forthcoming in Journal of Finance

Personal Communication in an Automated World: Evidence from Loan Repayments

We examine the effect of personal, two-way communication on the payment behavior of delin-quent borrowers. We find that borrowers who speak with a randomly assigned bank agent are significantly more likely to successfully resolve the delinquency by a substantial margin relative to borrowers who do not speak with a bank agent. Call characteristics related to the human touch of the call, such as the likeability of the agent's voice, significantly affect payment behavior whereas the surprise element of the call does not. Finally, the effect of personal communication extends beyond the initial delinquency: Borrowers who speak with a bank agent are significantly less likely to become delinquent again. Our findings highlight the value of a human element in interactions between financial institutions and their customers, suggesting that personal communication will continue to play a role despite less costly information transmission being readily available.