Personal Loan: A personal loan is an amount of money you can borrow to use for a variety of purposes. For instance, you may use a personal loan to consolidate debt, pay for home renovations, or plan a dream wedding. Personal loans can be offered by banks, credit unions, or online lenders. The money you borrow must be repaid over time, typically with interest. Some lenders may also charge fees for personal loans. Types of Personal Loans: Personal loans may be secured or unsecured: Secured PL: It requires some type of collateral as a condition of borrowing. For instance, you may secure a personal loan with cash assets, such as a savings account or certificate of deposit (CD), or with a physical asset, such as your car or boat. If you default on the loan, the lender could keep your collateral to satisfy the debt. Unsecured PL: It requires no collateral to borrow money. Banks, credit unions, and online lenders can offer both secured and unsecured personal loans to qualified borrowers. Banks generally consider the latter to be riskier than the former because there’s no collateral to collect. That can mean paying a higher interest rate for a personal loan (Ref – https://www.investopedia.com/personal-loan-5076027) Case Background ABC Ltd. is a large financial services organization with multiple products, working in a fiercely competitive & fragmented loan market where the top player is 10x the size of ABC ( in terms of volumes of Personal Loans disbursed), followed by 3-4 which are 5X-6X of ABC. Personal Loans a price sensitive market & competitive intensity keeps the margins wafer thin. While ABC has acquired a large customer base over the years due its other products (primarily Saving Accounts, Insurance, Other Loan Products etc.), it realizes that there is a vast untapped market among those who have never banked with ABC, and has big plans to acquire customers (also called “New to ABC”) from this market. Strategy next 12-18 months The company wants to rapidly acquire ‘New to ABC’ customers through the Personal Loan hook & gain market share, profitably with a good client book for sustenance. Risk management is also critical. Challenges Cost of Acquisition is the main challenge with following sub themes to focus on: • Reach • Processing/ Servicing Cost • Margin pressure with scaling up in parallel Tools Technology, Innovation in product design/ serviceability, a strong brand perception which is accepted & known for being a rational long term player, distribution channelsboth internal & external. Problem Statement Teams are required to think innovatively, explore best in class solutions across industries & suggest 2-3 main levers of strategy for Personal Loans which makes the next 12 months ‘New to ABC’ story executable. Your proposal must include the growth plans, and path to/path of profitability of Personal Loans over the next 5 years. You are free to make intelligent assumptions wherever required.
