7/13/2021 Future earnings model and future of loans 

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Pushing fintech’s boundaries: from the future earnings model to

the future of loans
Pierre Decote
-
May 16, 2018

Banks and traditional lenders look at localised credit information when determining the
viability and rates attached to loans. In addition to overall loan affordability, they only use
current and previous income levels as they don’t maintain datasets that allow for future
prediction.

But students who complete post-grad study of any kind, and certainly including business,
engineering, law, public policy, and medical degrees, tend to experience a significant increase
between their pre- and post-study earning.

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7/13/2021 Future earnings model and future of loans 

From the outset, we wanted to adapt our underwriting capacity to match this reality and this
became the cornerstone for our Future Earnings Potential (FEP) model, which uses dataMENU

to
estimate post-grad salary based on a wider data set, allowing for larger more suitable loans
and the ability to extend them to students who may not qualify for traditional loan products.

Of course, you can’t just guess future earnings and underwrite a loan against that; responsible
lenders require firm data to assess the viability of any financial product.

Prodigy Finance did a great job of working with schools in order to obtain enough data to
develop a first version of its affordability model back in 2013-2014.

And, since then, we’ve been working tirelessly and partnered with our own students in order to
gather a more specific and proprietary dataset on students’ pre and post-study salaries. We
finally had enough data in 2017 to develop our FEP2 model for MBA borrowers, which
launched in January 2018.

This model is similar to our original FEP as it a linear regression model aiming at predicting
someone’s post-study salary.

The difference lies in the improvements made in both the dataset and the stats involved. As a
result, we can approve a much more significant proportion of students for the full requested
amount while maintaining a similar risk profile. Just months after launching FEP2, we’re able to
offer an average of 18% more and are approving 38% more loans asking for the full value.

It’s a win-win-win for the students, the schools, and Prodigy Finance.

Updating more than our Future Earnings Potential

model
Alongside these developments, Prodigy Finance upped its capabilities in other risk areas such
as slicker verification techniques, and better KYC (Know Your Customer) and AML (Anti Money
Laundering) defences.

Another development we’re working on is credit reporting. Historically, Prodigy Finance hasn’t
reported to any credit reference agencies (CRAs, also known as credit bureaux).

However, from 2018, we’re beginning to report to various CRAs under reciprocity agreements.
We’ll soon be reporting loan performance stats to UK Callcredit and USA Experian. This means
that residents in these countries will see their Prodigy Finance loan on their credit report and
any missed payments, delinquencies or defaults that go with that. Converserly, if their payment
behaviour is of good quality, their Prodigy Loan will enable them to build their credit profile.

Our goal is to link to 10 main CRAs by end of 2018 with reciprocity agreements when
applicable. Borrowers will be able to use their Prodigy Finance student loans to build their
credit history in their country of study, which will provide them more access to financial
products in the future. This is especially important for students hoping to remain in their host
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