Analytics & Optimization AI: Can an Algorithm Be Curious?


In my last post about artificial intelligence, I discussed analytic technologies that are making smart machines smarter. But even the smartest machines lack fundamental human characteristics that enable us to solve problems. One of these is curiosity — surely a computer can’t replicate that?

Welcome to the world of neuro-dynamic programming.

This is an analytic technique based on reinforcement learning, which mirrors the way we learn complex tasks that result in long-term positive results. Neuro-dynamic programming enables smart machines to think ahead.

To illustrate this, let’s say we want to increase customer lifetime value and business cash flow. Each time the business takes an action, the customer reacts, the business responds to the new state of the relationship with another action, the customer reacts, and so on.

At any point in the sequence, the current state of the customer relationship is the result not only of the just-taken action, but... [Read More]

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Customer Engagement Growing Small Business: Q&A with Alternative Lender Kabbage


I recently sat down with Kathryn Petralia, cofounder and head of operations  at Kabbage, to talk about how origination management supports her business.

Q: First, how is Kabbage different from traditional lenders?

Kathryn: The biggest difference is that we were established in the digital age, so data is at our core. We fill a niche in that we focus on small companies who need modest loans to further their businesses. We also recently launched our consumer program, Karrot, which lends to start-ups and individuals who may lack the necessary credit history for traditional loans.

Q: Why did you decide to use FICO® Origination Manager?

Kathryn: We originally licensed decisioning technology from a third party, but found it hard to work with. We then decided to build a solution in-house, but that became difficult to manage. For us, Origination Manager has been great because it helps us manage multiple concurrent models... [Read More]

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Risk & Compliance Model Management Best Practices: Part 6

Best Practice Push Pins Part 6

Welcome to the latest Model Management Monday. This is the sixth in my blog series on model management, each post highlighting a best practice that supports both compliance and improved performance.

Best Practice #6: Track Performance

Over time, many factors can impact model performance. These include shifts in population makeup or behavior, economic changes, impacts of marketing campaigns, and changes to credit and collection policies. Regulators expect you to monitor models on a continual basis, so you can recalibrate and rebuild them in a timely manner.

Tracking outcomes is vital to understanding how well your models and business strategies are performing. This requires capturing what was known at the time of a decision, what actions were taken and what the resulting outcomes were.

Automating the generation of model monitoring reports provides faster feedback about the effectiveness of your models, and makes it easier to identify and adjust for emerging trends... [Read More]

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Collections & Recovery Collections 101: How to Find Obvious Collectable Debt

Chalkboard for Collections 101 class

This just amazes me. With all the pressure on collections today, people don’t go looking for obvious collectable debt in their system.

I have walked into collections operations and said I will find you $1 million you can collect. I haven’t even looked at your system, but I can do it because you’re NOT doing it.

And it’s so simple. Here’s how to do it:

Get a list of everyone who has paid you money in the last six months, but who you have not called or contacted in the last two months. Build a queue and start calling.

These are the people most likely to pay you. But you haven’t reminded them recently.

It’s so obvious you might be thinking, why doesn’t everyone do this already? In many cases, the collector working the account doesn’t realize a payment came in.

This is Collections 101: A payment is the #1... [Read More]

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Risk & Compliance FICO CEO Discusses Alternative Data Credit Score (Video)

Lansing on Fox News Image

Earlier this month, FICO shared details of pilot program research showing that alternative data can be used to reliably score millions of consumers who do not have enough traditional credit data to generate credit scores. On Fox Business News, FICO CEO William Lansing discusses a new FICO® Score based on alternative data and what that means for unbanked and under-banked consumers.

When asked about lenders lowering credit criteria, Lansing explains: “The goal is not to lower the standards. The goal is to identify would-be borrowers who meet our standard, but they meet it by using different data than we’ve traditionally used.”

Watch the latest video at

For those unable to see the video above, go here.

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Risk & Compliance Model Management Best Practices: Part 5

Best Practice Push Pins Part 5

Welcome to the latest Model Management Monday. This is the fifth in my blog series on model management, each post highlighting a best practice that supports both compliance and improved performance.  

Best Practice #5: Validate Model Effectiveness

Once you have developed a model, you need to validate that it works according to your business objectives. You also need to revalidate on an ongoing basis—once a year at a minimum, but more often in a dynamic economy and/or where policy changes may impact model effectiveness.

The validation evaluates the stability of model inputs and outputs, and measures your model’s effectiveness. As models age, their predictive power diminishes. Regular validations provide an early indication that a model may benefit from a redevelopment or realignment.

Overall, you should:

Strive for clarity, consistency. Regulators want to see that you validate on a regular cadence, producing a consistent collection of reports, and that your process... [Read More]

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Analytics & Optimization Soar with Advanced Analytics and Optimization at INFORMS – April 12-14

Southwest Airlines

The INFORMS Analytics Conferences are more than just the “latest and greatest” on Analytics and Big Data. They revolve around real-life implementations of game-changing technologies and capabilities that are transforming how businesses make decisions and take actions – ultimately, driving smarter interactions with customers, partners and regulators.

FICO will have both a booth presence and be a featured presenter at the INFORMS “Catch the Wave” Analytics Conference, to be held in Huntington Beach on April 12-14. In addition to conducting a technology workshop and software tutorial on advanced analytics and optimization, FICO experts will participate in two featured sessions.

If you’re at INFORMS, please visit us in Booth #20 for a chance to win a trip for two on Southwest Airlines ($600 value!).

For more information on the conference, check out the INFORMS Conference Website or to learn more about FICO’s analytic and optimization capabilities.

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Risk & Compliance The Race for Deposit Growth Starts Now


Recently, Federal Reserve Chair Janet Yellen indicated that continuing positive economic metrics could portend an increase in interest rates by the end of the year.

Even with no affirmations on rate normalization timing and process, financial institutions are already moving aggressively to gain an edge on their competition in deposit pricing. In a recent webinar titled Overcoming Your Deposit Pricing Challenges, FICO Analytics Segment Leader Matt Stanley mentioned that 2014 witnessed a 30% increase in deposit pricing advertising, while some organizations have even started increasing rates in anticipation of Fed movement.

It’s not just economic events that are helping change the deposits game. As Matt indicates in the webinar, empowered customers – who now have access to more data than ever through mobile devices and real-time connectivity – have the ability to significantly transform the Deposit environment. The transition from brick-and-mortar banks to e-Banking is just one indicator of the... [Read More]

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Risk & Compliance Model Management Best Practices: Part 4

Best Practice Push Pins Part 4

Welcome to the latest Model Management Monday. This is the fourth in my blog series on model management, each post highlighting a best practice that supports both compliance and improved performance.

Best Practice #4: Choose the Right Model Type

Financial institutions should select a model type appropriate for data type and decision area, and one that will provide robust predictions. For both business and regulatory purposes, you should also consider the following:

Transparency. Your model type should be easy to understand and explain, both internally as well as externally to regulators and customers. Look for interpretable features that allow you to identify and explain what is driving a score result. A risk model should include reason codes, which many regulators require you give to customers when declining a request for credit. Reason codes identify the factors that had the greatest negative impact on the score. Palatability. Regulators will ask... [Read More]

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Fraud & Security Is Enterprise Fraud Management Just a Fad?

Fraud graphic

One of the things that I did not anticipate being asked last fall at the FICO APAC Fraud Forum was whether managing fraud at an “enterprise” level actually had any real value.

Conventional wisdom has promoted a customer-centric approach (as opposed to a product, account or event approach) for some years now. While the means of achieving this has changed focus somewhat — from the initial monolithic “single system does everything” to the “single platform supporting various inter-connecting modules” — the general consensus is that the more information and attributes available about the customer, the greater the propensity for accuracy of risk assessment and appropriateness of treatment.

Now someone was challenging the rationale. Sometimes the simplest of questions are the most thought-provoking: This felt like an emperor’s new clothes moment!

This challenge got me thinking whether there is ever an argument for not taking a more customer-centric approach, or even... [Read More]

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