In short: Lenders don't need to commit to a full rollout of a new credit risk model before knowing whether it works for their business. A staged pilot, tested on a limited segment or run alongside an existing process, lets a lender see real results before scaling up, reducing both the risk and the pressure of the decision.
Committing fully to a new credit risk model before seeing it work on your own book is a significant leap of faith, one that many lenders reasonably hesitate to take. A staged approach lets a lender build confidence in a model using real evidence from their own business, before making a decision that affects their entire loan book.
This isn't about being overly cautious. It's a practical way to reduce the risk of adoption while still moving forward, and it's covered as its own stage in our wider lender's roadmap to choosing a credit risk model partner.
A staged pilot typically involves a few key elements working together, running the new model without acting on it yet, testing it on a limited slice of the book, and setting clear terms upfront for judging the result.
The exact shape of a pilot varies by lender and partner, so treat this as a general framework, rather than a fixed template.
Run the new model alongside your existing process, without acting on it yet. The new model produces outputs for real applications, but decisions continue to be made using the existing process. This lets you compare what the new model would have recommended against what actually happened, without any risk to live lending decisions.
This approach, often called a champion-challenger setup, is a standard way to test a new model's performance against the current one before switching over.
Apply the new model to a limited segment first. Rather than rolling out across the entire loan book, a lender might test the model on a single product line, a specific borrower segment, or a defined portion of new applications, keeping the rest of the book on the existing process until the pilot results are clear.
Set a defined pilot period with clear success criteria upfront. Before starting, agree on what would count as a positive result, how it will be measured, and how long the pilot should run before a decision is made either way.
Review results with both the pilot data and the existing process, side by side. Once the pilot period ends, compare outcomes rather than assuming the new model is better simply because it's newer. This comparison is what actually builds internal confidence to expand further.
A pilot only builds real confidence if the comparison behind it is statistically sound. A segment that's too small, or a pilot period that's too short, can produce a result that looks convincing but is really just noise, a handful of good or bad outcomes that don't reflect how the model would perform at scale.
Before starting, it's worth agreeing with a partner on a minimum segment size and pilot duration that's large enough to draw a reliable conclusion from, not just whatever is fastest to run. A partner experienced in this kind of testing should be able to advise on what's a large enough sample for your specific book and application volume.
A partner confident in their model should welcome this kind of staged approach, not push back against it. Resistance to a reasonable pilot structure is itself worth noting.
Consider a hypothetical lender that agrees to run a new credit risk model alongside their existing process for new applications in one specific product line, over a three-month period sized to give both parties confidence in the sample. Decisions during this period continue to be made using the existing process, but the new model's recommendations are tracked in parallel.
At the end of the pilot, a risk lead internally reviews both sets of outcomes as part of the lender's own governance process, and finds the new model would have identified a segment of stronger borrowers the existing process was declining unnecessarily.
With that evidence in hand, and clear internal sign-off, expanding the model to the rest of the portfolio becomes a far easier decision than committing upfront would have been.
Carrington Labs supports staged pilots as a standard part of how lenders adopt lender-specific credit risk models, running models alongside existing processes and on limited segments first, sized appropriately for a reliable comparison, so lenders can see real results before expanding further. This is also where our approach to model governance and implementation starts: pilot results feed directly into the ongoing monitoring and reporting a lender's team relies on after go-live.
Ask us about a Proof of Concept today
If a staged pilot would make this decision easier for your team, we're glad to talk through what that would look like for your business.
