EMDC presents a case for Honor-based payment systems

Emerging Markets Development Club is about solving difficult problems using unique business thinking. Often we've found that we fail to solve systemic problems because we are using the same old tools. Perhaps it is time to invert our thinking.
  • Grameen Bank made money by lending money to people no other bank would trust.
  • Warren Buffet made billions by trusting good managers instead of trying to manage bad ones.
  • Dominoes turned around a failing pizza business by telling their customers how they failed, instead of convincing them that they succeeded.

Which business conventions are we holding on to? Are we unwilling to be different?

If you drive through the agrarian heartland of America, you'll find untold farm stands set up along the road. Usually they aren't staffed and the sign is simple. "Take what you want; Pay what you owe". The businesses run on the honor system, and surprisingly they manage to make money.

A bakery in Ontario switched to the honor system and actually saw profits increase. They simplified their pricing to make payment easier and customers appreciate the sense of trust they are given. While people do occasionally still shirk on payments, the good apples generally outperform the bad. So could an honor based system really work in the mainstream? How may good apples are there?

In 2010, Honest Tea wanted to find out how honest their customers were. They set up unmanned stands in 8 cities and found that 89% of their customers paid for their beverages. In 2011 they went to 12 more cities and found that 94% of people paid their share. In 2012 they set up the Honesty Index and went to 35 cities. Across the board they found that 93% of people were honest. However, sometimes the bad apples were really bad. 

Ironically, the day of the survey, Seth Goldman (founder of Honest Tea) had his bike stolen while he was conducting interviews in downtown Bethesda. Even though 91% of residents in Bethesda had been identified as honest, one really bad apple had made off with Seth's sweet ride.

Check out the infographic below for some of Honest Tea's findings:

Can HONESTY work at Darden?

We pride ourselves on being a community of honor, so perhaps this is our chance to prove it. This coming week you will learn about how EMDC is promoting honor at Darden. Stay tuned and check out the results of our little social experiment!

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