For Moniepoint's business lending product, should we offer lower interest rates to attract more borrowers or maintain higher rates to ensure profitability and risk management?

Introduction

The trade-off we're examining today is whether Moniepoint's business lending product should offer lower interest rates to attract more borrowers or maintain higher rates for profitability and risk management. This decision is crucial as it directly impacts our customer acquisition, revenue model, and overall business sustainability.

In my analysis, I'll cover key aspects including product understanding, stakeholder impacts, metrics, experimentation, and decision frameworks. My goal is to provide a comprehensive strategy that balances growth with financial stability.

Step 1

Clarifying Questions (3 minutes)

• Based on the competitive landscape, I'm thinking our current rates might be significantly higher than market average. Could you give me an idea of how our rates compare to our main competitors?

Why it matters: Helps understand our positioning and potential for rate adjustment Expected answer: Our rates are 20-30% higher than average Impact on approach: If true, suggests more room for rate reduction without compromising profitability

• Considering our business model, I assume we're balancing growth with risk management. What's our current default rate, and how does it compare to industry standards?

Why it matters: Indicates our risk tolerance and the quality of our underwriting process Expected answer: Default rate is slightly below industry average Impact on approach: Lower default rate might allow for more aggressive pricing strategy

• Looking at user behavior, I'm curious about our current conversion rate from loan application to approval. Can you share that percentage?

Why it matters: Helps identify if rate is the primary barrier to conversion Expected answer: Conversion rate around 40-50% Impact on approach: Low conversion rate might indicate other factors beyond interest rate affecting borrower decisions

• Regarding our tech stack, I'm wondering about our ability to implement dynamic pricing. How flexible is our current system in terms of offering personalized rates?

Why it matters: Determines feasibility of more nuanced pricing strategies Expected answer: System can handle basic segmentation but not real-time personalization Impact on approach: Might limit short-term options but could be a future enhancement

• Considering resource allocation, what's our current capacity for handling an increase in loan applications and approvals?

Why it matters: Ensures we can operationally support a potential influx of borrowers Expected answer: Current capacity could handle 30-40% increase Impact on approach: Might need to factor in operational scaling costs if we expect significant growth