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2

How would you launch a no branch credit card company in an emerging economy?

  • How would you use innovation to drive the product?
  • How will you mitigate credit risk considering a major population has no access to credit.
  • Give a detailed explanation of the operational challenges and how you'll reduce the expenses.

Got asked this question recently.

  • How would you use innovation to drive the product?
  • How will you mitigate credit risk considering a major population has no access to credit.
  • Give a detailed explanation of the operational challenges and how you'll reduce the expenses.

Got asked this question recently.

2 answers

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I think Federico's answer sums it up pretty nicely, but in case you are looking for a bit more specificity:

1. Innovation to drive product

Acquisition through smart targeting - work with partners like ecommerce to a. leverage on their customer base b. use their data to identify customers who have propensity to take credit with acceptable bad rates, market effectively to these customers based on what they like, etc

Driving usage through technology, based on customer's past purchases - develop look-alike technology: if this person likes A, they will be more likely to like B, so offer B, or maybe if customer does transaction in hospital now, offer discounts in pharmacies - or location based targeting - if they are near store A, offer A

Make product so easy to use through mobile tech - so cardholders will be able to see categorized spending, suggest avenues to save money, cap spending on particular category, or gamification.

In general either you think from the use case of product and start from there or I would looke into customer journey and work from there. Always always use some sort of structure

2. Mitigate credit risk

Credit loss = % accounts delinquent * average amount delinquent

So you can either minimize the % accounts delinquent through:

- Use of non bureau data as proxy, such as telco data, utilities, tax, and develop credit scoring from there

- Better background check to minimize fraud accounts - by partnering with companies that can do e-verification

Or minimize average amount delinquent:

- Capping initial limit, and do credit line increase once client has enough credit history

- Limit the amount cardholders can spend in a day, week, etc (though check what the implications are on demand)

- Use technology to detect fraud transactions and block account automatically

3. Operational challenges & reducing expense

Ops:

- Since its developing country, chances are theyre not very digital savvy so most sourcing will have to rely on conventional face to face sales - difficult to build scale & train properly

- Backlog on credit underwriting & lack of good credit scoring system

- Difficulties in establishing presence amongst customers, so usually pricing needs to be really low

Expense reduction:

Think of what expense this company incurs so:

- Reducing branch footprint, maybe turn into all digital company

- Streamlining ops through technology, automating whenever possible

- Credit loss management

- Find avenues to reduce cost of fund

I think Federico's answer sums it up pretty nicely, but in case you are looking for a bit more specificity:

1. Innovation to drive product

Acquisition through smart targeting - work with partners like ecommerce to a. leverage on their customer base b. use their data to identify customers who have propensity to take credit with acceptable bad rates, market effectively to these customers based on what they like, etc

Driving usage through technology, based on customer's past purchases - develop look-alike technology: if this person likes A, they will be more likely to like B, so offer B, or maybe if customer does transaction in hospital now, offer discounts in pharmacies - or location based targeting - if they are near store A, offer A

Make product so easy to use through mobile tech - so cardholders will be able to see categorized spending, suggest avenues to save money, cap spending on particular category, or gamification.

In general either you think from the use case of product and start from there or I would looke into customer journey and work from there. Always always use some sort of structure

2. Mitigate credit risk

Credit loss = % accounts delinquent * average amount delinquent

So you can either minimize the % accounts delinquent through:

- Use of non bureau data as proxy, such as telco data, utilities, tax, and develop credit scoring from there

- Better background check to minimize fraud accounts - by partnering with companies that can do e-verification

Or minimize average amount delinquent:

- Capping initial limit, and do credit line increase once client has enough credit history

- Limit the amount cardholders can spend in a day, week, etc (though check what the implications are on demand)

- Use technology to detect fraud transactions and block account automatically

3. Operational challenges & reducing expense

Ops:

- Since its developing country, chances are theyre not very digital savvy so most sourcing will have to rely on conventional face to face sales - difficult to build scale & train properly

- Backlog on credit underwriting & lack of good credit scoring system

- Difficulties in establishing presence amongst customers, so usually pricing needs to be really low

Expense reduction:

Think of what expense this company incurs so:

- Reducing branch footprint, maybe turn into all digital company

- Streamlining ops through technology, automating whenever possible

- Credit loss management

- Find avenues to reduce cost of fund

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Dear anonymous,

this is an interesting brainstorming question. It aims to challenge your lateral thinking and the ability to properly structure your thoughts.

Before jumping to answer the questions, I would personally ask the interview some additional information about the emerging country characteristics (es. internet penetration? , ...). In this case, I will assume that internet penetration is low and we need to think about non Internet-based credit card company.

a) How would you use innovation to drive the product?

  • I would leverage on mobile phone numbers to identify customers
  • Use SMS to select recipients and authorize transactions
  • Use special code numbers to perform credit card operations (without requiring a mobile POS or Internet infrastructure); e.g. number+id_recipient+password

b) How will you mitigate credit risk considering a major population has no access to credit.

  • The provision of the service itself could be based on referrals, where other people (who already joined the network) can signal new potential candidates (and be penalized if the new joiners don't perform well)
  • As an example, in the early days, Google used to increase the ranking of pages based on the number of inbound links. In the case of our target country, the infrastructure managing the credit card system could be advanced enough to keep track of the number of SMS exchanged and use these data to mitigate credit risk.

c) Give a detailed explanation of the operational challenges and how you'll reduce the expenses.

  • Key operational challenges would be:
    • Get the legal permissions to operate in the country
    • Gather local talent to set up the organization
    • Cybersecurity / IT security issues
  • How reduce the expenses
    • Invest in local talent and retain it to protect IP
    • Work on an MVP and scale it only after it has been validated
    • Test & learn to find the right growth hack to incentivize the population to adopt the new credit card system

Food for thoughts: - Why does Kenya lead the world in mobile money? https://www.economist.com/the-economist-explains/2015/03/02/why-does-kenya-lead-the-world-in-mobile-money

Hope this answer helps!

Good luck with your preparation.
Federico

Dear anonymous,

this is an interesting brainstorming question. It aims to challenge your lateral thinking and the ability to properly structure your thoughts.

Before jumping to answer the questions, I would personally ask the interview some additional information about the emerging country characteristics (es. internet penetration? , ...). In this case, I will assume that internet penetration is low and we need to think about non Internet-based credit card company.

a) How would you use innovation to drive the product?

  • I would leverage on mobile phone numbers to identify customers
  • Use SMS to select recipients and authorize transactions
  • Use special code numbers to perform credit card operations (without requiring a mobile POS or Internet infrastructure); e.g. number+id_recipient+password

b) How will you mitigate credit risk considering a major population has no access to credit.

  • The provision of the service itself could be based on referrals, where other people (who already joined the network) can signal new potential candidates (and be penalized if the new joiners don't perform well)
  • As an example, in the early days, Google used to increase the ranking of pages based on the number of inbound links. In the case of our target country, the infrastructure managing the credit card system could be advanced enough to keep track of the number of SMS exchanged and use these data to mitigate credit risk.

c) Give a detailed explanation of the operational challenges and how you'll reduce the expenses.

  • Key operational challenges would be:
    • Get the legal permissions to operate in the country
    • Gather local talent to set up the organization
    • Cybersecurity / IT security issues
  • How reduce the expenses
    • Invest in local talent and retain it to protect IP
    • Work on an MVP and scale it only after it has been validated
    • Test & learn to find the right growth hack to incentivize the population to adopt the new credit card system

Food for thoughts: - Why does Kenya lead the world in mobile money? https://www.economist.com/the-economist-explains/2015/03/02/why-does-kenya-lead-the-world-in-mobile-money

Hope this answer helps!

Good luck with your preparation.
Federico

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