Risk & Compliance Model Risk 101: A Checklist for Model Developers

Model Risk 101 Chalkboard #2

I’ve been blogging about the need to ensure checks and balances are in place across the entire model risk management and governance process, an approach often referred to as the “three lines of defense.” In this post, I’ll focus on the first line of defense – model developers and users – providing some insights for enhancing productivity and effectiveness. While banks strive to improve the efficacy of their models and the efficiency of their model development processes, few have implemented effective processes to: a) identify and prioritize models for redevelopment, and b) ensure that all modeling teams are following a standard process. As a result, while model quality at the individual or department level may be generally solid, areas such as documentation, variable usage, data inputs and assumptions, approvals, and other processes will likely vary, sometimes substantially, thereby introducing the potential for both adverse regulatory and business risk. In addition,... [Read More]

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Risk & Compliance How to Benchmark Profit & Loss in Banking

Strategic Planning 3 Profit Loss Keys

Building strategic plans is complex. You need to lay out the most effective combination of revenue drivers, loss reduction measures and cost cuts to deliver higher portfolio profits and lower losses. With fast-moving financial services markets allowing less time for planning and no room for error, analytics, balanced with business expertise, are playing a greater role in the process. Analytics help strategic planners cut through massive data and cut across organizational silos to identify, prioritize and coordinate actions that move the profitability needle. Understanding industry performance is a critical component in moving the profitability needle.  This is why we’re adding strategic and risk benchmarks to the Fair Isaac® Advisors P&L Insight Service. To benchmark profit and loss we see three steps: Financial management – take a due diligence approach to evaluating credit product portfolio opportunities, by looking for ways to detect challenges and uncover growth opportunities across your card product... [Read More]

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Customer Engagement Utilities Change the Communications Game


Just a few years ago, utilities typically used separate communication technologies for each operational application. Not only were these solutions unable to scale, they resulted in a disjointed customer experience. Today, utilities more often work with connected applications. This presents a wonderful opportunity for utilities to gather data and communicate with their customers in a much more holistic way. Utility customer activity generates a plethora of rich and useful data. Pair this with additional data sources, technology that enables real-time decisioning and the fact that customers are now using new channels to communicate—and utilities have a powerful toolbox to deliver on the three important actions of successful utility customer contact: reach, engage and resolve. Leveraging this toolbox, utilities can see vast improvements in efficiency and profitability in almost every area of utility customer contact, from outage and truck roll communication to delinquencies. Here’s how they can deliver on the three... [Read More]

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Fraud & Security How to Help Customers Avoid Vishing


Vishing is a real problem, with often the most vulnerable customers being exploited. Targeted communication in order to defraud individuals, often using the trust banks have spent years to build, can be achieved with little more than a phone number. In a recent article published on the BBC, the Financial Ombudsman Service (FOS) said that banks are not responsible for any vishing-related losses in approximately two-thirds of cases. In 63%, targeted victims have been left without compensation, being deemed to have simply given their money away. For banks, good news from a liability perspective can be a real headache when it comes to customer interaction. There will always come a time when customer engagement is necessary to confirm abnormal activity, and to protect accounts from potential abuse. But with customers being told they’ll probably be held liable if the interaction turns out to be vishing, what can you do to... [Read More]

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Analytics & Optimization Can All Sides Win the Pension Reform Battle?

NAV Graphic

In the US, pension reform is one of those topics that, like abortion and gun control, have people from all backgrounds and belief systems gesticulating wildly and arguing endlessly. Take this recent article about pension reform in New Jersey, where both sides accuse the other of either not making enough concessions (the unions), or reneging on their promises (the government). While the fiscal realities of this era ultimately force a move to some point between the axes, supporters and detractors will fight for every last inch until the deal is done – and even then, parting with a sense that they will be back to the negotiating table the next time around. In fact, anywhere in the world where increased life spans strain pension funding coffers, the debates can be as boisterous as what Americans have come to expect. The government of Norway realized it had a longstanding problem that... [Read More]

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Fraud & Security How Much Is European Card Fraud Rising?

Map of Europe showing card fraud loss rises and gains

Heightened awareness of card fraud has undoubtedly brought consumers into the fight, teaching them to be more careful with their PIN entries. But it may also have led to the perception that card fraud is out of control. In fact, card fraud growth across Europe is not high, as new data from FICO and Euromonitor International shows. Our new white paper on European card fraud shows that, across the region, card fraud rose just 6% last year. In the UK, card fraud losses rose by £29 million in 2014, also a 6% rise. Of course, that’s not the end of the story. Some countries fared far better than others. And even in the UK, the low overall rise masks large shifts in so-called “cross-border” fraud, where criminals use data on cards from one country to commit fraudulent transactions in another country. In the UK, FICO previously reported a 25% increase... [Read More]

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Fraud & Security Big Changes Ahead for Cyber and Fraud Teams


At the recent FIS International Client Conference in Vienna, I spoke in two sessions, one on cybersecurity analytics and the other fraud analytics. Interestingly, there were notable differences between the two conversations. At the cybersecurity session, it was clear that many banks now view cybersecurity not as an IT function, but rather as a financial risk (like fraud) that rolls up to the CRO. I reviewed several FICO streaming analytics technologies, which work together to monitor the network for early signs of hacker or malware reconnaissance. These analytics include transaction profiles of client and server IPs that monitor FLOWS, DNS, DHCP and Websecurity events, as well as FICO’s multi-layered self-calibrating analytic models and adaptive models that produce a score from 1-999 to rank-order cybersecurity threats. Many in the cybersecurity session were unaware that the fraud sides of their businesses had been using FICO’s real-time self-learning analytics for years. They were... [Read More]

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Risk & Compliance Model Risk 101: Fortify Your Three Lines of Defense

Model Risk 101 Chalkboard #1

As banks use increasingly more analytic models in their decisions, regulators are asking increasingly more probing questions about them – specifically, how these tools are being leveraged for risk management, capital requirements, customer decisioning and other activities. Regulators demand transparency, consistency and comprehensive documentation around areas such as model design, data quality, sample construction, model validation and risk policy reviews, just to name a few. Stress testing and capital adequacy reviews pressure banks to address the “new normal” of additional scrutiny and increased demand on their analytic resources and systems. Collectively, banks need the processes, people and technologies to enable comprehensive model risk management – similar to how an organization would architect a comprehensive risk management program to support all aspects of their day-to-day operations. Some leading banks are focusing on how to best use their scarce resources to help ensure checks and balances are in place to drive the... [Read More]

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Collections & Recovery Collections 101 – How to Outsmart Your Agency Placement

Chalkboard for Collections 101

Remember when things were easy? Me neither, but it sure seems like they’re getting more complicated. Sometimes, things seem so complicated you just want to ignore them. That brings me to today’s topic — optimization. I know that’s a ten-dollar word that analytics companies like to throw at you as the answer to all your problems. A lot of agents ignore it because it just seems too complex. But they’re missing the boat. Let’s take debt placement. As my colleague Carol pointed out in her last post, first-party accountability for third-party debt collection agencies is growing. Today there’s more at stake than just how much money you can collect or recover — business reputations are on the line. This makes picking the right agency for your debt more important than ever. And that’s where optimization comes in. A lot of firms don’t even look at optimization because of the expense.... [Read More]

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Risk & Compliance Video: Global Lessons from US Credit Scoring History

Global Credit Scoring Video 2

Airing on the ABS-CBN News Channel (ANC), television show “On the Money” covered the history of credit scores in the US, and explained how adopting similar measures in the Philippines would help grow its economy and responsibly expand consumer credit access. The video includes an interview with FICO’s John Hadlow. View the video “Why your credit history matters.”

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