Using behavioural insights to encourage engagement from clients with arrears

As part of the work of the Housing Repossessions Taskforce, the Department for Communities asked the Behavioural Insights Team to develop and test a range of behavioural interventions to increase customer contact and engagement. The aim of the research was to test the potential for applying behavioural insights to correspondence with customers as a way to increase the likelihood of their subsequent engagement. To this end they conducted a series of randomised control trials (RCT), widely held to be the ‘gold standard’ in research in collaboration with two lenders.

The objective of the research was to increase the rate of successful contact between banks and customers entering or already in arrears. Successful contact includes inbound contact from the customer, and outbound contact from the bank being answered. Of secondary importance, payment behaviour was also monitored to ensure it did not reduce as a consequence of the correspondence, though increasing payments was not a focus of the interventions.

Two trials were undertaken with Lender 1 (one with long-term arrears customers, and one with customers as they entered arrears), and one with Lender 2 (also with customers as they entered arrears).

Background to the research – behavioural insights

Much official correspondence is poor at communicating exactly what the recipient should do. To address this, the trial letters put the important actions (i.e. to make contact) in bold and at the top of the letter. Background and supplementary information came after this.

Behavioural research shows that:

• We are more drawn to that which is personalised to us, and tend to ignore more generic correspondence.
• Similarly, we are more sensitive to losses than to equivalent gains. Drawing attention to potential losses (which can be avoided) is therefore often disproportionately motivating.
• We tend to reciprocate kind and unkind acts done to us. By making it clear that the sender of a letter is trying to help, we aim to evoke a more helpful response in return. Similarly, if we make it clear we are making a concession for someone, they may also feel obliged to make a concession, and thus ‘meet us in the middle’.
• We are drawn to that which is novel and salient. This is relevant as one of the main barriers to overcome is customers’ tendency not to open mail from their bank (particularly those who are facing stressful money problems).
• We are greatly influenced by what other people do. Simply telling people that most other people in their situation do the right thing, can influence a customer’s actions.

Measuring the impact of behaviourally informed communications

Details of the trials and their response rates are available in the full report. The BIT felt that this research demonstrated that behaviuoral insights can be used to improve correspondence between borrowers and customers facing arrears. The findings showed a statistically significant increase in successful contact rates, and while no positive impact on payment rates was measured, the new style of communication did not negatively impact payment rates. This is neither surprising nor disappointing, since the purpose of the letters was to elicit contact rather than payments. However it is also reassuring, as it was important to demonstrate that the intervention does not reduce payments. This was a risk given the relatively soft and approachable tone the letters took.

Recommendations for communications

The report makes a number of recommendations for how lenders should communicate with borrowers, lessons that can equally be applied to any other sector where customers or clients are hard to reach or have a history of disengagement. BIT recommend that communications:

• are clear; simple, brief and jargon free
• are direct; with any required actions clearly stated upfront and in bold
• are approachable; appearing helpful and reassuring can elicit contact from those prone to burying their heads in the sand or lacking the ability to deal with problematic correspondence or that perceived to be threatening
• evoke reciprocity; if the sender expresses a clear desire to try to help the recipient or shows how they have already gone above and beyond to assist, the customer is more likely to do what is being asked
• harness social norms; people are heavily influenced by their perception of what most others do, so statements like "The majority of customers who miss payments find that speaking to us really helps" can have a real impact on engagement
• are salient; people with a history of disengagement may not open official correspondence, but making the letter appear more salient, by handwriting a coloured envelope, for example, may increase the chances of the content being read
• are personalised; a simple change, like addressing the recipient by name rather than using a generic "Sir/Madam" salutation can have a marked effect
• use loss aversion; highlight any potential losses which can be avoided by making contact, (e.g. This will incur a £53 fee if the issue is not resolved before your next payment is due. There is still time to avoid this fee)