Nudging Financial Inclusion with
Reciprocal Contracts
Emory Nelms
The Center for Advanced Hindsight, Duke University
The Common Cents Lab
Using research from the behavioral sciences, we
design and test solutions to increase the financial
wellbeing of low- and middle-income households
across the US
We can think of financial inclusion along a
spectrum
Membership barriers
Non-members
Low engagement
Engagement barriers
Low-touch
members
General membership
High engagement
Many financial service providers must make
tradeoffs between incentivizing engagement and
maintaining institutional sustainability.
• Decreased interest on
deposits
• Increased loan interest
• Increased fees on
existing products
• Increased debit or credit
transactions
• Increased interest on
deposits
Institutional
sustainability
Engagement
incentives
• Marketing
• Fixed cost
investments
What’s the question?
How might we combine contracts and reciprocity to
nudge greater engagement among credit union
members?
Reciprocal contracts build on two larger bodies of
literature showing that:
1. contracts structure behavior
2. reciprocity is one of the strongest motivating social forces.
Reciprocal contracts demonstrate value
Reciprocal contracts highlight an exchange of value between the
customer and the provider.
BE tag: Reciprocity
Reciprocal contracts build on existing processes and do not
significantly changing the customer experience.
BE tag: Friction costs
There is good reason to be wary of friction costs:
• customers treat time as a valuable resource (Becker 1965)
• small inconveniences can have outsized impacts on behavior (Kling et al., 2012)
• reducing delivery time increases satisfaction of clients (Li 1992)
Reciprocal contracts signal expectations
Reciprocal contracts clearly articulate what is expected of the
customer and what it means to be a “member.”
BE tags: Limited attention, loss aversion
Reciprocal contracts communicate how “normal” members act,
signaling to new members that low-engagement is not the norm.
BE tag: Herding
Research Design
• New members at three
branches were randomly
assigned to a treatment and a
control group.
Treatment: sign an informal
contract outlining membership
responsibilities and take a
magnet at home.
Control: business as usual.
• After 2 months, we measured
total transactions by pulling
participant bank records.
Comparing average per-person transactions
Average Transactions
Treatment
Control
August
September
2.1
7.5
1.4
4.6
Total
9.8*
5.7
P=0.0503
Overall, the people who received a contract had about
70% more transactions in August and September than
those who did not.
Larger effect for “low-engagement” members
Average Transactions
Treatment
Control
August
1.6
0.9
September
4.5
2.7
Total
5.96**
3.29
P=0.0032
• However, when we exclude “high-users”, it jumps to 75%
and becomes statistically significant at the p<0.05 level.
• They are also use their debit card ~2x as much
(but not statistically significant).
Takeaways
Using contracts to encourage reciprocity and
communicate behavioral expectations are
potentially an effective way to increase
engagement, especially with low-to-moderate
members.
Behavioral interventions are especially attractive
when they build on existing processes – and
there is a lot of potential to do this with a variety
of paperwork and forms!