Can Social Notifications Help to Mitigate Payment Delinquency in Online Peer-to-Peer Lending?

Abstract

Payment management is an operations management challenge in online peer-to-peer lending. It is critical to control the cost of debt collection incurred in late repayments and defaults. We study whether and how a platform can leverage on borrowers’ social connections and use automatic social notifications in regulating repayment behavior. In collaboration with a large online P2P lending platform, we conduct a randomized field experiment to investigate the effect of social notifications targeted at different contact groups (core-circle and peripheral-circle groups). Our results indicate that notifying social contacts of a delinquent regarding the overdue payment significantly improves the repayment rate. Compared with the control group in which no notification messages are sent to social contacts, notification-triggered social sanctions and social support reduce the default rate by more than 50% in both core-circle and peripheral-circle groups. Furthermore, we find that social notifications targeted at peripheral-circle social contacts are only effective in the short term, and its effectiveness decreases with repeated use. By contrast, social notifications targeted at core-circle social contacts have a lasting effect.