Tag Archives: Risk Management

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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Collections & Recovery Collectors — Get Ready for the IFRS 9 Bucket Challenge

Ice bucket challenge photo
Jun012017

Remember the ice bucket challenge craze? Get ready for the IFRS 9 bucket challenge — it’s even more startling, and nobody’s standing by to give you a warm towel. Like GDPR, IFRS 9 poses major challenges for collectors, just as it does for accountants, IT, risk managers and anyone else in the credit business. So now let’s talk about what you can do. Note: While I’m just talking about IFRS 9 here, you do have to approach it and GDPR in concert, because in some areas they seem to be in conflict. You don’t want to gear up for IFRS 9 and then realize you have to undo some of your strategies or processes to avoid GDPR fines. Build your 30-day plan IFRS 9 says if a customer’s risk deteriorates — including becoming 31 days overdue — they go into Stage 2, and you have to start holding lifetime impairment.... [Read More]

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Risk & Compliance Don’t Let “Averages” Mess Up Your IFRS 9 Impact Forecasts

IFRS 9 as digital clock display
May292017

The clock is ticking on IFRS 9 compliance. Preparing for Day 1 IFRS 9 impacts before models are fully built, tested and validated is a bit like preparing for a scheduled car crash: You know the event is going to happen and you know it will be expensive and painful, but you don’t yet know the exact amount of damage. It is tempting to seek comfort in averages from industry benchmarks or surveys. But just as you would never apply the brakes of your car during heavy rain based on the average stopping distance of an average car in average weather conditions, neither should you plan for your business’s IFRS 9 impacts based on average industry impacts alone. Don’t Go by Published Numbers A few widely published, well-intended surveys have attempted to prepare affected organisations for this event by providing estimated ranges and averages in respect of key impact measures.... [Read More]

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Risk & Compliance NCAP Public Record Removals Have Little Impact to FICO Scores

May172017

The National Consumer Assistance Plan (NCAP) is a comprehensive series of initiatives intended to evaluate the accuracy of credit reports, the process of dealing with credit information, and consumer transparency. As a result of NCAP, in July 2017, the three credit reporting agencies (CRAs) are scheduled to make required changes to the criteria used to accept the reporting of a tax lien and/or civil judgment. It is anticipated that civil judgments and some tax liens will be removed from consumer reporting agency (CRA) data when this goes into effect, including previously reported tax liens and/or civil judgments that do not meet the new NCAP-related reporting requirements.  All credit scores that utilize CRA data will be impacted, including but not limited to FICO® Scores. FICO recently conducted research on the most widely used FICO® Score versions at all three CRAs to assess the impact of the NCAP-driven removal of public records... [Read More]

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Risk & Compliance 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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Risk & Compliance Examining the Credit Cycle: Is This as Good as it Gets?

Credit-Cycle-Abstract-Featured-Image
Apr132017

More than 70 straight months of US job growth, the official unemployment rate down below 5%, and average hourly earnings growing at a seven-year high of 2.9%. Signs of approaching full employment finally allowed the Fed to see enough stability to inch up rates without being seemingly blown off course by events elsewhere. There will be more rate hikes to come if the economy stays on this course, and in the event the deficits grow, it will pretty much guarantee what we already expect on the interest rate front. With all this in mind, it’s a good time to ask: Has the US credit cycle reached the top? Is it as good as it gets? Of course, we never know that for sure. This is all opinion (some would say speculation), especially on the economic policy front. But you have to feel that if it isn’t the top we are... [Read More]

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