To ask or not to ask, that is the question

Applicants for credit have to provide information for the risk assessment process. In the current conditions of a saturated consumer lending market, and hence falling take rates, can such information be used to assess the probability of a customer accepting the offer? With the advent of internet broking pages, which allow borrowers to “apply” to a number of different companies at the same time, this “take” problem will increase. In the mostly lender’s market, it is not quite common for more than 50 percent of those offered to reject it. In some cases, this is because the sale falls through but often it is because a relatively better retailer has offered a more suitable product to the borrower. Lenders do not want to make the application process too complicated, and with the growth in adaptive marketing channels like the Internet and the telephone, they can make the questions they ask depend on the previous answers. We investigate how one could develop such “adaptive” application forms; which would assess acceptance probabilities.