Introduction
Balancing loan approval rates and default rates is a critical trade-off for Upstart's personal loan product. This scenario involves weighing the potential for increased revenue against the risk of financial losses and reputational damage. I'll analyze this trade-off by examining key metrics, designing experiments, and proposing a decision framework to guide our strategy.
I'll start by asking clarifying questions, then dive into product understanding, metrics identification, and experiment design. We'll conclude with a data analysis plan and decision framework to guide our approach.
Step 1
Clarifying Questions (3 minutes)
Why it matters: Helps understand the urgency of increasing approval rates Expected answer: Slight decline in market share Impact on approach: Would prioritize aggressive growth strategies if market share is declining
Why it matters: Clarifies the financial impact of increasing approvals Expected answer: Confirmation of revenue streams, possibly including interest income Impact on approach: Would influence the balance between short-term gains and long-term sustainability
Why it matters: Identifies potential areas for improvement without significantly increasing risk Expected answer: Lower approval rates for mid-range credit scores Impact on approach: Would focus on optimizing approval criteria for specific segments
Why it matters: Assesses the reliability of our current risk assessment Expected answer: High accuracy with recent improvements Impact on approach: Would inform the level of confidence in expanding approval criteria
Why it matters: Determines if we can support a substantial increase in loan approvals Expected answer: Some capacity, but may need to scale operations Impact on approach: Would influence the pace and scale of any approval rate increases
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