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School of Business | Department of Finance | Finance | 2014
Thesis number: 13776
Are text message reminders effective in debt collection? Randomized controlled trial in debt collection in Finland
Author: Pekonen, Piia
Title: Are text message reminders effective in debt collection? Randomized controlled trial in debt collection in Finland
Year: 2014  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; luotto; credit; maksuhäiriöt; late payments; mobiilitekniikka; mobile technology; viestintä; communication; palvelut; service
Pages: 97
Key terms: debt collection; randomized controlled trial; RCT

Indebtedness of households has been increasing rapidly in both Finland and other Western economies in the last few years, which is also reflected by the increase in payment defaults. Some debtors are truly unable to repay but repayment also depends on the effectiveness of debt collection. This paper examines what kind of an impact debt collection practice has on debt repayment. Modern technology provides new, cost-efficient alternatives for traditional payment demand letters and phone calls, and this paper studies whether a text message reminder is effective in debt collection. Delinquent payments of debt are commonly pursued by private collection agencies, and as there is no detailed, publicly available data, prior empirical literature on the topic is rare. This paper examines the debt repayment behavior of consumers and can thus shed light on the indicators of consumer debt repayment and the relevance of SMS reminders in debt collection.


In this study, I assess the impact of text message reminders on debt repayment by conducting a randomized controlled trial (RCT). The use of RCTs has increased in economics and finance in the recent years, and this study therefore belongs to the cohort of prior field experiments. The trial is executed in cooperation with a Nordic debt collection agency, and 11,949 SMS reminders are fully randomized to a group of debtors. Additionally, a control group of the same size, receiving no reminder, is required. Thereafter, the debt repayment behavior of both groups is analyzed using statistical methods to examine the impact of reminders.


The results indicate that text message reminders have a positive impact on debt repayment. The rate of debts repaid at least partially is 14.6 percent in the treatment group and 10.9 percent in the control group. The difference, 3.7 percentage points, appears statistically significant. The marginal effect of a reminder on debt repayment in general equals to 34.3 percent and on full debt repayment 40.9 percent. Based on this study, SMS reminders also have a positive impact on inbound calls and payment plans made in the online service. Generally, the reminder does not have significantly different effects on various subgroups of debtors, but some results indicate that the reminders could have a larger impact persons who recently have not suffered from payment difficulties than on persons with recent evidence of payment difficulties.
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