Tag Archives: Analytics / Scoring Technology

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

boxing poster with machine learning vs scorecard modeling

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 Top 10 of 2016: Our Blog Posts You Liked Best


With 2016 recently coming to a close, we took a look back to uncover which topics you – our blog readers – gravitated toward last year. Chief among your interests were analytic innovation, credit risk, regulatory compliance, customer experience and mobile payments. Here’s a recap of our top 10 most popular posts published in 2016: US Credit Quality Rising … The Beat Goes On – Ethan Dornhelm shares FICO research showing how US consumer credit quality continues to climb. Why Is Customer Experience So Hard to Explain? – For an organization to improve customer experience, here’s why everyone needs to start on the same page. 4 Analytic Predictions for 2017 – From Killer Devices to AI Hype – FICO Chief Analytics Officer Scott Zoldi shares his predictions for analytics trends and burning issues in 2017. Your Customer Experience Management Is SO Immature! – Roughly 80% of companies are customer experience... [Read More]

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Risk & Compliance Can the Internet Revolutionize the Finance Industry in China?


This was the question FICO’s Dr. Andrew Jennings was challenged to answer as a guest speaker on a PBOC sponsored panel at The Third World Internet Conference in China. While one would assume the answer is ‘yes’, the world of FinTechs, P2P lending and online financial services have suffered quite a few stops and starts in China. Investment bubbles driven by consumers seeking higher returns, embryonic regulation and a patchwork of lackluster risk management practices persist in a nation undergoing a massive program of urbanization. Jennings spoke about the dual problems of reckless lending and the challenge of improving financial inclusion in China. He proposed that both can be solved with clever, analytically driven credit assessments that use new sources of data. “When we look at the data in China, there is not a single data source that can provide us with a predictable credit score for everyone. So the... [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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Analytics & Optimization Four Analytic Breakthroughs That Are Driving Smarter Decisions

Hand holding analytics

Patents are the currency of innovation, in software or any other industry. At FICO World 2016 in April, I explored how four patents we have recently been granted will enrich FICO’s product portfolio and, in turn, your business. Collaborative Profiling From cybersecurity, to payment card fraud, to marketing, companies want answers to the question, “How do we know when someone’s behavior has changed in a significant way?” And subsequently, “How do we rank those changes to focus on the most important cases?” FICO’s recent patent on Collaborative Profiling and change-point detection provides an efficient new way to answer these questions. By distilling behaviors from a large group down to a few basic “archetypes” of behavior, we can effectively determine which persons have the biggest changes in archetype mixtures. That’s a powerful capability that can also help marketers to better understand changing customer preferences. Structuring IoT Messages For the past few years... [Read More]

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Analytics & Optimization Maximizing Customer Value with Sequential Decisions

Scales showing alternative approaches to analytics

Leading data-driven businesses increasingly embrace prescriptive analytics – the methods, algorithms and tools that predict and compare likely future outcomes of alternative actions and find the best decisions given business objectives. Typically, these decisions are single-shot decisions and designed to optimize objectives defined over a fixed time horizon — for example, decide on credit limits and interest rates for new accounts to maximize 2-year profit. An exciting new branch of prescriptive analytics involves stringing together decision sequences over time. With sequential decisions, we decide how to act today using a more strategic approach that balances the near-term profit or cost associated with today’s decision with the future expected value that depends on subsequent decisions. For example for credit cards, subsequent line increase/decrease decisions will be taken that will affect future cashflow, and increases need to be administered carefully because they are hard to reverse. Sequential decisions connect today’s and future... [Read More]

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Fraud & Security Best Practices: Using Analytics to Detect Fraud, Protect Bank Data


In this video interview with Fintech Innovation, Andrew Jennings talks about the growing use of data analytics to detect fraud and protect customer and company data within financial services, in Asia and across the globe. He discusses how the problems of fraud, cybersecurity and compliance are all interlinked, and shares best practices for tackling these challenges. Read Andrew’s latest blog post: The 2016 Road Ahead: Top Banking Trends and Challenges.

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Analytics & Optimization From Credit Scoring to Cloud Analytics: A Video History of FICO


As we wrap up 2015, it’s hard not to feel nostalgic. Join us for a stroll down predictive analytics memory lane in this video history of FICO, where we explore key milestones in areas from credit scoring to fraud management to cloud-based decision management. It’s hard to believe it all started in 1956 when Bill Fair and Earl Isaac founded a company in a San Francisco apartment, utilizing a borrowed computer and an investment of $400 each. Now that we’ve taken a look back, let’s look ahead to next year. For 2016 trends and predictions, check out recent posts from FICO bloggers: “5 Predictions for 2016: The Year of Prescriptive Analytics” by Scott Zoldi “The 2016 Road Ahead: Top Banking Trends and Challenges” by Andrew Jennings Feel free to share your own 2016 predictions in our comments section below. And check back in early January when our regulatory blogger Daniel... [Read More]

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Risk & Compliance Can Alternative Data Score More Consumers?


In my last blog post, I showed why using credit bureau data alone is insufficient to safely measure the creditworthiness of the millions of US consumers who don’t currently have FICO® Scores. To reliably assess risk for these “unscorable” consumers, we must fill in the partial or missing picture of current financial behavior available from credit bureau files. Can alternative data fill in these gaps? We recently completed research to find out. It showed that with the right alternative data, we can accurately score more than 50% of previously unscorable credit applicants. The scores were significantly more predictive than using bureau data alone and designed to demonstrate repayment odds consistent with traditional FICO® Scores. As part of our study, we built a research model and scored New to Credit consumers using bureau data only (which generally consisted of only one or more credit inquiries). We then compared the model’s performance... [Read More]

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Risk & Compliance Why Bureau Data Alone Can’t Score More Consumers


For any key decision, a minimum amount of information is required to make an informed judgment. Consider an airplane pilot readying for takeoff. Suppose that the radar is out, or the instruments are flickering. A responsible pilot wouldn’t proceed down the runway until having all vital information to ensure a safe takeoff. Similarly, a minimum amount of current data about a prospective borrower is required before making a responsible credit decision. We’ve previously explained the logic behind our “minimum score criteria” for the FICO® Score. But of course, that leaves millions of US consumers without scores. We recently completed research on how to safely extend credit to these “unscorable” consumers (and in my last post, I shared insights into their credit behaviors). In a key part of our study, we analyzed the 28 million unscorable consumers with bureau files having sparse or old bureau data. We wanted to find out... [Read More]

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