Carrots or sticks in debt collection services? A voice metrics and text analysis of debt collection calls

Purpose Although phone calls are widely used by debt collection services to persuade delinquent customers to repay, few financial services studies have analyzed the unstructured voice and text data to investigate how debt collection call strategies drive customers to repay. Moreover, extant research opens the “black box” mainly through psychological theories without hard behavioral data of customers. The purpose of our study is to address this research gap. Design/methodology/approach The authors randomly sampled 3,204 debt collection calls from a large consumer finance company in East Asia. To rule out alternative explanations for the findings, such as consumers' previous experience of being persuaded by debt collectors or repeated calls, the authors selected calls made to delinquent customers who had not been delinquent before and were being called by the company for the first time. The authors transformed the unstructured voice and textual data into structured data through automatic speech recognition (ASR), voice mining, natural language processing (NLP) and machine learning analyses. Findings The findings revealed that (1) both moral appeal (carrot) and social warning (stick) strategies decrease repayment time because they arouse mainly happy emotion and fear emotion, respectively; (2) the legal warning (stick) strategy backfires because of decreasing the happy emotion and triggering the anger emotion, which impedes customers' compliance; and (3) in contrast to traditional wisdom, the combination of carrot and stick fails to decrease the repayment time. Originality/value The findings provide a valuable and systematic understanding of the effect of carrot strategies, stick strategies and the combinations of them on repayment time. This study is among the first to empirically analyze the effectiveness of carrot strategies, stick strategies and their joint strategies on repayment time through unstructured vocal and textual data analysis. What's more, the previous studies open the “black box” through psychological mechanism. The authors firstly elucidate a behavioral mechanism for why consumers behave differently under varying debt collection strategies by utilizing ASR, NLP and vocal emotion analyses.