Should Zilch (Financial Software) prioritize expanding its "Pay in 4" installment offering to more merchants, potentially increasing revenue but also credit risk?

Introduction

The key trade-off for Zilch's "Pay in 4" installment offering expansion is balancing increased revenue potential against heightened credit risk. This scenario involves weighing the benefits of broader merchant adoption against the potential downsides of increased exposure to defaults. I'll analyze this trade-off through multiple lenses, considering business impact, user behavior, technical feasibility, and risk management.

Step 1

Clarifying Questions (3 minutes)

• Based on our current merchant base, I'm thinking we might be targeting specific verticals. Could you share which merchant categories we're currently serving and which new ones we're considering?

Why it matters: Helps assess potential market size and risk profiles Expected answer: Currently in electronics and fashion, considering expansion to travel and home goods Impact on approach: Would influence risk models and merchant onboarding strategies

• Considering our revenue model, I assume we're earning a percentage of each transaction. What's our current take rate, and how might it change with expansion?

Why it matters: Directly impacts revenue projections and merchant value proposition Expected answer: Current take rate is 3-4%, potentially decreasing to 2-3% for larger merchants Impact on approach: Would affect financial modeling and merchant acquisition strategy

• Looking at user behavior, I'm curious about our current default rates. Can you share our default rates across different user segments?

Why it matters: Critical for assessing credit risk and financial health Expected answer: Overall default rate of 2-3%, higher in certain demographics or purchase categories Impact on approach: Would inform credit scoring models and risk mitigation strategies

• Regarding technical feasibility, I'm wondering about our current credit decisioning system. How scalable is our current infrastructure for handling increased transaction volume?

Why it matters: Ensures we can technically support the expansion Expected answer: Current system can handle 2x volume, would need upgrades for 5x+ Impact on approach: Might necessitate technical investments alongside expansion

• Considering resource allocation, how much additional headcount or budget has been earmarked for this expansion?

Why it matters: Determines the scale and speed of potential expansion Expected answer: 20% increase in team size and 15% in operational budget Impact on approach: Would influence rollout strategy and timeline