Risk & Compliance Can Alternative Data Score More Consumers?

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In my last blog post, I showed why using credit bureau data alone is insufficient to safely measure the creditworthiness of the millions of US consumers who don’t currently have FICO® Scores. To reliably assess risk for these “unscorable” consumers, we must fill in the partial or missing picture of current financial behavior available from credit bureau files. Can alternative data fill in these gaps? We recently completed research to find out. It showed that with the right alternative data, we can accurately score more than 50% of previously unscorable credit applicants. The scores were significantly more predictive than using bureau data alone and designed to demonstrate repayment odds consistent with traditional FICO® Scores. As part of our study, we built a research model and scored New to Credit consumers using bureau data only (which generally consisted of only one or more credit inquiries). We then compared the model’s performance... [Read More]

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Analytics & Optimization Will Banks Receive a Gift from the Fed this Holiday Season?


We all know that old cliché, “the check’s in the mail.” Well, it usually isn’t, but we keep thinking it will show up at some point. It reminds me of what we keep hearing about the Federal Reserve raising interest rates. According to the latest job market numbers, however, banks might actually be celebrating the Holidays this year if the indicators are finally on target. According to this MarketWatch article, a poll of economists projects more than a 200K increase in newly hired workers in November, after a huge month in October. Of course if that projection seriously overshoots the actual numbers (the actual report will be published this Friday), we might still be waiting for the increase. But even if the data falls short of 200K new jobs, frozen interest rates stand a very good chance of thawing out. Another positive sign: Paychecks are gradually on the rise, as... [Read More]

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Fraud & Security Seeking a Standard Way to Authenticate that You Are You

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How can a business tell that you are who you say you are, in the fastest, most consistent and most effective way? Along with cybersecurity, this may be the hottest topic in financial crime and fraud prevention today: authentication. As one of the founders of the MIDAS Alliance, I’ve just spent a day with experts at the front lines of this topic, as we met in the auspicious surroundings of the Reading Room at the Law Society in London’s Chancery Lane. The MIDAS initiative seeks to redress the disparity between especially European regulation and the practical capabilities of the payments sector to meet onerous new authentication requirements in a sensible and cohesive fashion. Interest in this topic brought together more than 60 registered attendees to hear from representatives from the British Standards Institute (www.bsigroup.com), the Payment Systems Regulator Advisory Panel, Identity Assurance Programme (IDAP) provider Experian, biometrics specialists Facebanx, and... [Read More]

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Fraud & Security We Need AI in Cybersecurity


Last month I spoke on a panel at Money20/20 in Las Vegas entitled, “Using Artificial Intelligence & Data Analytics for Managing Fraud Risk & Data Security.”  Despite being the second-to-last time slot, it was well attended by people who are working to increase their use of machine learning in their fraud and risk applications. For me, this provided an opportunity to reflect on the more than two decades that card issuers have been using Falcon Fraud Manager to make payment authorization decisions through a highly predictive neural network score.  It is immensely satisfying to me that the machine learning and more than 100 patents in fraud analytics that FICO developed have become the benchmark for detecting payment card fraud, protecting 2.5 billion cards worldwide. Where the payment card fraud industry was in the early 1990s (before Falcon) is very similar to where we are today in the cybersecurity realm. There’s... [Read More]

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Customer Engagement When Loyalty Is Rocket Science


How do you launch a new loyalty program in a saturated market during one of the worst years for grocery sales in decades…and rocket to success? By making relevance to individual customers the core fuel of everything you do. Case in point: a Canadian grocer’s loyalty program is using sophisticated analytics to identify — from more than 380 billion possible offer combinations — the handful of offers that will be most relevant and appreciated by each customer for the upcoming week. The program is a game changer not only for its ability to anticipate customer needs, point sensitivities and even product sentiments, but also because it’s purely digital. Customers receive offers, along with recipes and other information, via the website, email or mobile app. The loyalty program, which rocketed to near the top of the nation’s grocery programs in just one year, is also changing the economics of cultivating loyalty.... [Read More]

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Risk & Compliance Military Lending Act Compliance: Are You Ready?

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The Military Lending Act (MLA) has gone mainstream. First enacted in 2006, the MLA’s aim was to provide protections against predatory lending practices targeted at U.S. service members and their spouses and dependents. But while it once applied only to a short list of credit products, new regulations have greatly broadened its coverage. Now, MLA compliance should make most creditors stand at attention. As originally adopted, the MLA capped interest rates, retained certain legal rights for borrowers, prohibited certain loan features, and required creditors to make certain written and oral disclosures of interest rates and payment obligations before issuing a loan. But the Act only applied to payday loans, vehicle title loans and tax refund anticipation loans. Compliance was, therefore, not a pressing concern for lenders that did not provide these offerings. The situation changed dramatically last July with new regulations issued by the U.S. Department of Defense (DoD). Now... [Read More]

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Analytics & Optimization Webinar: Prescriptive Analytics, the Antidote to Business Challenges


For many organizations, prescriptive analytics potentially represents the “promised land” of Big Data-driven decision making. After all, it evolves beyond predictive analytics to help solve complex business problems with multiple constraints and objectives. This methodology fuses data, business objectives and customer centricity in such a way that even micro-segmented customer treatments are possible and timed with the best possible outcomes. Still, prescriptive analytics may seem a distant dream for businesses that are still using diagnostic and/or predictive analytics to make decisions. Indeed, while prescriptive analytics can exist alongside these tools, the end game is different, as an a highly regarded industry analyst states in this Information Age article. According to the analyst, “Unlike other type of analytics the output is a decision. That’s where it’s really different. It’s about trying to find the best decision, where best is defined by you, whether that’s lowest cost, most efficient process, higher revenue,... [Read More]

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Fraud & Security “Back to the Future” Approach for Anti-Fraud Collaboration

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A new approach for issuers and merchants to collaborate on stopping fraud is taking shape. But it turns out not to be new. Allow me to take you “back to the future” to explain. Some 30 years ago when I first started out in the credit card business, there was a far closer liaison between subscribing banks and their customers. The Joint Credit Card Company (JCCC) acted in the collective member banks’ interests, facilitating dialogue and exchange. If an issue came up between a cardholder and a merchant — such as a dispute — there were flexible processes within JCCC that meant nuances and important information could be exchanged between the issuer and acquirer banks without the formality of the Visa or MasterCard Card Scheme Operating Regulations. Even matters that were officially “out of time” according to Card Scheme rules could be, and often were, looked at on a “good... [Read More]

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Collections & Recovery FICO Optimization Helps Toyota Keep Customers in Cars

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In a recent post, my colleague Martin Germanis talked about the importance of optimization in collections. Toyota Financial Services has put this into practice with dramatic results. Toyota’s Collections Treatment Optimization program integrates decision management, reporting and advanced analytics to provide a data-driven, scientific and customer-centric approach to collections. During its first year, the program helped more than 6,000 customers avoid repossession and stay in their cars, and prevented 50,000 customers from reaching a stage of delinquency that would affect their credit. “Working with delinquent customers to keep them in their cars while working out payment options has helped Toyota avoid millions of dollars in losses,” said Jim Bander, national manager for decision science at Toyota Financial Services. “It’s a win for our customers, and a win for Toyota. Furthermore, it reduced our operating expense ratio by allowing Toyota to grow our portfolio by roughly nine percent, without adding collections... [Read More]

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