What factors are causing the sudden increase in defaults for Home Credit's credit card product over the past month?

Introduction

The sudden increase in defaults for Home Credit's credit card product over the past month is a critical issue that demands immediate attention. This analysis will systematically identify, validate, and address the root cause while considering both short-term and long-term implications for the business.

I'll approach this problem by first clarifying key details, ruling out external factors, and then diving deep into product understanding, metric breakdown, and data analysis. From there, I'll form and validate hypotheses, conduct root cause analysis, and propose a comprehensive resolution plan.

Step 1

Clarifying Questions (3 minutes)

• Looking at the timing, I'm thinking there might be a recent change in credit approval criteria. Has there been any adjustment to our underwriting process in the last 2-3 months?

Why it matters: Changes in approval criteria could lead to a riskier customer base. Expected answer: Yes, we relaxed some criteria to increase approval rates. Impact on approach: If confirmed, we'd focus on re-evaluating the new criteria.

• Considering user segments, I'm curious about the default distribution. Are we seeing this increase across all customer segments or is it concentrated in specific groups?

Why it matters: Helps identify if it's a systemic issue or limited to certain user types. Expected answer: The increase is more pronounced in the 25-35 age group. Impact on approach: We'd investigate factors specific to this demographic.

• Given the sudden nature, I'm wondering about external economic factors. Have there been any significant economic events or policy changes in our key markets recently?

Why it matters: External factors could explain the sudden shift in default rates. Expected answer: No major economic shifts, but there's been increased inflation. Impact on approach: We'd consider how inflation might be affecting repayment ability.

• Thinking about our systems, I'm concerned about potential technical issues. Have we confirmed that our default detection and reporting systems are functioning correctly?

Why it matters: Ensures we're not dealing with a data anomaly rather than a real increase. Expected answer: Systems have been checked and are working correctly. Impact on approach: We'd focus on actual default causes rather than system issues.