Analytics & Optimization GDPR and Other Regulations Demand Explainable AI

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May242017

The General Data Protection Regulation (GDPR) is a wide-ranging and complex regulation intended to strengthen and unify data protection for all individuals within the European Union (EU). A year ago I blogged about the data governance ramifications of GDPR, and in this blog I’ll focus on another facet of GDPR to talk about a related analytics topic: explainable artificial intelligence (AI). First, let’s start with GDPR. Article 22 of GDPR, “Automated individual decision-making, including profiling,” concerns the use of data in decision-making that affects individuals, such as a person applying for a loan. The regulation says: “1. The data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly significantly affects him or her.” Point 2 of Article 22 describes exclusions (including situations involving the person’s explicit consent, such as applying... [Read More]

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Fraud & Security Are You in the Half of Firms with No Tested Data Breach Plan?

May232017

Last week alone, a New York hospital, a US car washing business and a UK online retailer all suffered headline-making data breaches. There is no fool-proof cybersecurity defence, so businesses of all sizes need to consider not only how they can prevent breaches but also determine what they will do should the worst happen. Additional losses are heaped on companies that fail to manage the fallout from a breach well. Poor customer communication, disastrous PR and a slow or ineffective response all damage reputation, lose customers and worry shareholders. Despite this, a new, independent cybersecurity survey we commissioned with independent research and consultancy firm Ovum shows that only 51% of companies surveyed have a tested data breach response plan. Looking across the six countries we surveyed, it’s clear that some are doing better than others, though none had excellent coverage on this question. The Norwegians are top of the class... [Read More]

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Risk & Compliance Real or a Red Herring? What Should Banks think of the Fintech Threat?

May222017

By now, you likely know the talking points by heart… Silicon Valley is coming Millennials hate banks, so much so that a majority would rather visit the dentist than listen to what banks are saying New fintech products—across a wide range of areas including lending, wealth management, and payments—are going to lead to the unbundling of the financial services industry These talking points are deeply embedded in your brain because they are literally inescapable. If you have attended an industry conference, picked up a trade publication, or followed the conversation of the fintech intelligentsia on Twitter, you’ve been exposed to it. It can be difficult to separate the facts from the hype. However, it is vital that we do so. The question of whether fintech poses a significant competitive threat to financial institutions’ customer relationships, especially with Millennials (consumers age 22-37) and Gen Z (consumers age 18-21), has enormous implications... [Read More]

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Fraud & Security 10 Ways We Make the Cybersecurity Executive Order Actionable

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May222017

The President’s May 11 executive order Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure seems to have been met with broad support.  While a few have been critical that it was not bold enough, most reviewers seem to be endorsing the main message, both for what it does (initiating broad self-assessments by agencies), and for what it does not do (consolidate all accountability in the DoD). The broad strokes: This order endorses, mandates, and accelerates the adoption of existing frameworks as well as ongoing risk assessment and mitigation, but it does not set the game clock back by forcing the creation of new frameworks or imposing stifling centralization. Full disclosure: I’m accountable for growing the cybersecurity business line at FICO. That said, in reading the text of the order, I was struck by the broad alignment of its goals and directives with the goals, use cases, and specific capabilities... [Read More]

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Risk & Compliance NCAP Public Record Removals Have Little Impact to FICO Scores

May172017

The National Consumer Assistance Plan (NCAP) is a comprehensive series of initiatives intended to evaluate the accuracy of credit reports, the process of dealing with credit information, and consumer transparency. As a result of NCAP, in July 2017, the three credit reporting agencies (CRAs) are scheduled to make required changes to the criteria used to accept the reporting of a tax lien and/or civil judgment. It is anticipated that civil judgments and some tax liens will be removed from consumer reporting agency (CRA) data when this goes into effect, including previously reported tax liens and/or civil judgments that do not meet the new NCAP-related reporting requirements.  All credit scores that utilize CRA data will be impacted, including but not limited to FICO® Scores. FICO recently conducted research on the most widely used FICO® Score versions at all three CRAs to assess the impact of the NCAP-driven removal of public records... [Read More]

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Collections & Recovery IFRS 9: Three Critical Areas of Focus for Collectors

May152017

My colleague Bruce Curry recently published a blog on “IFRS 9 & Collections – The 31 Day Time Bomb”. During my various client interactions, I can see that many businesses are developing and testing the impairment models that will give them a good understanding on the financial impacts that the new standard will have on their balance sheet performance, but the operational implications are currently less clear. From a practical perspective, I believe there are three areas across collections that should be reviewed to mitigate the increases in impairment that are expected to result from IFRS 9: 1. Pre-arrears strategy – These strategies have been a topic of conversation for a number of years and their success has been mixed. IFRS 9 means that it is now more important than ever to adopt a “prevention rather than cure” approach in mitigating the risk, and flow, of accounts into Stage 1... [Read More]

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Fraud & Security Application Fraud, Analytics – and Gamecocks?

May112017

I was looking over my blog archives the other day and read this chestnut from December 2015: “With the introduction of EMV in the US, both [card not present and application fraud] are up – especially the sophistication of the synthetic identities used in application fraud.” Well, isn’t that the truth. Fast-forward a year, to the fourth quarter of 2016, when financial losses stemming from application fraud, which includes the creation of synthetic identities, grew by 42%. Online lenders are being hard-hit; fraudsters are applying for multiple loans within minutes, with no intentions of repaying them. Customer expectations create fraud opportunities Here’s what’s happening: Consumers expect instant gratification and there are many, many companies willing to indulge them: Uber, Amazon, Seamless, ad infinitum. Those expectations have transferred directly to lending; customers expect ever-faster loan approvals, and online lenders are happy to oblige. Loans that used to take three days to... [Read More]

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Risk & Compliance Truth Squad: Can Scoring Rental Data Vastly Improve Credit Access?

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May102017

There has been much discussion and several studies over the years regarding the potential value of leveraging rental data in assessing consumer credit risk. Which raises the question: Should rental data be widely reported to the three primary consumer credit agencies (CRAs)? If rental data was reported, this might mean some consumers without loans or credit cards would get a FICO® Score, and gain access to more affordable credit. But how many? And how many of these consumers would be considered creditworthy by prospective lenders? In 2015, FICO introduced FICO® Score 9, which scores rental data. This coincided with the first evidence of sufficient positive and negative rental data at the CRAs, a necessary condition for adding this data into the FICO Score algorithm. Great news, right? Well let’s take a deeper look at some of the facts around rental data in the credit report. Not Enough Rental Data in... [Read More]

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Collections & Recovery What is it Costing You to Collect? Are the Odds in Your Favor?

May042017

If you are considering a new collections platform, you are probably already aware that the upfront price isn’t the only cost that you will pay over the lifetime of the system. How much time and effort you actually want to spend calculating the potential total cost of ownership (TCO) as part of your purchase is an individual choice. Many organizations tend to generalize, knowing that TCO isn’t an exact science, and that a new system’s benefits tend to outweigh other factors. As a starting point you should spend some time understanding where common, easily-avoided pitfalls lurk. With this knowledge you will be able to make the right choices that can shift the TCO odds in your favor. Two areas—a platform’s flexibility and security—can have a huge impact on an organization’s exposure to risk and result in unforeseen expenses if not properly supported. Flexibility The ability for a platform to easily... [Read More]

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Fraud & Security What Do the C-Suite Think About Cybersecurity?

May032017

Cybercrime against businesses and other organizations is undoubtedly a hot topic, with regular news headlines and cautionary tales of those who have been breached. We wanted to understand the changing views from the C-suite about cybercrime, what they have been doing to tackle it and what they plan to do next. To find the answers we engaged research analysts Ovum to carry out an independent research project for us across 6 countries – and the answers are on the way! We want you to join the conversation so we’ll be releasing key statistics from the research in a Tweet Chat on 1st June at 4pm BST / 8 am PDT – please tweet along #cybertrends and join us to find out: The types of organization that are looking to invest in cybersecurity in the coming year. The industries that have been experiencing the biggest increase in attacks. The country where only 41% of... [Read More]

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