Can establishing contact with consumers prevent debt accumulation?

Felix Uhl, Marieke Fransen and Claartje ter Hoeven
Posted on April 30, 2019

In January 2019, one of the winning teams of the TFI Short-Term Research Grant started working on their project. Felix Uhl (De Gedragsstudio), Marieke Fransen and Claartje ter Hoeven (both from the Amsterdam School of Communication Research, University of Amsterdam) decided that their first step was to trace out the current landscape of financial hardship in the Netherlands, before moving on to their actual experiment.

The facts and figures do indeed prove that it’s high time for action: we need an effective way to prevent debt accumulation, because the problem is growing. In the Netherlands, over 700,000 households are now struggling with problematic debt, directly affecting 1 in 10 Dutch children (SCP, 2017). The average debt (42,100 euros in 2017) was spread over an average of thirteen different creditors (NVVK, 2017).

From bad to worse

Interestingly, only one third of the total debt is the actual claim, the rest of the sum consisting of collection costs and fines. There’s a lot to gain here, especially when realizing that even more households are living in the danger zone: 800,000 of them run a substantial risk of getting into problematic debt (Dutch Government, 2018). Divorce, health-related incapacity for work, job loss and other life events contribute to the risk of running into financial problems (NIBUD, 2018). Major life events lead to major financial challenges, one of being resource depletion (Mani, Mullainathan, Shafir, & Zhao, 2013). Some people start ignoring their financial situation, which may lead to additional collection costs and fines. The researchers strongly believe that this accumulation of debts is unnecessary. Early detection and management of debts can – and should – contribute to reducing serious debt problems. A lot of financial suffering can be prevented if clients proactively contact their creditors, asking for help with managing their debts.

More and more primary creditors consider the debt problem to be something they are also responsible for. The Creditors’ Coalition (‘Schuldeiserscoalitie’ in Dutch), a group of several large Dutch creditors (telecom, (health) insurance, energy, housing), is well on its way of helping clients to prevent debt accumulation. To ensure that customers do not run into financial problems unnecessarily, they drew up an ethical manifesto consisting of 10 lines (, describing how to deal with customers.

“We hypothesize that customers facing a life event will be more likely to contact their creditors if explicitly asked to do so in a text message.”

Getting in touch through text message

A promising way to prevent financial problems is getting in touch with customers facing a life-event and their creditors in the early stages (NVVK, 2018) – before the total sum accumulates, and things go from bad to worse. The study focuses on loyal customers who experience a sudden change in payment behaviour. Their history shows they previously paid their bills on time, but now they’re lagging behind. What’s going on? By tracking these deviations, the research team aims to identify customers who might be facing a life event.

With a targeted and personalized mobile text message (SMS), people in trouble can be motivated to get in touch with their creditors. Previous research showed that contact through SMS can effectively influence behavioural outcomes (Fjeltsoe, Marshall, & Miller, 2009). Van der Werf and Schonewille (2017) found that people with debt problems were more likely to show up for their appointment with the credit bank if they received a text message (as opposed to debtors who did not receive a message).

The advantage of text messaging is that it can target a specific group of customers, and that it allows for instant delivery with asynchronous receipt (people who receive the text message can decide when they want to read it). Behavioural targeting is often used in online marketing. When used in the right way it can lead to significantly more clicks and purchases (Boerman, Kruikemeier & Zuiderveen Borgesius, 2017). Interestingly, companies currently own various types of customer data (from payment history, name and debts). Also, technological developments have made it possible to connect different data, which suddenly makes behavioural targeting a viable option as a way to help consumers manage their debts.

Uhl and his team propose that customers facing a life event will be more motivated to contact their creditors if explicitly asked to do so in a text message. Such a campaign would be much more effective than sending out automated messages urging customers to pay their bills, and even threatening them with extra costs if they do not comply.

Making things personal

Another strategy to motivate people to take action is personalization, by adding personal information to a message (like a name). In 2013, the Behavioural Insights Team in the UK tested the effectiveness of mobile phone text messaging as an alternative method of stimulating people to pay their outstanding fines. They found that text messaging significantly increases the average payment of fines, and that it’s even more effective when personalized (Haynes et al., 2013). Although research is not yet conclusive on the effectiveness of personalization (e.g., Dijkstra 2013; Maslowska, van den Putte, & Smit, 2011), the team expects that a personalized text message will elicit more contact than a non-personalized text message.

The first data sets have now arrived, and the team is busy analysing, untangling and interpreting. We at TFI can’t wait to hear about the outcome of this promising study.