What factors are causing the average loan amount for Zopa's personal loans to decrease by 8% quarter-over-quarter?

Introduction

The 8% quarter-over-quarter decrease in Zopa's average personal loan amount is a concerning trend that requires thorough investigation. To address this issue, I'll employ a systematic approach to identify, validate, and resolve the root cause while considering both immediate and long-term implications for Zopa's lending business.

Step 1

Clarifying Questions (3 minutes)

• Looking at the timing, I'm thinking there might be seasonal factors at play. Has this decrease been observed in previous years during the same quarter?

Why it matters: Seasonal patterns could explain cyclical changes in loan amounts. Expected answer: No, this decrease is unusual for this time of year. Impact on approach: If seasonal, we'd focus on year-over-year comparisons; if not, we'd investigate recent changes.

• Considering user segments, I'm wondering if this decrease is uniform across all borrower profiles. Have you noticed any particular customer segments more affected by this trend?

Why it matters: Identifying affected segments could point to specific issues or market shifts. Expected answer: The decrease is more pronounced in the middle-income borrower segment. Impact on approach: We'd focus our analysis on factors affecting this specific segment.

• Thinking about recent changes, has Zopa implemented any new lending policies or risk assessment models in the past quarter?

Why it matters: Internal policy changes could directly impact loan amounts. Expected answer: Yes, we adjusted our risk assessment algorithm last month. Impact on approach: We'd scrutinize the impact of this change on loan approvals and amounts.

• Considering market dynamics, have there been any significant changes in competitor offerings or marketing strategies recently?

Why it matters: Competitive pressures could be influencing borrower behavior. Expected answer: One major competitor launched an aggressive marketing campaign for smaller loans. Impact on approach: We'd analyze our market positioning and product offerings in response to competitive shifts.