This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Nudges—the subtle interventions that encourage people to make beneficial decisions without forcing them into these choices—are a popular marketing tool widely used for a variety of social causes and business purposes. But their effectiveness depends on finding the right combination of context and content, says Siddharth Bhattacharya, an assistant professor of information systems and operations management at the Costello College of Business.
His recently published paper in the Journal of Operations Management focuses on revenue-based lending (RBL), an emerging financing option whereby repayments to investors come as a percentage of future revenue. It studies how a real-life peer-to-peer RBL platform based in South Korea improved both investor engagement and borrower outcomes through the strategic use of nudges. The paper was coauthored by Sunghun Chung from George Washington University, Chul Ho Lee from Korea Advanced Institute of Science and Technology and Subodha Kumar from Temple University.
The RBL platform that participated in this randomized controlled trial had over 25,000 registered investors who had lent $210 million to more than 6,000 businesses as of January 2022. "The platform caters to SMEs and small businesses looking for funds, which involves a certain amount of risk for the investor. RBL adds an extra element of risk, because the investor returns are directly based on the investee's financial performance," Bhattacharya says.
Over an eight-week period (Nov. 2021–Jan. 2022), the platform sent different nudging messages designed by the researchers to investors who had previously opted into SMS marketing messages. The experiment involved four text-message variants (i.e., nudges) in total, designed to push very different psychological buttons. The researchers compared these with a plain message and a holdout group that received no message.
One appealed to altruism, reminding investors that their loans would be a "big help for many people." Another leaned on competition, encouraging recipients to "beat 80% of Korean adults" in making wise investment decisions. The other two nudges were more about encouraging investors to follow through on their intentions, stressing ease and convenience ("With just a few clicks, you can invest") and precommitment ("Achieve your financial goal over the next five years"). Mainly, the researchers evaluated the relative performance of nudges in terms of their impact on the borrower.
But because RBL ties investor returns to borrower revenue, it was really about what benefited both players in this two-sided economy. "We were measuring whether these nudges made the system more resilient to short-term pitfalls like liquidity loss, etc.," states Bhattacharya. Bhattacharya and his coauthors found that the altruism- and competition-based nudges had negligible impact, producing roughly the same outcomes as plain messages.
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