As a highly regarded advisor & consultant specializing in balance sheet lenders serving B2C markets, particularly credit-challenged consumers experiencing financial distress, I emphasize the significance of comprehensive Key Performance Indicators (KPIs) in lending operations.

Monitoring KPIs is indispensable to thoroughly understand your current standing, trend lines, and necessary strategic adjustments.

The data derived from these metrics offer a tangible and real-time measure of success, allowing you to enhance profitability and achieve other key objectives of your organization.

Here is an overview of these pivotal performance metrics:

1. Loan Origination Metrics: These metrics offer insights into the early stages of the lending process, such as application, initiation, underwriting, closing, and funding.

They provide a snapshot of the efficiency and effectiveness of your loan origination processes.

2. Loan Servicing Metrics: These indicators pertain to the ongoing administration of your loan portfolio, including payment processing, account maintenance, and escrow management.

Monitoring these can significantly improve the efficiency of your servicing operations and increase customer satisfaction.

3. Default Servicing Metrics: These metrics relate to loss mitigation, collections, foreclosure, and repossession.

Regularly evaluating these indicators can help you anticipate and manage loan defaults and minimize the financial impact.

4. Financial Performance Metrics: These metrics encapsulate the financial health of your lending operations, including profitability, liquidity, solvency, efficiency, and valuation.

Keeping a close eye on these can ensure your business’s overall financial viability and competitiveness.

As a lender serving credit-challenged consumers in sudden financial emergencies, these KPIs can help you better support your clients while maintaining your organization’s financial stability and growth.

Ensuring these metrics are thoroughly monitored and acted upon can position your business as a responsible and successful lending institution in this challenging market.

Let’s take a detailed look at the KPI: “Cost Per Funded Loan” (CPFL).

What:
Cost Per Funded Loan (CPFL) is a measure of the total costs associated with generating and servicing a loan divided by the total number of loans that are successfully funded.

Costs can include direct expenses such as underwriting, acquisition, servicing, capital, and overhead expenses.

Why:
CPFL is an important efficiency metric for lenders. It helps them understand the cost efficiency of their loan origination and servicing processes.

High CPFL may indicate inefficiencies, while low CPFL can signify a well-optimized lending operation.

How to Measure:
CPFL can be calculated by taking the total costs associated with the loan process (both direct and indirect) and dividing it by the number of loans that have been successfully funded during a given period.

Potential Risks:
One of the major risks of focusing on CPFL is the potential for over-optimization.

If a lender focuses too much on reducing CPFL, they may cut important processes or controls, leading to a poorer quality loan portfolio and potential increased losses down the line.

Improvement Strategies:
Improvement strategies could include streamlining loan origination and servicing processes, leveraging technology for automation, improving underwriting efficiencies, or optimizing marketing spend.

Benchmark:
Benchmarking for CPFL can be challenging because it can vary greatly depending on loan size, type of loan, target customer, geographical market, and lender’s business model.

However, industry studies or peer groups can provide some insights.

Consider reviewing the earnings reports for a few of the publicly traded lenders. World, Curo, and Enova are just a few.

Responsible Department/Role:
The Finance and Operations departments typically have a major role in managing and improving CPFL.

The Marketing department is also involved, especially regarding acquisition costs.

Interdependencies:
CPFL is interconnected with other metrics such as Acquisition Costs, Operational Efficiency, Default Rate, and Profitability.

Reporting Frequency:
CPFL is typically reported on a monthly basis, but the frequency may vary based on the lender’s needs and the volatility of the costs and loan volumes.

Data Source:
The data sources for CPFL include accounting systems for cost data and loan management systems for loan volume data.

Change Over Time:
Ideally, lenders would like to see CPFL decrease over time, indicating increasing efficiency in their lending operations.

Seasonality:
CPFL could have seasonal patterns, such as higher costs during peak loan demand periods due to increased staffing or marketing costs.

Tranches:
If loans are grouped into different risk or product tranches, each tranche might have a different CPFL, reflecting varying costs and efficiencies.

Associated Costs:
The primary associated costs are the direct and indirect costs of loan origination and servicing, which can include underwriting, staff, technology, capital, and overhead costs.

Impact of Regulatory Changes:
Changes in regulatory requirements can impact CPFL, as they may require changes in the loan origination or servicing processes, potentially increasing costs.

Historical Context:
CPFL can vary over time based on changes in the lending market, technology, and regulatory environment.

Shareholder/Ownership Impact:
Shareholders typically prefer a lower CPFL, which indicates more efficient operations and can lead to higher profitability.

Sensitivity Analysis:
Sensitivity analysis for CPFL might involve modeling different cost or volume scenarios to see how changes in these factors might impact CPFL.

In conclusion, CPFL is an important KPI that helps balance sheet lenders understand and manage the cost efficiency of their lending operations.

As with any KPI, it needs to be viewed in context and in conjunction with other metrics to provide a comprehensive view of performance.