The Human Touch in a FinTech World – Personal Communication and Loan Repayment
Authors: Christine Laudenbach (Goethe University), Jenny Pirschel (University of Mannheim), Stephan Siegel (Foster School of Business)
Title: The Human Touch in a FinTech World – Personal Communication and Loan Repayment
Abstract: We examine the effect of personal, two-way communication on the behavior of borrowers who have fallen behind on their consumer loan payments for the first time. While the lender has informed all borrowers about the delinquency through an automatically generated letter, some borrowers also receive a phone call from a randomly assigned bank agent. We find that borrowers, who speak with a bank agent typically for only a few minutes, are significantly more likely to make timely payments and significantly less likely to default. The effect of the call is persistent; even after resolving the initial delinquency, borrowers, who receive a call, are significantly less likely to become delinquent again. Importantly, personal aspects of the call, as captured, for example, by the likeability of the agent’s voice, significantly affect payment behavior, while the surprise element of the call does not. Our results suggest that the form of communication, at least in the context of existing financial obligations, has significant influence on borrowers’ payment behavior.