In a previous post, we noted that the majority of consumers who had a 7-year-old delinquency purged from their credit file saw improvements in their FICO® Scores. Now let’s look at whether these consumers’ credit-seeking behavior changed after the delinquency was purged and their score recovered. Were they more likely to apply for credit? Get approved and open new accounts? To assess this, we looked at the proportion of the “delinquency purge” population (those that had a delinquency removed from their credit report between May 2016 and July 2016) that had a new inquiry or opened a new account in the three months following the purge window (August through October 2016). In Figure 1, we compared those values to the same period a year earlier, to avoid capturing seasonal changes in credit habits. The data showed that there was a minor increase in the percentage of consumers that had a... [Read More]
As a result of several recent policy developments, talk of achieving meaningful US financial regulatory reform is getting louder. The passage in the House of the Republican-backed Financial CHOICE Act of 2017 (Choice Act), the ongoing federal agency activity in response to a number of regulatory reform-related Executive Orders by President Trump, and the positive results from the Fed’s annual supervisory stress tests of large banks are examples of efforts that appear to be moving the reform movement forward. Yet formidable political obstacles remain, leading many to ask: What is achievable and what path will regulatory reform follow? Here is my take. A Legislative Solution Is Not on the Horizon … at Least Not Any Time Soon In June, the House adopted, along a party line vote, the Choice Act, which aims to make broad changes to the 2010 Dodd-Frank statute. While Democrats and Republicans have both discussed their willingness... [Read More]
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]
By now, you likely know the talking points by heart… Silicon Valley is coming Millennials hate banks, so much so that a majority would rather visit the dentist than listen to what banks are saying New fintech products—across a wide range of areas including lending, wealth management, and payments—are going to lead to the unbundling of the financial services industry These talking points are deeply embedded in your brain because they are literally inescapable. If you have attended an industry conference, picked up a trade publication, or followed the conversation of the fintech intelligentsia on Twitter, you’ve been exposed to it. It can be difficult to separate the facts from the hype. However, it is vital that we do so. The question of whether fintech poses a significant competitive threat to financial institutions’ customer relationships, especially with Millennials (consumers age 22-37) and Gen Z (consumers age 18-21), has enormous implications... [Read More]
It’s predictions time again. And while I was correct that 2016 did turn out to be the year of bad analytics—see the ultimate illustration below—this year I’m doing something different: I’m predicting what won’t happen in the coming 12 months. The past year perhaps held no analytic surprise greater than the 2016 US Presidential election. Source: New York Times Let us move on to 2017. 1. Prediction: There will be no clear winner in the mobile payments wars A plethora of payment apps emerged in 2016, further upping the already densely populated payments landscape. Launches included Wal-Mart Pay, CVS Pay, Kohl’s Pay and CakePay (my personal favorite), to name just a very few. These apps are follow-ons to Apple Pay, and while many of them aren’t quite as good, that hasn’t stopped the stream of new entrants. Despite consumer confusion and high levels of market fragmentation, the payments landscape is going... [Read More]
How can banks leverage their transactional and non-traditional data sources to fight attrition and risk prediction? At this week’s Credit Scoring and Credit Control XIV conference, I will be discussing this subject in detail, but I thought I’d give you an overview of my talk. Transactional and non-traditional data sources show a lot of promise for banks. Using transactional analytics, for example, we can build more predictive behavior risk models using combination of Masterfile and transaction data. Such models are also better at predicting risk of default earlier than the traditional models. So banks can achieve the twin benefits of identifying more instances of future bad cases much earlier. Similar benefits accrue in case of attrition detection. Working with transaction data can also eliminate the need for expensive Masterfile data while keeping the performance gains intact. With the advent of Big Data technologies, it has become far easier for banks... [Read More]
The summer is almost upon us and students are cramming for final exams. Here at FICO, we thought we’d get into test taking spirit with a little quiz for our retail banking customers on one key demographic – Millennials. How much do you know about what Millennials want from their bank? Take our Millennial Banking Quiz to find out. The quiz is based on the results from a recent FICO survey of US consumers about their banking habits. We found some surprising results on what Millennials want. After you take the quiz, you can access the full report to gain new insights around the Millennial generation and retail banking. Click on this link to start the quiz: http://www.fico.com/millennial-quiz/
Shakespeare’s Hamlet sets the stage for an important discussion around the millennial generation’s views on traditional banking fees. A few months ago I posted about millennial bank switching behavior and the role of fees. Here are a few of those key insights fees and switching behavior: Millennials are 5x more likely to close all accounts with their primary bank, compared with consumers age 50+. One-third of the millennials surveyed cited excessive service fees (real or perceived) as the single main reason they switched banks. This was closely followed by a negative experience with a bank representative and ATM-related issues (too few, inconveniently located, or fees too high). More recently, FICO also spoke to a number of Millennials about fees and here is a sample of what they had to say. So the question is, to fee or not to fee? Which customers does it make sense to waive fees for –... [Read More]
With all the news about credit card breaches at major US retailers, one might assume that a huge percentage of the population is dealing with fraud on their credit and debit cards. Interestingly, FICO recently did a consumer research study and we found that only 15% of those surveyed had experienced any sort of fraud (credit, debit, checking) in the past 12 months. That is good news, those numbers aren’t higher, but for those that did it was really a make or break moment for their relationship with that card issuer or bank. The good news is that 79% were very satisfied with the response from their bank and often their opinion of the bank improved based on how well the incident was handled. The really fascinating information came once we asked them what specific actions they took in response to the fraud experience, many closed the account associated with... [Read More]
I was in an elevator the other day and heard the “soft rock” version of Nirvana’s Smells Like Teen Spirit. As shocking as that was, it got me thinking a bit about how over time “alternative” things go mainstream. In the banking context, peer-to-peer lenders are still “alternative” and they still represent a very small part of the overall lending pie, but with the recent news that Union Bank is going to front end part of their lending with Lending Club one starts to wonder how mainstream these lenders are getting. With advances in technology and the ability mine new data sources for insights on risk and customer behavior these firms can move quickly. One of the big wild cards for these lenders is where worldwide regulators are going. In our recent research, we see peer-to-peer lenders are most attractive to the Millennials (18-34 years old) with a little over... [Read More]
