EXECUTIVE SUMMARY

This report summarises some critical variables which have associations with the PRSM score
of borrowers. The most important variables include FICO*ISO.Name[EZCheck] ,
Commission% and Satisfied accounts whether the merchant is a borrower or not. A lot of
PRSM values are driven by commission % in satisfied accounts. Such satisfied accounts
relate to the history of the borrower whereas commission % is about pushing through the
loans.These variables are extremely helpful in correctly analyzing and determining the credit
risk of the merchant.

A typical merchant will have certain attributes like an average house value of $1,00,000 in
the area where the merchant operates, a commission of 10% being paid on the nominal loan
amount to the ISO, a renewal loan being originated through SPS, a FICO score of 500 after
having paid off 15 accounts satisfactorily. Keeping all other things constant -

1. A 1% increase in the commission percentage of the ISO is associated with a 0.60 fall
in PRSM score. The commission percentage paid to the ISO recruiting the borrower,
needs to be thoroughly probed with respect to the loan amount while appraising any
loan application.
2. Giving a loan to a merchant for the first time comes with significant credit risk and is
associated with a 0.10 point fall in PRSM score. The loan type of the merchant needs
to be kept in the checklist while deciding. First time merchants having a higher FICO
score offset some of the above said credit risk. It can be noted that a new merchant
with a higher FICO is at par with a renewal merchant with a lower FICO score.
3. A loan being generated through the sales organisation EZCheck is associated with a
lower credit risk as compared to a loan being generated through SPS.

So lender’s with poor credit history might get their loan sanctioned because the commission
of the borrower is higher. It states that if commission% is higher than PRSM values are lower
such that the background history is not taken into account.

The information from Credit bureaus like FICO score of the business entity is perceived to be
an important factor in the determination of a credit score created by the Fair Isaac
Corporation (FICO). Lenders use borrowers' FICO scores along with other details on
borrowers' credit reports to assess credit risk and determine whether to extend credit. The
model finds that it's important only in the case when the borrower is a new customer. In the
case of existing customers, the FICO score has very limited impact.
CREDIT RISK CHECKLIST

ATTRIBUTE NAME ASSOCIATION CREDIT RISK

WITH PRSM IMPACT

  Highly Negative Applications with a

higher commission %
Commission % given to the ISO are
associated with higher
credit risk

    Applications from
original merchants are
  riskier than those from
Loan Type + FICO of
Original merchants renewal merchants.
Moderately Original
Negative For merchants with a
Original Merchants higher FICO offset
some of this risk.

    Applications being
ISO Name originated from the ISO
Positive For EZCheck have lower
(EZCheck/SPS)
EZCheck risk than those
originated from SPS