How can Afterpay balance offering longer repayment terms to attract more users while managing increased credit risk?

Introduction

Balancing longer repayment terms with increased credit risk is a critical trade-off for Afterpay's growth strategy. This scenario involves weighing user acquisition and retention against financial stability and risk management. I'll analyze this trade-off by examining the product ecosystem, potential impacts, key metrics, and experimental approaches to inform a strategic recommendation.

Step 1

Clarifying Questions (3 minutes)

• Business Context: I'm thinking Afterpay's revenue model relies heavily on merchant fees and late payment fees. Could you confirm if there are any other significant revenue streams we should consider?

Why it matters: Helps understand the financial implications of extending repayment terms. Expected answer: Merchant fees and late fees are primary revenue sources. Impact on approach: Would focus on balancing increased user adoption with potential revenue loss from fewer late fees.

• User Impact: Based on current user behavior, I'm assuming most users prefer shorter repayment terms for smaller purchases. Is this accurate, and do we have data on user preferences for longer terms?

Why it matters: Helps gauge potential user demand and adoption of longer repayment terms. Expected answer: Users generally prefer shorter terms, but there's interest in longer terms for larger purchases. Impact on approach: Would inform segmentation strategy and targeted offering of longer terms.

• Technical Feasibility: I'm thinking our current risk assessment model might need adjustments for longer terms. Can you share any technical limitations or ongoing improvements in our credit risk modeling?

Why it matters: Determines our ability to accurately assess risk for extended repayment periods. Expected answer: Current model works well for short terms, but needs refinement for longer periods. Impact on approach: Would influence the timeline and resources needed for implementing longer terms.

• Resource Allocation: Given the potential impact on our risk profile, I'm assuming this initiative would require significant cross-functional collaboration. Can you outline the teams and resources currently available for this project?

Why it matters: Helps understand the scope and feasibility of implementing changes. Expected answer: Limited resources available, primarily from product and risk teams. Impact on approach: Would shape the scale and phasing of the implementation plan.

• Timeline and Urgency: Considering competitive pressures, I'm thinking this might be a high-priority initiative. Can you share any specific timeline expectations or market factors driving urgency?

Why it matters: Helps prioritize this initiative against other ongoing projects. Expected answer: Moderate urgency due to emerging competitors offering longer terms. Impact on approach: Would influence the balance between thorough testing and speed to market.