All posts by Andrew Jennings

Risk & Compliance FICO Research: Are Millennials Really Abandoning Credit?


Nothing fascinates us more in the world of demographics than what the Millennial generation think, do and how they act.  One thing for sure is that, as they vie with the Baby Boomers to be the largest demographic group here in the USA, what they do is important. And we don’t need to be statisticians to know that the Baby Boomer generation isn’t going to be getting any bigger. The question for many in financial service boils down to this: Are Millennials really abandoning us? The topic came to mind for me recently as I was asked to be part of a panel discussion on credit and the economy at an ABS East conference. Since much of what gets said about Millennials seems to be more opinion than fact, I decided to look at a few stats and see if we could cast any light on what might be happening.... [Read More]

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Risk & Compliance 2017 Predictions: 4 Trends that Will Shake Up Banking Next Year


If you follow the financial press, blogs and newsletters, you may have noticed a sea change in the topics du jour over the last 12 months. As we close out 2016, receding into the background are the never-ending stories of Big Data technology, as well as the hype of how P2P lending is taking over. Instead, the focus is on blockchain, open banking, AI, fintech beyond P2P lenders, cybersecurity, digitisation and customer experience. This shift is exciting because, as these topics all collide, it will shake up the very face of banking as we know it … although probably not quite as quickly as the technology talking heads would have us believe. I have one more to add to that list: financial inclusion must be central to the story of 2017 because it will be the beneficiary of many mainstream industry innovations. Here are some thoughts on just four of... [Read More]

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Risk & Compliance FICO® Score High Achievers: Is Age the Only Factor?


FICO’s latest research on national FICO® Score distribution shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “FICO® Score high achievers,” where we examine the credit behavioural profiles of consumers with higher credit scores. As expected, our latest study showed that older people generally have higher scores, as has been the case in our past research. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall FICO® Score calculation. But for younger consumers, it isn’t too helpful to say, “just wait until you are 50... [Read More]

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Risk & Compliance New Ways to Score Risk Can Improve Financial Inclusion

Hands holding globe

The path to a better lifestyle includes access to credit. Unfortunately, an estimated 3 billion people worldwide fall outside the credit mainstream – they either don’t have a bank account or they have so little data at the credit bureau that lenders may skip over them, or classify them as very high risk. That’s why FICO has announced the FICO Financial Inclusion Initiative, a global effort to increase access to affordable credit for consumers and businesses with limited or no credit history. We’re using a combination of business partnerships, innovative new products, mobile platforms and cloud-based services to help credit grantors make affordable credit more accessible to unbanked and underbanked adults worldwide. The first international efforts of the initiative are: A partnership with EFL Global to expand credit scoring options for lenders and consumers in Turkey, Russia and Mexico using consumer-contributed psychometric scoring technology. A partnership with Lenddo to develop... [Read More]

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Risk & Compliance Will Fintech Risk Models Have “Unintended Consequences”?

Crystal ball

Last month the President of the San Francisco Federal Reserve Bank addressed the LendIt USA conference here in San Francisco. He talked about “unintended consequences” and the role regulators play in protecting wider economic interests. “I am excited for the changes to come, and I see the potency of the possible,” said John C. Williams. “But for fintech’s potential to be met, we need to make sure we don’t reinvent or exacerbate shortcomings that have plagued our financial system thus far. In that regard, well-designed regulation protects consumers, fosters inclusionary rather than exclusionary practices and enhances fairness and resilience of the financial system should help rather than hinder fintech’s contribution.” Since that speech, trouble with marketplace lenders such as Lending Club has led many in the industry to say the fintech bubble is bursting. Whether or not that turns out to be the case, it’s worth exploring this issue: What... [Read More]

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Risk & Compliance Why “Alternative Data” Isn’t an Alternative

Willy Wonka meme

In the last few weeks I have been asked on several occasions to comment on the use of “alternative data” in credit scoring and risk assessment. Sometimes it seems I am being asked to defend using “traditional data” rather than the new, cool stuff. I’m going to share a few observations that I hope can put this in context. Here’s the first: There is value in what people call “alternative data.” It just isn’t alternative. People often talk about alternative data as if it is somehow magical and, to paraphrase a famous UK lager ad, able to reach places traditional data can’t. It reminds me of how fans talked about “alternative rock” bands like The Sex Pistols or Nirvana — they were just cooler than “classic rock” bands like The Rolling Stones. How often have you seen words like limited, narrow and restricted used to describe traditional data, and terms... [Read More]

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Risk & Compliance The 2016 Road Ahead: Top Banking Trends and Challenges


What does the road ahead hold for bank risk managers? As 2015 winds down, I’ve been visiting many banks all over the world. During these conversations, several themes keep recurring, suggesting both opportunity and challenges for banks in 2016. Here’s where I see things heading next year: Expanding the onramp to credit. Finding new ways to serve the “credit underserved” is top-of-mind at many institutions, particularly in the US. The growth of alternative lending, combined with the desire of more traditional lenders to find new customers in a saturated market, appears to have created momentum for expanding services to many people who have not utilized mainstream banking products in the past. Caution ahead: rising interest rates. I don’t think rates themselves will be a big deal because the rise will likely be gradual. The bigger concern is the impact of a stronger dollar. This will cause capital to flow into... [Read More]

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Analytics & Optimization Charles Barkley: “Analytics Don’t Work”

Charles Barkley

I guess I can pack up my desk and go home. My career was just ended by none other than basketball legend Charles Barkley, who dealt a death blow to the burgeoning analytics industry with this damning assessment: It starts with Charles calling Houston Rockets General Manager Daryl Morey “one of those idiots who believes in analytics.” And it’s all downhill from there. Joking aside, I think what’s telling about Charles’ diatribe is his emphasis on the difference between human experience (playing sports) and an abstraction of it (analytics). Charles isn’t alone here: There has always been a reaction to an over-reliance on analytics at the expense of human experience. FICO experienced this way back in the 1960s, when founders Bill Fair and Earl Isaac would waltz into a meeting with bank risk managers and tell them that they weren’t making good enough decisions. The people charged with evaluating a... [Read More]

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Risk & Compliance Three Things We Learned from Our Latest Banker Survey


Happy New Year! We’re kicking off 2015 with the release of our latest credit risk survey results. The bank risk officers we polled in December offered interesting insights into the potential financial and economic pitfalls we may face this year. Here are three results that grabbed my attention. Credit card debt is expected to rise. In the banker survey, 57 percent of respondents said they expected credit card debt to rise. In addition, 42 percent expected consumer loan delinquencies to rise, while 11 percent expected delinquencies to decline. However, respondents did not see consumer demand for credit slowing – 58 percent expected the amount of new credit requested to increase, and just 6 percent expected a decrease. The wealth gap is perceived to be a big deal.Nearly 74 percent of those surveyed said “the wealth gap poses a risk to the financial system in North America.” That is an increase... [Read More]

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Risk & Compliance What Can Risk Managers Expect in 2015? 5 Predictions


What does 2015 hold for risk managers? As 2014 comes to a close, I find myself looking ahead and thinking about the innovations and changes we’re likely to see next year. I predict an exciting yet challenging year ahead in risk management. Here is my quick take on five trends that risk managers can expect: Mind the wealth gap. In our last quarterly survey, we asked risk mangers how they felt about the growing wealth gap vis-à-vis systemic financial risk. More than 60% felt it posed “a growing risk.” And new data from the Pew Center indicates the wealth gap is nearing historic levels, particularly along demographic lines. This phenomenon may cause risk managers to reevaluate their models and reassess their policies. Alternative data takes center stage. There has been increasing chatter lately about the opportunity to bring more consumers into the “lendable” population. While traditional credit scores are the... [Read More]

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