Tag Archives: Risk Management

Risk & Compliance Banking Innovation: Why 2018 is the Year it Puts on its Overalls

Jan052018

’Tis the season for 2018 predictions, and numerous financial industry practitioners, observers and experts (including my colleagues at FICO) are getting in on the fun. I don’t have a concrete prediction for the next 12 months (which makes it much easier to avoid being held accountable to the accuracy of that prediction this time next year). I do, however, have an observation around banking innovation. In The Financial Brand’s impressively well-researched and very informative annual “Top 10 Retail Banking Trends and Predictions” piece, an interesting statement caught my eye: Interestingly, with the exception of one trend (testing and use of blockchain technology), the trends and order of these trends were the same as last year… The fact that the list of trends identified by the financial services industry has remained relatively consistent could be a symptom of a greater problem. The banking industry is moving much too slow, and legacy... [Read More]

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Risk & Compliance FICO Receives Analytics 50 Award for FICO Score XD

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Nov032017

Drexel University’s LeBow College of Business and CIO.com have named analytic software firm FICO a winner of the Analytics 50 Awards for the second year in a row. The awards program honors organizations using analytics to solve business challenges.  FICO received the award for FICO® Score XD, which leverages groundbreaking analytic technologies and alternative data to help safely and responsibily expand credit access. For more information check out the full award article. Led by Radha Chandra, principal scientist in the Scores business unit at FICO, the FICO analytic development team posed the question: Can alternative data expand credit access?  After extensive research and validation, FICO launched FICO Score XD.  Through the development of FICO® Score XD, FICO provides a potential onramp to credit access for the majority of 50+ million Americans who are identified as ‘unscorable’. In addition to traditional credit data, FICO® Score XD consumes alternative data from telco,... [Read More]

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Risk & Compliance Will CECL Be a Plus or Minus for Your Competitive Position?

Starting line of race
Aug292017

Whenever there’s a major change in standards looming, companies subject to it understandably go into heads-down mode, focusing on what they need to do to become compliant. Often, there’s an enormous challenge just getting to the start line—the point where the change is required standard practice. For help with reaching the starting line for CECL, the new current expected credit loss impairment model in the US, check out FICO’s just-published CECL Hot Topics Q&A. My colleague Lynda Woodward and I answer questions such as: What is the biggest difference in the change from incurred loss to expected loss? What if we don’t have sufficient data to estimate lifetime losses? There’s a lot of talk about increased volatility in allowance estimates under both CECL and IFRS 9. What are the main causes? Are there some hidden implications of CECL for customer experience and relationship building that I should be considering early... [Read More]

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Analytics & Optimization Using Alternative Data in Credit Risk Modelling

Aug292017

“Whenever I bring up the topic of alternative data, the first question our board asks is, ‘Are we using Facebook data?’ “ This comment from a participant in our recent EMEA Risk Leadership Forum caused a lot of chuckles and nodding heads. When it comes to evaluating credit risk, everyone wants to know if, when and how lenders will start probing their Facebook account. For reasons that will be obvious to lenders, that tantalizing possibility doesn’t actually top the list of data sources to mine. In fact, at the forum we explored a few sources of data that can add to the picture of a consumer’s creditworthiness. Multiple Types of Alternative Data What is alternative data? In credit granting, it generally refers to any data that is not directly related to a consumer’s credit behavior. Traditional data usually means data from a credit bureau, a credit application or a lender’s... [Read More]

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Risk & Compliance FICO Research: Student Loan Debt Explodes Across Age Ranges

Writing on chalkboard
Aug232017

Student loan debt in the United States has reached about $1.34 trillion.  It’s greater than the aggregate of credit card debt.  But surprisingly, we haven’t seen much in-depth analysis about the spread of this debt burden across the expanse of ages within the U.S. population.  Our latest research reveals that, over the last 10 years: The percentage of middle-aged and older population carrying student loans has doubled The average balance on those student loans has grown 40% Middle-aged and older populations are having a harder time making their student loan payments on time Student loans aren’t just an issue for the younger generation. Increasingly, they are a problem suffered by Americans of all ages.  Let’s look at the numbers. Figure 1.  More People Have Student Loans  Age Percentage of Population with Student Loans 2006 Oct 2011 Oct 2016 Oct %△ 2016 over 2006 18-24  39% 46% 49% 25% 25-34  29%... [Read More]

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Risk & Compliance FCA’s New Rules for UK Credit Line Increases

FCA logo
Jun192017

My last two posts in this update on UK cards discussed the growth in unused credit and the rising delinquencies in New cards. Both of these posts discussed credit line increases, but there’s one more factor that could weigh heavily on issuers’ plans. The FCA is preparing to introduce new guidelines for credit cards that will impact line increases. It is anticipated that all new accounts will have to opt in for any offered increases, and this is expected to reduce the number of increases that take place. The approach for existing customers should remain as per today, where customers have to reject the offer. However, customers who display a sustained propensity to pay the minimum payment (on non-promotional balances) will either have to opt in or be excluded from increases. Customers showing signs of persistent debt (based on how much they have paid in fees and interest versus reducing their balance)... [Read More]

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

PSD2 with question mark
Jun122017

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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