For Toss's lending service, how should we weigh the potential for higher revenue against the risk of increased default rates when considering looser approval criteria?

Introduction

For Toss's lending service, we're facing a critical trade-off between potential revenue growth and increased default risk by considering looser approval criteria. This decision impacts our financial performance, user base, and long-term sustainability. I'll analyze this trade-off through multiple lenses, considering both short-term gains and long-term implications.

Step 1

Clarifying Questions (3 minutes)

• Business Context: I'm thinking our current approval criteria might be too conservative. Could you share our current approval rate and how it compares to industry standards?

Why it matters: Helps benchmark our current position and potential for growth Expected answer: Approval rate is below industry average Impact on approach: Would justify exploring looser criteria if significantly below average

• User Impact: Based on our user data, I'm assuming we have a segment of near-miss applicants. Can you provide insights on the size and characteristics of this group?

Why it matters: Identifies potential untapped market and risk profile Expected answer: Significant group of users just below current threshold Impact on approach: Would inform targeted loosening of criteria for specific segments

• Technical Feasibility: Considering our risk assessment models, I'm curious about our ability to fine-tune approval criteria. How granular can we adjust our approval algorithms?

Why it matters: Determines precision of risk management capabilities Expected answer: High level of granularity possible Impact on approach: Would allow for more nuanced adjustments and targeted risk management

• Resource Allocation: Given the potential impact on our portfolio, I'm thinking this might require additional resources. What's our current capacity for managing an increased loan volume and potential defaults?

Why it matters: Ensures operational readiness for changes Expected answer: Some additional capacity, but may need to scale Impact on approach: Would influence the pace and scale of implementing changes

• Timeline and Urgency: Considering market conditions, I'm wondering about the urgency of this decision. Are there any upcoming regulatory changes or competitive moves we need to account for?

Why it matters: Helps prioritize and pace the implementation Expected answer: Some pressure from competitors, no immediate regulatory changes Impact on approach: Would balance speed of implementation with thorough risk assessment