economy has received $15 billion in funding – more than the entire social networking
space that has spawned giants like Facebook, Twitter, Snapchat, and more.”
According to findings from the C1NDX consumer
insights study, many Canadians – particularly
millennials – have shifting values, views and
preferences when it comes to how they spend
their money and why they choose to spend
where they do.
With these figures in mind, the sharing economy
has grown beyond a blip on the economic radar.
It has become a legitimate movement in business,
and it’s already changing the way we’re driving,
travelling and exchanging goods. Most importantly,
it’s changing the way we’re spending.
As a result, the sharing economy has created a
reinvention of market behaviour, a movement
that shies away from ownership – whether it’s
borrowing, lending, renting or swapping, it’s created a whole new barter system that’s becoming
increasingly prevalent in our communities.
This new barter system, born from disruptive technology, has enabled closer human connections
to create a “we-based” culture, and has elevated the sharing of resources to a platform that’s
easier for consumers of all income brackets to budget for and access.
According to findings from the C1NDX consumer insights study, many Canadians – particularly
millennials – have shifting values, views and preferences when it comes to how they spend their
money and why they choose to spend where they do. Millennials are placing even more value
on experiences instead of ownership.
At the intersection of consumer data, user behaviour, technology and expert opinions, Capital One
uncovered a few key learnings about how Canadians’ spending is changing within the context of
the sharing economy.
THE NEW LUXURY:
AN EXPERIENCE-BASED ECONOMY.
The number one catalyst for Canadians considering experiences as the new luxury is millennials,
who have a more minimalist mindset than previous generations. Millennials are more than 9 million
strong and represent nearly one-third of Canada’s population (Aimia – Born This Way: The Canadian
Millennial Loyalty Survey). When asked about this demographic shift, many C1NDX experts felt
that today’s view of prosperity and success no longer pivots around ownership – and this view
is central to the sharing economy.
How big is this shift in mindset? Large enough that many Canadians are now even open to sharing
their homes. Although a house was once the single most expensive purchase in a person’s
lifetime, changing values have given rise to the following considerations, which were uncovered
by the C1NDX consumer insights study:
• 46 per cent of millennials would be open to buying a house with friends and living in it
together to share the cost.
• 32 per cent of millennials would rather have five years of amazing experiences than own
a house.
• 85 per cent of Canadians would rather have two years of amazing experiences than upgrade
from an affordable car to a luxury vehicle.
With the perception of value shifting away from ownership, consumers participating in the sharing
economy are instead favouring better brand experiences. Not just the intangible kinds but the
experiences created by the interaction between user experience and design.
In the C1NDX experts’ view, this has led to more mainstream adoption of services like Airbnb.
According to the Airbnb website, “Airbnb connects people to unique travel experiences, at
any price point, in more than 34,000 cities and over 190 countries.” The experience that Airbnb
provides – of living immersed in the city like a local – enables a more personal connection. In
theory, consumers have the opportunity to meet a host who hands over a set of keys, tours
them around the space and even tells them where the best local hangouts are. The experts felt
that there’s a type of intangible experience tied to Airbnb’s value proposition that a large chain
or luxury hotel might not be able to provide.
Capital One’s aggregated data supports this – Airbnb bookings are still small relative to hotel
bookings, but they’ve seen an increase of 181 per cent over the past 18 months.
2.5%
2.0%
1.0%
0.5%
0.0%
Why could this be? According to the C1NDX study:
• Millennials are more likely to say that travelling like a local is in and travelling like a tourist
is out (60 per cent) compared to Canadians 55+ (45 per cent).
Ted Kritsonis believes that, “A lot of travellers would like to stay in a neighbourhood because
they get a very different experience, obviously with the hotel you do get certain luxuries, but
I think especially younger travellers are no longer looking for that kind of service at all.”
This change in values also frees up disposable income for other spending possibilities. For
example, not only is living like a local while travelling likely to save travellers money in the long
run, but:
• 58 per cent of Canadians want to live like a local when they’re travelling so they’ll have
more unique stories to tell (67 per cent of millennials and 53 per cent of those 55+),
according to the C1NDX study.
As C1NDX expert Barry Choi put it, “When most people travel these days, they want that local
experience – especially experienced travellers. Anyone can read a guidebook, but you’re
not going to hear about that small little coffee shop down the street and get to know peoples’
names before even arriving.”
The opinions of the C1NDX experts and consumer data are aligned – services like Airbnb enable
consumers to pursue their dreams differently, in a more experience-driven, affordable way.
THE COST FACTOR OF SHARING EXPERIENCES CREATES
A NEW USER “BRIDGE.”
It’s clear that demographics play a big role in adoption rates of products and services. When
asked to explore why, many C1NDX experts felt that the lower cost of services offered by the
sharing economy creates a new bridge for potential users. For example, Capital One’s data
found that middle-income consumers seem to use Airbnb more than any other segment. For
many, the difference in cost is bridging that gap between lower-cost accommodations such as
hostels, and higher-priced accommodations like hotels.
When Capital One explored some of the demographics to see who’s using Airbnb, they saw that
millennials under 30 years of age are 2.5 times more likely than the average Canadian to use
Airbnb, based on Capital One cardholder spending.
Taking into consideration the proliferation of smartphones, the C1NDX experts point to mobile
devices as the reason for a whole new level of access. “Now everybody has one, regardless of
income bracket. So that alone gives everybody access to the same apps and the same services,”
says Ted Kritsonis.
Due to the lower cost often associated with sharing resources, sharing affords a certain lifestyle
that consumers might not have otherwise achieved. For example, Airbnb stays may be seen as less
expensive, which can lead consumers to take longer vacations and look for other ways to save.
Canadians are spending more with Airbnb than hotels, but the average duration of Airbnb stays
may be longer.
While the ability to share goods and services as part of the sharing economy is helping bridge
a spend gap, the more minimalist mindset it’s also triggering may make budgeting easier for
Canadians.
According to Winston Sih, “You’re able to budget
more to try out those local restaurants, and yes,
you can go grocery shopping and you’ll explore
more, and I think you’ll take in more of what that
city has to offer.”
Michelle Summerfield feels that if consumers
are saving on their Airbnb stay, they may also
look for ways to manage the rest of their travel
budget. For example, “You can say here is my
budget for my restaurant meals and I’m going to
go and splurge on that one restaurant that my
host has told me is fantastic, and then the rest
of the time I’m going to be really frugal and I’m
going to cook those meals myself.”
According to Winston Sih, “You’re able to budget more to try out those local restaurants, and
yes, you can go grocery shopping and you’ll explore more, and I think you’ll take in more of
what that city has to offer.”
The C1NDX experts felt that the time currency and monetary currency associated with the
sharing economy create a middle continuum, a place where people are starting to think “I can
afford this lifestyle.” C1NDX experts also concluded that some things never change – consumers
are still eager to save time and money, and get more value at the end of the day.
Likelihood of using Airbnb vs. a hotel, compared to an average customer (according to Capital One spending data).
SHARING CREATES A WE-BASED
CULTURE – ENCOURAGING CONSUMERS
TO TEST MORE PRODUCTS.
A new sense of value placed on experiences has also created a new type of social currency –
both online and offline. What has taken shape is a “we-based” culture – a community in which
word-of-mouth marketing has taken on new meaning.
The C1NDX study found that:
• Millennials are more than three times as likely (42 per cent) as those 55+ (13 per cent) to
try out a new service, or rent or share a product, just so they can tell their friends about it.
C1NDX experts also felt that consumers are more likely to want to try out a product or service
that their friends or network are posting, tweeting or reading about. Barry Choi remarked, “All of
a sudden they’re making headlines so they’re almost indirectly causing people to use it because
people are like, ’Oh, what is this?’ and then they start doing the research.”
This suggests that many Canadian millennials are going out of their way to purchase or try out
a product or service, just to create Instagram-worthy photos in hopes of being seen as an
influencer, or making their peers and followers swoon.
It’s a movement that the C1NDX study results also support:
• Social media does drive trial, as 34 per cent of Canadians will go out of their way to check
out something that they saw many people – even strangers – posting about on social
media, just so they can be in the know (53 per cent of millennials, 32 per cent of those
35-54 and 20 per cent of those 55+).
In the past, only close friends or family would have typically made recommendations, but digital
technology now has consumers looking outside of their usual networks, even to complete
strangers, for information on the products and services they should try out next.
The experts were also asked to analyze why users might be flocking towards signing up for
certain services. Winston Sih felt that, “It’s neat to be able to use a shiny new toy like my Apple
Watch to order a taxi. I think a lot of people think that it’s exciting and that entices people to sign
up and try it out.”
In addition, the proliferation of rating systems that enable consumers to learn from the trials of
others could mean that consumers are willing to spend more on disruptive and new entrants to
the marketplace.
USER EXPERIENCE AND THE
CONVENIENCE OF CASHLESS PAYMENTS.
Many C1NDX experts agreed that in the age of the sharing economy, user experience is a primary
driver of why consumers are choosing to adopt certain types of products and services.
Historically, companies have competed on a product level. In 2014, Google made changes to
its algorithm to make the user experience more of a priority (Google Webmaster Central Blog).
Facebook followed suit, encouraging brands to provide their followers with fewer promotional
posts (An Update to Facebook News Feed).
Many industries are poised for disruption as start-up tech companies combine technology and user
experience to address existing consumer needs. Banking, retail, transportation and travel are just a
few of the industries facing an incredible amount of change as they react to these new entrants.
Buzzwords like user experience, human-centred design and agile, which are now synonymous
with tech start-ups, are now being adopted by large brands as they quickly shift to address this
new reality. According to Jay Acharya, Senior Director of Digital Product Strategy at Capital One,
“These technologies and these companies are disrupting purely on an experience standpoint –
they’re unwinding how they’re thinking about putting a product into market and then having
customers come to it. They’re thinking more about ‘What is the experience that my customers
actually care about and how do I build something around that?’”
ADOPTION RATES COULD BE DRIVEN BY CONVENIENT PAYMENT OPTIONS.
A common thread among companies thriving in the sharing economy? They provide great user
experiences – and they enable cashless transactions.
According to the C1NDX study, many millennials, and even Canadians overall, have voiced their
preference for digital payments.
This viewpoint is gaining more traction among younger generations, who grew up on debit and
credit cards, compared to older generations:
• 64 per cent of Canadians think that using digital or mobile payments is more convenient than
using cash (70 per cent of millennials, 64 per cent of those 35-54 and 60 per cent of those
55+). 74 per cent of influencers also find digital or mobile payments more convenient.
• 58 per cent of Canadians prefer using digital payments to cash (65 per cent of millennials,
57 per cent of those 35-54 and 53 per cent of those 55+).
o The preference for digital over cash payments increases with income (54 per cent
of those with an income <$50K, 58 per cent of those earning $50K-$99K and
70 per cent of those earning $100K+).
When asked to examine the rise of the cashless society and the link to adoption rates of services
like Airbnb, many C1NDX experts felt that the emergence of digital wallets and apps tied to
credit cards is rooted in the convenience of not having to worry about carrying cash.
“The best credit card is the credit card you never see.”
– Joshua S. Gans
According to Winston Sih, we’re moving
past the point where people want to pull
out their wallets to tap or swipe their cards. Consumers “want to be able to do things on their phone.
So to be able to load my credit cards on my device and to be able to use that as a contactless
payment because my phone is in my hand anyways – I think that’s the phase we’re moving into.”
GOING CASHLESS AND BUDGETING IN THE DIGITAL ERA.
C1NDX experts identified an additional benefit to the sharing economy beyond the increased
affordability of services and experiences. Since payments are almost exclusively digital, the
experts felt that this also makes budgeting simpler since transactions are easy to track.
Michelle Summerfield believes that, “If you’re looking at it from the budgeting perspective,
I know myself, personally, I prefer to use credit cards because it’s just an easier way for me to
track my spending.”
Canadians, especially millennials, agree:
• 54 per cent of Canadians agree that using digital payments makes it easier to budget
monthly expenses (68 per cent of millennials, 47 per cent of those 35-54 and 50 per cent
of those 55+), according to the C1NDX study.
Plus, digital spending offers more integration options, including the tracking and categorization
of receipts. Ted Kritsonis felt that, “All these things can integrate together so that whether you’re
a business user or even if you’re a freelancer, receipts can be more easily organized if they’re
digital.”
According to the C1NDX experts, the convenience of going cashless certainly factors into why
consumers are changing their behaviours and welcoming new entrants with open arms.
TRUST, TRENDS AND THE FUTURE
OF CANADIANS’ SPENDING.
The sharing economy has created an online world without borders and boundaries. And in the
wake of sharing products and services, consumers have redefined trust – from trusting online
reviews, to trusting strangers halfway around the world to provide them with a place to sleep, to
trusting the brands that are ultimately facilitating all of these transactions.
Ultimately, this trust has to be shared and felt by consumers. When considering whether or not
to try a product or service for the first time:
• Millennials are increasingly relying on ratings (51 per cent, versus 41 per cent of those
35-54 and 28 per cent of those 55+), placing more trust in a real-time rating by someone
who has recently used a product or service, than the established reputation of a company,
according to the C1NDX study.
To survive and thrive moving forward,
companies have to monetize these behaviours.
Mark Richardson sums it up well: “If there’s no
trust then there’s no transaction.”
For companies to compete in the sharing
economy, user experience will be more critical
than ever, moving beyond a purely transactional
relationship to one that’s more like an interaction
with a trusted friend – or one that provides a
transparent rating system.
• Canadians are more likely to make a purchase from a brand that enables a rating system
by customers (52 per cent). This represents 63 per cent of millennials, 47 per cent of those
35-54 and 48 per cent of those 55+, according to the C1NDX study.
To survive and thrive moving forward, companies have to monetize these behaviours. Mark Richardson
sums it up well: “If there’s no trust then there’s no transaction.”
The biggest takeaways from the C1NDX experts, Capital One’s aggregated data and the consumer
insights study are:
• Experience Trumps Ownership – Canadians’ values are shifting, particularly for millennials.
New, exciting experiences are becoming the new status symbol, and something that
Canadians spend their money on in place of luxury goods.
• Unique Experiences – Users of the sharing economy don’t want a cookie-cutter experience.
They want real connections and off-the-beaten-path finds – and they’re willing to find more
money to spend on enabling those experiences.
• A
We-Based Culture – There’s social currency in knowing about the newest products,
services and experiences. Consumers trust their family and friends on social media, but
they also trust the advice of strangers. Why? That’s because they want to feel like they’re
part of a community, and this community is encouraging consumers to try out new
products and services.
• Cashless Convenience and the User Experience – Automatic payments and cashless
transactions are the new paradigm of convenience for time-strapped consumers.
Companies will win over these tech-savvy consumers and gain them as customers by
creating seamless user experiences, while enabling not just great products but easy
ways to make payments.
• Trust – The rise of social media means that people are sharing more experiences and
opinions online than ever before. Companies
need to empathize with consumers and facilitate
“I would encourage [businesses] not to panic
on trends until they know whether they’re part of better and more transparent rating systems, or
there will be no transactions.
a demographic [shift] or there’s something more
profound at an economic level.”
– Joshua S. Gans
The data collected by Capital One suggests
that businesses which really listen to their
customers through online rating systems will
foster a deeper level of credibility and will
therefore generate trust – not to mention transactions. Spending patterns will continue to evolve
in the sharing economy, especially as more consumers adopt digital wallets and the population
of millennials evolves.
The speed at which digital is transforming the way we interact and consume may lead some
businesses to react in order to stay ahead of the curve, but the C1NDX experts advise caution.
“I would encourage [businesses] not to panic on trends until they know whether they’re part of a
demographic [shift] or there’s something more profound at an economic level.” – Joshua S. Gans
Companies need to stay current and be aware of consumer trends, and then see how those
trends play into their overall strategy in terms of what they’re trying to achieve as a business. As
Jay Acharya put it, “It’s understanding the context around why you’re doing it, and digital as a
means to an end that’s ultimately for the sake of the customer.”
© 2015 Capital One Bank (Canada Branch). Capital One is a registered trademark of Capital One Financial Corporation. All trademarks
used herein are owned by the respective entities. All rights reserved.