Category Archives: Analytics & Optimization

Analytics & Optimization AI Spotlight: FICO’s Machine Learning Facilitates AML

Brain with AML highlihgted in neural pathways
Jun222017

This is a guest post from Nikola Marcich with the Policy team at the Software & Information Industry Association (SIIA), the principal trade association for the software and digital content industry. Walking into Bernie Madoff’s home in 2005, you would not have found piles of money under a mattress, behind a sofa or in his garage. At the time, Madoff had been running an elaborate Ponzi scheme through the wealth management arm of his business that reached $65 million by the time of his arrest in 2008, deliberately hiding the money intricately within the financial system. Serving as Madoff’s primary bank for over two decades, JP Morgan was one of the culprits of Madoff’s fraudulent actions and money-laundering tactics. In their innocent incompetence to identify clear red flags about Madoff’s returns and file a Suspicious Activity Report (SAR), JP Morgan’s was fined $1.7 billion in 2014. JP Morgan’s fine highlights the... [Read More]

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Analytics & Optimization “We Can Change Our Strategies in 2 Days” – African Bank

African Bank logo
Jun152017

African Bank, a large retail bank in South Africa, recently went through a large-scale restructuring in order to bring more efficiency, transparency and collaboration to the way it made decisions. Working with FICO, the bank applied a standards-based decision management methodology to fully modernize its decision system. Now that the new solution has been implemented, we spoke with Dawid Van Zyl, Program Executive of Credit Decisioning at African Bank, to learn more. Q: What challenges was African Bank facing with its existing credit decision process? Dawid: Our credit decision lifecycle was fragmented over different applications and teams. This was causing inefficiencies and missed opportunities for our executives to react to the market. We knew we needed to do a complete overhaul of the existing process in order to be effective and profitable. Q: How did you and the FICO team create a solution for this challenge? Dawid: The first step... [Read More]

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Analytics & Optimization The Future of Analytics: The Revolution Will Be Unstructured

Picture of Osvaldo Driollet
Jun052017

Although there has been much speculation over this statistic’s origin, most industry experts agree that 80% to 90% of the world’s data is unstructured data, and about 90% of it has been produced over the last two years alone. Of these unthinkably vast stores, only 0.5% is effectively analyzed and used today. In the business world, most unstructured data lies in customer-related text, which is abundant and available. However, most organizations don’t know how to efficiently extract predictive elements from unstructured customer data. They’re not sure how to reap the value of these insights by using them to boost the performance of predictive analytics, and make better operational customer decisions. But, done right, extracting valuable predictive insights from huge quantities of text takes just seconds. The Future Is Unstructured The tech industry is full of predictions, but in this one, I have high confidence: The future is unstructured –– because... [Read More]

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Analytics & Optimization Explainable AI Breaks Out of the Black Box

Box stamped AI
May312017

Over the last 12 months or so there’s been incredible excitement about artificial intelligence and all of the amazing things it can do for us—everything from driving cars to making pizza (super-cool video!). But — and this is a big “but” — artificial intelligence comes with many challenges, including trying to decipher what these models have learned, and thus their decision criteria. In my last post, I discussed how regulations such as Europe’s General Data Protection Regulation will demand Explainable AI. This is a field of science that attempts to remove the black box and deliver AI performance while also providing an explanation as to the “how” and “why” a model derives its decisions. DARPA says Explainable AI or XAI: Produces more explainable models, while maintaining a high level of learning performance (prediction accuracy); and Enables human users to understand, appropriately trust, and effectively manage the emerging generation of artificially intelligent partners. Three Ways... [Read More]

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Analytics & Optimization GDPR and Other Regulations Demand Explainable AI

Box stamped AI
May242017

The General Data Protection Regulation (GDPR) is a wide-ranging and complex regulation intended to strengthen and unify data protection for all individuals within the European Union (EU). A year ago I blogged about the data governance ramifications of GDPR, and in this blog I’ll focus on another facet of GDPR to talk about a related analytics topic: explainable artificial intelligence (AI). First, let’s start with GDPR. Article 22 of GDPR, “Automated individual decision-making, including profiling,” concerns the use of data in decision-making that affects individuals, such as a person applying for a loan. The regulation says: “1. The data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly significantly affects him or her.” Point 2 of Article 22 describes exclusions (including situations involving the person’s explicit consent, such as applying... [Read More]

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Analytics & Optimization Video: Scotiabank Cencosud Cuts Model Development Times by +50%

Cencosud video interview image
Apr192017

Ever wonder how one of Chile’s largest retailers retains over 3 million customers? We asked Scotiabank Cencosud’s Claudia Guerrero, Model Development Manager of Risk Management in its Retail Finance division. In this Cencosud video, Claudia discusses how the retailer relies on a comprehensive, integrated credit portfolio management solution developed by FICO. This enables it to make better customer decisions, from originations through customer management. In particular, FICO® TRIAD® Customer Manager successfully manages risk-based strategies for credit line increases and cross-selling, and FICO® Model Builder has helped Scotiabank Cencosud cut model development times in half, while still retaining predictive strength — which the company sees as a tremendous competitive advantage. For more information, read the Cencosud case study or visit the FICO Model Management and Compliance solution page.

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Analytics & Optimization Behavioral Analytics Attack Fraud, Cyber and Financial Crime

Hand holding analytics
Apr122017

Economies of scale is one of my favorite economic principles. It’s especially cool to see how FICO customers can realize associated benefits by using our behavioral analytic technology. IDC predicts that in 2017, behavioral analytics across compliance, fraud, and cyber detection and prevention will be in place at 15% of banks, helping them to avoid losses, regulatory fines and sanctions. Banks have already made a big start in the fraud space. FICO introduced behavioral analytics in the early 1990s and we currently analyze two-thirds of the world’s payment card transactions, in real time, for fraud. Now, FICO’s proven behavioral analytics can be applied by forward-thinking institutions to fight a wide range of financial crimes. In doing so, banks can gain powerful technology economies of scale, too, leveraging mature, market-proven analytic models to benefit new domains within their business. How do behavioral analytics work?   A quick search may tell you that... [Read More]

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Analytics & Optimization How to Build Credit Risk Models Using AI and Machine Learning

boxing poster with machine learning vs scorecard modeling
Apr062017

Which works better for modeling credit risk: traditional scorecards or artificial intelligence and machine learning? Given the excitement around AI today, this question is inevitable. It’s also a bit silly. While some new market entrants may have a vested interest in pushing AI solutions, the fact is that traditional scorecard methods and AI bring different advantages to credit risk modeling — if you know how to use them together. Take, for example, our new credit decisioning solution, FICO Origination Manager Essentials – Small Business. It’s designed to help lenders make faster origination decisions without increasing risk. This new FICO product combines our well-established scorecard technology with AI to build better credit risk models. How FICO Uses AI to Build Better Credit Risk Models As with our other origination products, Origination Manager Essentials includes credit risk models, and these models are segmented — different types of small business customers and different... [Read More]

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Analytics & Optimization Adapting Mortgage Loan Price Optimization to Building Societies

House image with analytics
Apr032017

One of the hottest analytic technologies in mortgage lending is price optimization. This is the application of advanced analytics to pricing strategies, in order to determine the ideal price for every customer that maximizes profitability, given factors such as take-up, affordability, etc. That’s great for banks, but what about building societies and credit unions? If profit isn’t your primary goal — if you exist to serve your members — does price optimization have a place? The answer is definitely yes. Using pricing optimization, building societies and credit unions can develop strategic mortgage offers that target specific objectives, such as customer retention, without hurting the bottom line and ensuring that targets around Treating the Customer Fairly are met. This kind of optimization can really pay off – making an appropriate offer, to the right customer at the right time, typically results in 10-15% higher retention of existing customers. When building societies... [Read More]

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Analytics & Optimization How to Rate Trade Credit Risk – Without Much Data

Darth Vader meme: I Find Your Lack of Data...Disturbing
Mar282017

Allowing people or businesses to pay for things on credit is an ancient practice, and just as ancient is the dilemma: How can you tell if they will pay you back? We know how this works when lending to individuals, but sometimes granting trade credit is trickier. I recently went to visit a new FICO client who are involved in the bunkering industry. Bunkering is the business of providing fuel to shipping, and our client offers credit lines to cruise lines, oil firms and any company that needs to fill up its large vessels with black gold and all its refined derivatives. Like any other institution that offers trade credit (typical firms will pay a bunkering firm within 30 days for the fuel it has purchased), they have a bad debt problem, which is particularly important in an industry with small margins. Although some bunkering firms have turnovers well into... [Read More]

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