Editor’s Note:
When both risk control and advertising are reliable, the data tends to shine. Reliable advertising coupled with unreliable risk control can lead to a downward spiral that’s hard to escape—an alarming scenario indeed. Conversely, solid risk control with unreliable advertising can still salvage the situation, albeit barely.
Mr. Wei and another friend, who prefers not to be named, specialize in dependable risk control services. If interested, feel free to reach out to me for more details.
We believe in dependable advertising, but we also rely on solid risk control to guide us. This article is based on insights shared during last month’s “Global Elite Summit” hosted by advance.ai. Originally focused on the MX market, today we’ve extracted universal insights by removing MX-specific features. Many thanks to industry experts (who prefer anonymity) for their invaluable contributions.
Have you ever experienced this?
- You enter a new market, secure your first batch of loans, only to find that 70% are delinquent.
- Just as you stabilize risk in an old market, entering a new one brings a fresh nightmare of 50% to 60% delinquency rates.
It’s perplexing—your team has experience and success in other markets, so why does that expertise seem ineffective here? Is market variance really that significant?
Acquiring customers and optimizing products solve 80% of the problem, while risk control tackles 10%, leaving the final 10% to operations.
Makin (Risk Control Expert)
Customer acquisition is the primary (and perhaps most crucial) aspect of risk control.
However, in our sector, customer acquisition methods are somewhat limited, with 90% of our budget going toward effective streaming media ads. Therefore, optimizing customer acquisition is essentially optimizing advertising.
Meanwhile, established market players have long perfected their risk controls and advertising platforms. When a prime advertising slot awaits bids, these veterans’ judgments and bidding courage often outmatch yours, resulting in ads for their clients rather than yours. Without effective risk control or polished advertising strategies, your ads might only attract undesirable clientele, thus diminishing overall customer quality.
You might find that although your risk is higher, customer acquisition costs less. But this isn’t due to superior advertising—rather, your ads are simply reaching those whom others reject.
If everyone else uses UAC 1.0, everyone receives average traffic levels.
However, those using UAC 2.5 achieve better ROI than those on UAC 1.0.
And if everyone adopts UAC 2.5, later adopters will experience even better ROI. But as more embrace UAC 2.5+, costs rise and traffic diminishes.
Emily
Designing and selecting advertising events in the lending industry mirrors the logic above. If others are using UAC 2.5 for later events, and you’re still on UAC 1.0, you’re missing out.
To refine your advertising, risk control models require event feedback for education. Yet, with 60% to 70% bad debt, fear of missing out on models perpetuates a cycle: no samples, no models, high bad debts, and reluctance to proceed—a perfect loop.
Even if you bite the bullet and proceed, the skewed sample of mostly bad customers hampers effective modeling.
You may wonder, “Why do established players succeed with new packages while I struggle?”
The reasons are clear: they reuse models from previous packages (with tightened cutoffs), possess larger blacklists (with previous data washing), and tolerate losses better due to stable profits elsewhere.
What can be done?
Find a dependable risk control solution, which may include but isn’t limited to:
- 1.) Recruiting a core risk control expert from a mature company (with a full strategy and model set);
- 2.) Employing a part-time core risk control expert from a mature company (with similar credentials);
- 3.) Utilizing a reputable third-party risk control service (endorsed by peers).
Introducing risk control into advertising involves meticulous experimental design and close monitoring of customer risks associated with different ads (events). Allocate your budget toward advertising series with lower risks.
For more insights into advertising strategies, refer to our previous article, “Best Collection of MediaBuy.”
