Guiding customers to better repayment decisions leads to better cure rates
In this blog, we discuss the context for leveraging behavioral science to encourage past-due customers to pay their debts.
How stress and uncertainty impact decision-making in debt
Stress and uncertainty can impair decision-making in debt repayment. Nowadays, consumers across North America are living in uncertain times that are leaving them exhausted and overwhelmed.
From disruptions to the status quo (the context that influences decisions) to literal disruptions as they’re bombarded with notifications and information overload, consumers are struggling. In this mindset, making even simple everyday choices can be challenging. More significant decisions can feel impossible.
Symend’s research illustrates this current burden of decision-making and its impact on consumer behavior. The weight that people feel as they navigate both big and small decisions can be seen in these responses:
- 66% find financial decisions hard due to economic uncertainty.
- 33% are fearful of making the wrong decision.
- 46% procrastinate or delay making decisions because they’re overwhelmed.
- 27% make impulsive decisions.
- 63% who are behind on their bills often ignore service provider messages.
These statistics also highlight a potentially serious threat to relationships between service providers and their customers. But given that each customer experiences a unique set of challenges, how can you ease their decision-making burden and help them take repayment action in a way that takes their individual circumstances into account?
The first step is to engage with them successfully. After all, if you can’t reach them, you can’t help them. Next, start reshaping your relationship with them by demonstrating empathy for their circumstances.
Fortunately, we can use behavioral science—or the study of decision-making—to achieve both these objectives. By leveraging behavioral science, we can put a deep-rooted understanding of the how and why of decision-making in debt repayment at the heart of every customer interaction. This understanding facilitates empathetic engagement that adapts to individual needs and leads to improved debt recovery efforts.
Context, challenges and barriers: the vicious cycle
Our research highlights how customer exhaustion, uncertainty and overwhelm —particularly amidst the current economic turmoil—form and fuel a vicious cycle of barriers to engagement, positive decision-making, and repayment action. Consider this:
- Excessive time on digital devices creates digital fatigue, leaving customers feeling exhausted and operating from a state of reduced mental bandwidth before a single decision is even contemplated.
- The combined burden of multiple decisions creates further cognitive overload—or decision fatigue. This leads to a range of behaviors from impulsivity to avoidance, which often prompts further digital communications from service providers.
- Finally, factor in a scarcity mindset: a real or perceived lack of resources like time or money. Whether that scarcity is real (I lost my job) or perceived (I’m going to lose my job), it immediately impacts decision-making. A long-term sense of scarcity leads to ongoing fatigue and a declining ability to effectively make decisions.
Customers often feel like they have insufficient time, money, or bandwidth to choose positive courses of action when making decisions about repaying debts. This mental overload is amplified by insecurities about their financial future, which leads to greater uncertainty about any decisions in front of them. This cycle is not only vicious—but also self-sustaining.
The root of the problem: the intention-action gap
Solving a problem is a lot easier when you know its cause, and so it’s worth taking a quick look at why customers make suboptimal decisions about paying past-due bills.
People inherently want to act in their own best interests—these are their intentions. However, there are often barriers and challenges that get in the way of their ability to act on these intentions. The difference between what they want to do and their actual actions (or lack thereof) is known as the intention-action gap.
The avoidance or disengagement behaviors referenced above illustrate the gap between a customer’s actions (e.g. avoidance) and their intentions (e.g. staying on top of their finances).
While the barriers to effective decision-making remain, so does the intention-action gap. This isn’t abstract theory; it’s happening right now—potentially to your customers. Take a look at a couple of key findings from our research:
- 42% of customers delay responding to service provider messages because they feel unequipped to make a decision.
- 60% feel overwhelmed and anxious when they receive messages from service providers.
If service providers want to help their past-due customers make better, more effective decisions, they need to understand this volatile, stressed customer mindset and engage appropriately.
Advanced tactics to support better customer decision-making
The four key tactics outlined below demonstrate how we use behavioral science to facilitate decision-making in debt repayment:
- Empathy: Establish that you understand the customer and are there to support them. This is crucial when the customer is carrying a substantial cognitive load.
- Education: Clearly highlight the most immediate action the customer needs to take. This helps focus their energy on that specific decision and counteracts the feeling of being overwhelmed by clarifying the first step.
- Reciprocity: Build brand trust by showing you’re partnered with the customer in this process. An offer of support—i.e. we’ve got your back—reduces the sense of uncertainty and exhaustion when making a decision about paying a past-due bill.
- Goal gradient: Create quick wins along the way that provide relief from feeling exhausted and overwhelmed.
The following example illustrates how to use advanced strategies to guide your customers to better decisions. It’s empathetic, low pressure, and easy to follow, and it speaks to partnership and a win-win situation.
But it’s also just a snapshot; the tip of the behavioral science iceberg.
The true power of this approach is that we can tailor messaging to the needs and complexities of the individual customer.
For best results and to increase cure rates, ensure the decision-making process is always as simple as possible. If you need information from the customer or if you’re asking them to take a specific action, make the instructions easy to follow.
To simplify the decision-making process in debt repayment, consider the following strategies:
- Offer a phased approach: Divide information over multiple messages or break down a multi-step decision-making process into the individual steps.
- Reduce the amount of information that a customer has to process at one time.
- Keep pressure or urgency to the minimum level necessary for each interaction.
Encourage positive decision-making in debt repayment
The importance of building brand trust can’t be overstated. Once a customer has made the decision to take a desired action (e.g. make a payment or request an extension), you, the service provider, need to be there for them. This might seem like relationship building 101—but consistently demonstrating you’ve got your customers’ backs whenever they need you is key to building close, lasting relationships.
With the right technology, you can harness behavioral tactics like the ones we’ve discussed here at scale and foster positive debt repayment behaviors. This paves the way to positive decision-making across your entire customer base while building loyalty and achieving genuine win-win outcomes.
Interested in learning more? Read Advanced strategies for more effective debt collection I.
