Fintech · Lending
Acquisition ignored default rate by channel.
This marketing & margin audit surfaced $88k in recurring annual margin in a Fintech business, evidenced, senior reviewed, and delivered in 7 days.
The business
A consumer lender acquired borrowers across several marketing channels, judging each on its approved loan customer acquisition cost. Origination volume was healthy and the channels were treated as broadly comparable on that CAC, so the way default rates, the single biggest driver of lending profitability, varied by acquisition source was never built into the channel comparison.
What triggered the audit
Portfolio margin varied more than a comparable approved loan CAC could explain, pointing at credit performance rather than acquisition cost. The audit split loan book performance by acquisition channel, testing whether borrowers from different sources defaulted at materially different rates once the loans were on the book.
What the audit found
Judging channels on approved loan CAC alone had hidden a decisive difference in credit quality. When default rates were split by acquisition source, some channels that looked efficient on CAC were bringing in borrowers who defaulted at materially higher rates, so their true risk adjusted cost was far worse, while other, apparently pricier channels delivered better performing loans that were genuinely more profitable. Because default is a lagging cost that lands months after origination, and channels were compared only on upfront CAC, the poor performing sources kept attracting budget on economics that ignored their losses. Reweighting acquisition toward the channels with stronger risk adjusted performance improved risk adjusted CAC by 27%.
What we changed
Split loan book default performance by acquisition channel, exposing the true risk adjusted cost that a comparison on upfront CAC completely concealed.
Reweighted acquisition toward the channels delivering better performing loans, and cut those consistently bringing in high default borrowers.
Built risk adjusted CAC, acquisition cost plus expected losses, into channel reporting and budgeting, so decisions reflect credit quality.
Tightened targeting and credit criteria on the channels that were retained but prone to weaker performance, improving the quality of the loans they do bring onto the book.
The result
The published chart shows risk adjusted acquisition cost per loan falling from $540 to $400, a $140 reduction, or about 26%. The separately reported 27% improvement is not presented as the exact percentage change between those rounded chart endpoints. Risk adjusted CAC improved 27% by acquiring borrowers who actually repay, not just those who are cheap to originate. For any lender, upfront CAC is the trap: default lands months later, so a channel that looks efficient can be quietly loss making. If you compare channels before their loans season, you may be scaling your worst credit. It takes splitting default by source to see it. A fixed fee audit does that in days, before more budget follows the losses.
From kickoff to signed off findings: 7 days, inside our fixed 5–7 day window.
This 27% risk adjusted CAC reduction is ≈$88k/yr at the client’s revenue scale.
What the client said
−27% risk adjusted CAC in 7 days
Risk adjusted acquisition cost per loan: $540 → $400
“Our cheapest channel was our worst credit. David split default rates by acquisition source: the low CAC channels brought borrowers who defaulted materially more often. Budget now follows risk adjusted cost per loan, not just CAC.”
David JacksonSenior Auditor · signed this audit off