How can Tabby balance offering longer repayment terms to increase user adoption while managing potential credit risks?

Introduction

Balancing longer repayment terms to increase user adoption while managing credit risks is a critical trade-off for Tabby's growth and sustainability. This scenario involves weighing the benefits of improved user acquisition and retention against the potential for increased default rates and financial exposure. I'll analyze this trade-off through multiple lenses, considering user behavior, financial implications, and long-term business strategy.

Step 1

Clarifying Questions (3 minutes)

• Context: I'm thinking about Tabby's current market position. Could you share more about our current repayment terms and how they compare to competitors?

Why it matters: Helps understand the competitive landscape and potential differentiation. Expected answer: Our terms are shorter than some competitors but more flexible than traditional credit. Impact on approach: Longer terms might be a competitive advantage if managed well.

• Business Context: Based on our revenue model, I assume we earn from merchant fees and late payment charges. Is this correct, and are there other significant revenue streams?

Why it matters: Clarifies how changing repayment terms might affect our business model. Expected answer: Confirmation of revenue streams, possibly including interest on longer-term loans. Impact on approach: Might need to balance increased revenue from longer terms against potential losses.

• User Impact: I'm curious about our user segments. Do we have data on which user groups are most likely to opt for longer repayment terms?

Why it matters: Helps target the right users and understand potential adoption rates. Expected answer: Younger users or those making larger purchases tend to prefer longer terms. Impact on approach: Could inform targeted rollout and risk assessment strategies.

• Technical: Considering our current risk assessment model, how easily can it be adapted for longer repayment periods?

Why it matters: Determines the feasibility and timeline for implementing changes. Expected answer: Some adjustments needed, but core model is adaptable. Impact on approach: Might influence the pace of rollout and need for incremental testing.

• Resource: In terms of our team capacity, do we have the necessary resources to monitor and manage a potentially larger loan portfolio?

Why it matters: Ensures we can effectively handle increased operational demands. Expected answer: Some scaling needed, but core team in place. Impact on approach: Might need to factor in hiring or training costs in the decision.