Risk & Compliance Model Management Best Practices: Part 3

Best Practice Push Pins Part 3

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

Best Practice #3: Ensure Segmentation Transparency

Regulators require that you clearly document how you segmented the subpopulations within your portfolio and how you determined the unique actions you take against each. You also need to demonstrate that your segmentation supports your business objectives.

Regulators will ask whether you defined your subpopulation empirically or by a domain expert, and how your segmentation fits in with your decision strategies. In some countries, you may also need to demonstrate that your segmentation does not discriminate based on age, race or gender. Basel mandates that if you segment by product, you must do it under the umbrella of Residential Mortgage (RM), Qualified Revolving Retail Exposures (QRRE) and Other Retail (OR).

The key... [Read More]

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Collections & Recovery How Smart Government Agencies Collect More Debt (Video)

Collections video leader

Declining revenues, customers who won’t pay, overworked collectors — government agencies face the same challenges as anyone else collecting debt.  One agency that found a good solution is Shelby County, Tennessee.

As Debra Gates, chief administrative officer for Shelby County Trustee, explains in this video, the department decided to close a revenue shortfall not by raising taxes but by going after accounts receivable.

“The reason that we chose FICO was, first of all, their experience with government,” Gates says. The flexibility and open architecture of FICO Debt Manager were also important points.”

And the results?

“During the first 120 days of our collection activity for 2013, we collected an additional $6 million, which was about 80 basis points above what we’d collected in prior years,” Gates says.

“The employees have really bought into FICO Debt Manager. It has made our staff more efficient and more effective at what they do,... [Read More]

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Risk & Compliance Delinquencies on UK Credit Cards Fall to Two-Year Low


The steady growth in the UK economy is matched by a long-running decline in delinquent card payments. FICO’s latest data from the Benchmark Reporting Service shows that delinquencies reached their lowest point in more than two years.

For example, the snapshot from December 2014 shows that 0.6 percent of accounts were two cycles (60+ days) delinquent, compared to 0.8 percent in December 2013 and 1.0 percent in December 2012. The impact of seasonal spending on key metrics will be available in the next benchmarking report.

For card issuers, this trend provides an opportunity to analyze their data in more depth, and identify the best targeted treatments for specific account segments that are experiencing delinquencies.

Overlimit accounts were also down compared to December 2013, but the average amount overlimit increased by £12.80 in the last year. Average total sales rose £56 over the year from December 2013 to December 2014,... [Read More]

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Analytics & Optimization Three Ways Smart Machines Are Catching Up With Us


“One of the most significant developments in technology—and society in general—over the next several years will likely be the use of smart machines to replace human labor.”

This is how Tom Davenport, author of Competing on Analytics, opened a new article for Deloitte on cognitive technology. Davenport’s focus in the article is less on technology than on how humans can keep their jobs in the era of “bionic brains.” As he puts it, “We need to identify ways in which smart humans can augment the work of smart machines, and vice-versa.”

As one of the people building the next generation of smart machines, I take his point. I unequivocally believe that smart machines do and will augment human work.

But I don’t think of this as a competition between people and automation. Smart machines aren’t the problem. The problem is that machines are not smart enough — yet. That’s the... [Read More]

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Customer Engagement True One-to-One Marketing or 50 Shades of Grey

Shades of Grey

Have you ever heard the phrase “true one-to-one marketing?”

I always want to know what separates plain old one-to-one marketing from true one-to-one marketing. And better yet, is it worth it?

My first decade of work experience was in finance. As great as marketing ideas sound I am always doing the math in my head as to whether or not the proposed solution is worth the investment.  At the end of the day each investment needs to have a payoff. Now some results will take longer to realize than others and it is prudent to be patient but sooner or later the money has to come home.

So what is one-to-one marketing?

One-to-one marketing is a customer engagement strategy emphasizing personalized interactions with customers.  But here is where it goes from black and white to mostly 50 shades of grey.

There are many different forms of personalization that marketing can... [Read More]

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Risk & Compliance Model Management Best Practices: Part 2

Best Practice Push Pins Part 2

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

Best Practice #2: Prepare a Suitable Data Sample

Regulators require you demonstrate your model validation sampling techniques are complete, responsible and relevant, since incorrect or inaccurate sampling can impact model performance. This holds true for both the initial validation after you develop the model, as well as your ongoing model validations.

For your initial validation, the sample you use should be independent of the development sample. This can inform whether a model is over-fit to training data, and provides a more realistic benchmark for how the model is likely to perform in production.

For ongoing validation of models, we recommend that you:

Avoid sampling when possible. It is best to use all records from a given time period to... [Read More]

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Customer Engagement The Catch-22 in Small Business Credit

Small Business Loan Application

From China to Spain, United Arab Emirates to the United States, governments are recognizing the importance of small and medium-sized enterprises (SMEs) as an engine of employment and economic growth. The challenge that governments and financial institutions face when looking to expand SME credit is that often these loan amounts are too small for creditors to earn enough, especially if they have a costly originations process.

How can they break out of this Catch-22?

Creditors must make careful decisions – often with less information – or they can subject themselves to losses. FICO’s experience with SME lending around the globe gives us some insight on how to tackle this challenge. Current levels of automation vary widely, with many developed countries fully automated and others just implementing their first systems. Still, at the core, the answer for all institutions revolves around scoring, analytics and agile decisions.

For those with limited... [Read More]

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Risk & Compliance Video: How Free Credit Scores Build Loyalty at First Bankcard

Ramey video

Can offering free credit scores increase customer lifetime value? That’s what First Bankcard set out to determine when they started offering cardholders free FICO® Scores through FICO® Score Open Access. Now, 75% of the issuer’s online users access their FICO Scores—and the program is indeed building customer loyalty. Some 88% of cardholders are more likely to carry a First Bankcard product because of the free credit scores feature, and First Bankcard is also experiencing higher retention rates.

Get more details in this video interview with First Bankcard Marketing Director Caitlyn Ramey:

Read Caitlyn’s guest blog posts: FICO® Scores: Just Like Mikey – They Like It! and Do Consumers Actually Care About Their Credit Scores?

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Collections & Recovery FCA Research: How SMS Helps Consumers Avoid Debt Problems on Current Accounts


The UK’s Financial Conduct Authority just completed research into what helps consumers better manage their current accounts and avoid unintended overdrafts. The answer will come as no surprise to FICO clients who use our mobile communication services.

As shown in a handy infographic, annual summaries of costs and activity don’t help at all. Even when the bank puts it in black and white, this doesn’t help people avoid unarranged credit fees or even provide the impetus to switch banks if the costs are too high.

What does work? SMS alerts and mobile banking messages. The FCA found that these resulted in a 24% reduction in unarranged overdraft charges.

Surely this is a win, win, win: better customer service, at a lower cost, that drives the right kind of behavior. Oh, and the regulators approve!

For FICO’s own research on this topic, see our Insights white paper on How Mobile Communications... [Read More]

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Analytics & Optimization Origination by Any Other Name


For many years FICO has been an industry leader in consumer and small business credit origination.  We’ve developed a number of analytically driven applications to speed the time from customer application to close.

If you’re in the financial services business, you probably are very comfortable with the term origination.  If not, you may not even know what the term means.

Origination may be unique to banking and credit, but it’s also a term that virtually every business in the world is challenged with whether they call it origination, new account opening, onboarding or something else.  In a nutshell origination means to bring a new customer onboard or establish a new relationship.

For example, you apply for a loan.  You submit the necessary paperwork – tax returns, paystubs, bank statements, etc. – and the bank determines your credit worthiness and the terms of your loan. For other industries, the origination process could include... [Read More]

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