Behavioral Concepts

There are many concepts from multiple disciplines that come into play when designing a communication strategy for your collections. Namely, these are concepts from Behavioural Economics, Basic Human Psychology and Communication Sciences. Below, we listed the most relevant ones. Additionally, we included further resources to dive deeper into this domain.

In case you would like to discuss certain concepts in detail feel free to reach out at any time.

Concept	Description	Example / Applicability
Social Proof	People tend to copy the actions of others. This can be used to nudge them into repayment.	"Almost everybody pays on time""9 out of 10 people pay on time"
Loss Aversion	Humans care much more about potential losses than they care about potential gains. Decisions are never truly based on the expected value. This can be used when communicating with your customers.	"Don't loose the opportunity to resolve this without further (any) fees."
Reciprocity	This is one the most fundamental principles of human collaboration and can be used in debt collection. If people have the feeling that they were given something out of generosity, they are much more likely to react accordingly and give something back.	"At this stage, most other banks would have added late fees. We didn't. We believe in finding a solution together. Please do not misuse this. Let's talk!"
Anchoring	Anchoring is one of the most well known concepts in negotiation theory. You can for example use it to put the potential late stage amount due including late fees into relation to what is currently owed.	"Often people let this drag on for a long time which forces them to pay between 200 - 250% of the original amount. Don't let this happen!"
Accusation Audit	This concept stems from Chris Voss in "Never split the difference" and is part of the Negotiation domain. The idea is to anticipate potential customer accusations, formulate them and consequently calm their anger.	"You must think that we are this evil bank that only cares about getting its money back." Could be continued: "This is not true. We value you as our customer and care about you. Let's talk and figure out a solution together."
Homophily	Homophily is the tendency of individuals to associate and bond with similar others. It is known that geographic proximity increases perceived homophily. Customers tend to trust similar others much more and feel a stronger obligation for repayment.	Don’t be anonymous. Use different personas for sending out your communication based on your customer segmentation. For these, use local names & pictures as well as appropriate, if possible for regional dialect adopted, language.
Need for safety and control	The need to exert control or agency in oneʼs life is a recognized psychological need. This concept can be found in slight variations in many different domains. It describes the importance for people to feel in control and not be forced into certain decisions. Self service channels are just the first step to address this need.  There are studies that show that violating a customerʼs need for agency can trigger counterproductive reactions, which psychologists call “reactance.” A customer might refuse to pay simply to assert control.	Mention the possibilities to choose between different options when sending out communication. On your Landing Page, let them choose between different payment providers. Additionally, give your customers the option to request a payment plan or let them talk to you.
Opt in vs. Opt out	This concept is part of designing the choice architecture in order to unconsciously alter people’s behaviour. Use default options (opt-in) to influence decision making behaviour.	Opt-in for preferred Payment Methods or for Payment Plan requests
Incentivisation	Use incentives to encourage payment. Only give out the reward if payments are received on time. If possible, let people choose from different options to address their sense of agency. Additionally, the incentive activates loss aversion. The selection of offered incentives can be optimized for relevance based on customer profiles, while the value of the reward can be adjusted based on the loan value at risk. Talk to us to see how this can be done.	McKinsey researchers recently tested  innovative ideas and found out that the test group responded most favorably to the concept of an app offering customers a choice of rewards, each worth perhaps $5, at the beginning of a payment cycle. An e-voucher for the chosen reward, visible in the app, is activated when payment is received on time; it disappears when the payment is missed (see article by McKinsey below for further information).
Decoy option	Another tool to design the choice architecture. The decoy effect increases an option’s attractiveness by presenting the option alongside an unattractive option no one would reasonably choose—the decoy	Can be used when trying to guide users towards certain payment methods. Also possible as part of incentivisation.

Further Resources:

Type	Ressource	Comment
Book	Thinking Fast and Slow - Daniel Kahnemann	Most recognized work in this domain. Kahneman is known as the founding father of Behavioural Economics
Book	Nudge - Richard H. Thaler, Cass R. Sunstein	Thaler is especially well known for bringing up the concept of Nudges as part of shaping the choice architecture
Article	Behavioral insights and innovative treatments in collections	Very helpful article by McKinsey highlighting the use of several concepts in collections
Scientific Paper	Increasing Public Debt Collection with Nudging: results of two field experiments	Validating the use of simple nudges to achieve significant increase of tax collection
Scientific Paper	Applying behavioural insights to reduce fraud, error, and debt	Paper with many concrete concepts
Scientific Paper	Nudges Database	Database of Nudges and references to the experiments, can be used as an overview