Question: Many financial service providers are forced to make tradeoffs between incentivizing their members to stay engaged, and ensuring their own institutional sustainability. What can be done to nudge greater engagement among credit union members without undermining institutional sustainability?
Hypothesis: Contracts are a strong pre-commitment device, creating pressure to behave later in the manner you originally stated you would. Reciprocal contracts further highlight the exchange value between the customer and the provider, adding additional social pressure. Thus, we predicted that a reciprocal contract would result in an increase in participant transactions.
Experiment: Members of the Latina Community Credit Union were randomly assigned to either a control group or the treatment group, in which members signed an informal reciprocal contract outlining membership responsibilities (and were given a magnet to take home). After two months, we measured the number of participant transactions in each condition by looking at their bank records.
Results: Overall, the people who received a contract had approximately 70% more transactions in August and September than those who did not. And, when we exclude “high-users,” that difference jumps to 75%.
Application: Reciprocal contracts are a good way to create both social pressure and commitment to an action. While this study demonstrated that it is effective in the context of a credit union, it can also be applied to many other business-customer relationships. In any situation where membership and repeated transactions are the goal (rather than one time customers), a reciprocal contract may increase engagement without incurring financial costs or undermining institutional sustainability.