Interesting financial analysis of the SME lending models re the CAC/LTV metrics and challenges and implications for financials vs Reputation/Regulation on the other hand
The weakness in the Alternative Credit model is a very old-fashioned metric – Customer Acquisition Cost. If they have to pay a lot of money to brokers or to advertise, their CAC maybe too high. A high CAC is fine if you get a lot of repeat business. This is where Alternative Credit businesses that offer short term “stop gap” funding have a fundamental CAC/LTV issue. If that is true, they have a churn problem aka a CAC/LTV issue. If it is not true, because borrowers become reliant on “stop gap” funding, then those APR rates are true and that puts the borrower into financial difficulties. That is where you can end up on the front page in a bad way, like Wonga. Reputation risk and regulatory risk are closely related in the social media age.