From analysis to (telephone) application
There is a lot of fine print in the world, and few people except consumer protection lawyers care to read most of it. From terms of service that must be signed before downloading a phone update to disclaimers required for renting a car, customers sign many contracts with little attention to detail.
One of the results is that customers who think they’ve signed up for a one-time purchase often find out later that they’ve committed to making small, ongoing payments for services they don’t use. For David Webb ’17, this kind of auto-renewal provision in contracts is a problem, but also an investment opportunity.
Last summer, an acquaintance approached Webb with the option of investing in an app that could analyze users’ financial accounts to find out about auto-renewal fees that customers might not know they had accepted. The app, called Hiatus, launched in 2015, but the developers wanted to expand its offerings to include a tool that could also negotiate lower rates and refunds for services that customers wanted to use, but were paying too much for. Dear.
When Webb heard the idea, he was immediately intrigued, having taken several law courses that explained why consumers would benefit from such a service. Webb is a three-time student of Harvard law professor Oren Bar-Gill, who in courses such as consumer contracts and law, economics and psychology explained that consumer contracts – the agreements between sellers of goods and their buyers – are hardly shaped. by laws passed by Congress or statutory provisions of state codes. On the contrary, explained Bar-Gill, these contracts are influenced by market forces and consumer psychology.
According to Bar-Gill, companies understand that people are prone to a kind of short-term myopia that makes it difficult for them to weigh the costs in the long term. This is why it makes economic sense, for example, for credit card companies to offer low interest rates upfront, knowing that consumers will be drawn to the immediate benefits and ignore the long term costs.
Bar-Gill’s class spent time discussing the pitfalls of auto-renewal policies, which create long-term financial inefficiencies for consumers who buy services they don’t then use. Webb said he learned that âconsumers interact in business with limited rationality. They don’t really appreciate all of the contractual implications of what they take out and because of that these automatic renewals make the problem worse. Customers don’t see how expensive it is.
When Webb was approached with the opportunity to become a part-owner of Hiatus, Bar-Gill’s lessons immediately came to mind. According to Webb, some monthly services, such as Netflix, are intentionally purchased by customers who voluntarily pay for the products. But with other providers, such as Ancestry.com or credit rating companies, customers never intended to sign up for a monthly service. In yet other situations, customers have a monthly subscription, such as mobile phone service, which they intend to use, but for which they pay too much for their actual needs.
As Webb explained, Hiatus can help consumers with either issue, first by reporting auto-renewal fees that people don’t notice buried in their credit card statements, and second by negotiating for better contractual terms and better prices for subscriptions that customers actually intend to keep. . The app is free, but Hiatus makes money by charging customers half of what the app helps them save in the first year. According to Webb, Hiatus currently manages up to $ 100 million in annual subscriptions on behalf of approximately 50,000 users. By September 2017, Webb said the app will have helped consumers save up to $ 25 million.
Webb, who came to law school with a mishmash of real-world experience, ranging from his two years as a professional poker player to his temporary stint, before law school, as CEO of the 50-employee family business, said he was happy Hiatus gave him the opportunity to apply the lessons he learned in the classroom to real-world problem solving.
Bar-Gill was also delighted. âLaw school is not like a theoretical mathematics department. We want to influence the real world, âsaid Bar-Gill. “Sometimes we do it through the courts or through discussions and participation with regulators and lawmakers, but I think it often happens through engagement with the market and the private sector.”