All posts by Daniel Melo

Risk & Compliance 5 Questions Risk Managers Need to Ask About PSD2

PSD2 with question mark

The Second Payments Services Directive or PSD2 will bring tremendous changes to the payments world in the coming months. But what does it mean for risk managers? That’s one issue we grappled with at FICO’s recent EMEA Risk Leadership Forum. Today I believe we have more questions than answers. Bear in mind that the goal of PSD2 is to enable customer migration and incent market competition. It’s the finance equivalent of being able to keep your phone number when you switch providers. That’s fantastic if you’re a new entrant, not so fantastic if you’re a bank being forced to share your accounts’ details with new competitors. But PSD2 is more than just open banking. It creates two new players – the Payment Initiation Services Provider (PISP) and the Account Information Services Provider (ASIP). While most banks will be one or both of these, so will many other market participants, such... [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, driven... [Read More]

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Risk & Compliance Russians’ Credit Health Slides to Six-Year Low


Just as millions of Americans check their FICO Scores to see how their credit is doing, FICO and the National Bureau of Credit Histories (NBKI), Russia’s leading credit bureau, keep tabs on the health of Russian consumers. If your credit history matched the trend we see in the FICO Credit Health Index, you’d be worried. The FICO Credit Health Index measures Russia’s overall credit health, based on the percentage of consumer loans and credit cards reported to NBKI that are delinquent by more than 60 days. The index has been falling since it peaked in January 2012, and it’s still falling, a symptom perhaps of the negative trend in the Russian economy. Last month, the index stood at 95 points, one point below January’s 96 but 7 points (or 7%) below the 102 points of January 2014. In February, 13.4% of Russian credit accounts were delinquent, compared with 10.7% in... [Read More]

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Risk & Compliance Good News and Bad News on UK Student Credit Cards

UK Student Cards Chart

Here’s the good news: Our latest figures on UK credit cards from the FICO® Benchmark Reporting Service show that the percentage of student card accounts that have two-cycle balances reached a two-year low in May 2014, before rising slightly in June.

Now, here’s the bad news: Average two-cycle balances on student cards are going up. Having fallen from £533 in June 2012 to £521 a year later, they have now hit £733, a 40 percent increase in just one year.

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Risk & Compliance Has Russians’ Credit Health Reached Its Nadir?


As reported today by FICO and NBKI, Russia’s credit bureau, Russian borrowers’ credit health has been falling for two years, and reached a new low in July. The FICO® Credit Health Index had reached 98 points, the lowest level since the Index began in 2008, and two points lower than the previous low five years ago.   Why? FICO and NBKI believe this is the result of the credit market expansion. The FICO Credit Health Index measures Russia’s overall credit health, based on the percentage of consumer loans and credit cards reported to NBKI as delinquent by more than 60 days. Expansion of unsecured credit — which generally has higher delinquency rates — combined with a slowing of new accounts has caused the index’s erosion. When will this fall stop? It could be soon, according to Alexander Vikulin, CEO of NBKI. “The quality of new loans is high, based on... [Read More]

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Collections & Recovery Better Communication with Overdue Customers Is an Award-Winning Strategy for BNP Paribas Bank Polska and Daimler Financial Services


Collections, a trending topic in our blog, is an invaluable tool for providing an outstanding customer experience. The collections unit is one of a firm’s important contact channels. For proof that the collections practice is becoming a customer service area, just look at the winners of the 2014 FICO Decision Management Award for Debt Management. Both companies — BNP Paribas Bank Polska, which is a part of the international BNP Paribas Group, and Daimler Financial Services, the financing arm of automotive giant Daimler AG — are using customer-centric communication services to improve consumer collections. BNP Paribas Bank Polska saw an opportunity in its Polish business unit to improve collections by automating contact with customers, segmenting customers more precisely, and identifying the most effective collection actions to take with each customer. The bank uses FICO® Risk Intervention Manager to contact overdue customers with interactive SMS and automated voice messages in order... [Read More]

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Customer Engagement Nationwide Building Society Makes More Credit Available Using FICO-Powered Strategic Risk Infrastructure


One day your bank is at the top of the online pricing table for loans, with the most competitive pricing. The next day, your rival is on top. What do you do? If you’re the UK’s Nationwide Building Society, the world’s largest building society with over 14 million members, you can whip your way right back to the top of the table. That’s one of the advantages of the Strategic Risk Infrastructure Nationwide built using advanced decision management technology from FICO. The SRI has enabled Nationwide to increase lending by at least £25 million a year. The project’s results have made Nationwide this year’s winner of the FICO Decision Management Award for Customer Originations. The key aim for Nationwide was to make more credit available. Using FICO® Blaze Advisor, Nationwide have replaced all the disparate systems previously used in its mortgage and personal loans operations, enabling the society to treat... [Read More]

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Risk & Compliance Building a Stress Test Lab — Customer-Level Stress Tests


In my last post I discussed how important stress testing is to our credit risk management work. Generally, we think of stress testing a bank, or a portfolio of assets. But in fact, we can improve risk management by building customer-level stress testing into our stress test lab.

This might sound like a strange idea, but let me digress a little.

Risk managers oversee day-to-day decisions that comprise the portfolio-level panorama. Applications need to be approved, collections actions must be taken, transactions’ pay/no pay decisions are demanded, and so forth. A risk manager needs to know how all those individual decisions will perform — and every risk manager knows that this performance may well take place in a very different economic future.

Let’s take just one of these decisions, the application approval based on a credit score. How do we define a credit score cut-off today? Normally, we’ll use the Log Odds per Score graph to set the cut-off based on our risk appetite:

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Risk & Compliance FICO Data: Far Fewer UK Cardholders Are Overlimit


Overlimit? Dude, that’s so over. At least, that’s what the latest data from the FICO® Benchmark Reporting Service suggests.

According to our latest report, the percentage of standard credit cards with overlimit balances has fallen from 2.6 percent in March 2012 to 1.9 percent in March 2014. The percentage of cards with overlimit balances also dropped for student, premium and Irish cards, with student cards falling the furthest, from 5.3 percent in March 2012 to just 2.4 percent in 2014, a 55 percent drop.

Average credit lines are going up, which could account for some of this trend. But in fact, overlimit accounts are falling faster than credit lines are rising. Chalk this one up to good lessons on credit management learned during the UK’s difficult recession. Will those trends last as the economy continues to expand?

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Risk & Compliance Don’t Stress Out Over Stress Tests


In the wake of Lehman Brothers’ failure in 2008, the meaning of “stress test” changed. The worst global financial and economic crisis in the last 80 years created a confidence gap that forced regulators and institutions into simulating worst-case scenarios.

In two big waves, 2009 for USA and 2010 for Europe, the majority of the global financial system was tested to the top. This stressed the risk managers more than the portfolios.

Now that stress test fever is back, what have we learned that can help us get through? In a series of posts, I will discuss how to be prepared for stress tests, what the market learned and how to apply those lessons to the day-by-day rigors of risk management.

The first lesson is: Don’t panic. Stress tests are inevitable, so relax and enjoy! We know regulators will demand these on a regular basis, so create a proper framework for testing your portfolios. Build a simulation environment, your very own Stress Testing Lab, with the proper software tools and data sets. There are several types of tests that can be applied to a...

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