Risk & Compliance Truth Squad: Is FICO Score 700 the Same as VantageScore 700?

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Securitization plays a key role in driving increased liquidity in the mortgage market, ensuring that banks can fund more loans, at lower cost. This in turn gives consumers greater access to affordable mortgages. FICO Scores, of course, play an important role in the risk management and transparency that powers the secondary market. Now VantageScore is claiming that its score can be used instead in GSE underwriting (and by extension, securitization), as a one-to-one replacement for the FICO Score. Could a clean swap-out work? It’s time to set the record straight. Claim: A seamless mapping exists between FICO Score and VantageScore, one that will hold up over time. Truth: The FICO Score and VantageScore, while sharing the same score range, do not share the same odds-to-score relationship, meaning the risk at a given score is different. The relationship between the two scores is not constant and any analysis that attempted to... [Read More]

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Fraud & Security Securing Digital Payments with Less Friction and Fraud


At the grocery store the other day, I paid using ApplePay. With just a tap of my iPhone and a chipper (payments humor!) musical chime, my payment was accepted. A few seconds later, after touching a few buttons on the payment terminal screen, I was walking out the door. What just happened? I experienced two things: a frictionless digital payment, and a mild customer experience victory.* Bringing down, or rescuing, the house Best of all, I wasn’t dealing with the “swipe or dip” decision point, and I certainly wasn’t putting myself at risk for knocking out the store’s POS devices. (Check out the blog in the tweet below for another payment expert’s hilarious, deeply personal tangle with EMV.) Based on my newfound confidence from the grocery store, I then marched into the local CVS pharmacy, brandishing my iPhone near the POS terminal only to hear the cashier say, “Oh, are... [Read More]

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Customer Engagement If You Give a Loyal Customer a Discount


By Tim Young Anyone who has small children is probably familiar with the book, “If You Give a Mouse a Cookie.” The story goes that the mouse will probably ask for a glass of milk, and it snowballs into the mouse engaging in many activities and never leaving. So, I will ask the same question, what if you give a loyal customer a discount? A data scientist at a conference recently told his audience, “I would never give a discount to a loyal customer.” After laughing, I wondered if the guy had bothered to read his company’s press release on its reward program. I am a math geek. I love math. But I also understand how it can lead you astray. It can identify insights that, if turned into strategies, can be disastrous long-term. First you need to ask yourself this: “Should I treat customers who have propelled my company’s success worse than those I just met?” If that doesn’t give you pause, then consider this. Your best customers today could become your competition’s best customers tomorrow. While you are busy trying to attract their best...

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Fraud & Security Mixed news on fraud in Brazil


During an October seminar about Electronic Crimes and Methods of Protection, the Federation of Goods, Services, and Tourism of the State of São Paulo (Fecomercio-SP) shared grim news on the state of electronic fraud in Brazil.A survey by the agency, which consists of retailers and service companies in the state of São Paulo, found that 300,000 families had at least one member that's fallen victim to an electronic offense. Some 14% of those surveyed had seen fraudulent charges on their credit cards, nearly 13% experienced the fraudulent use of personal data, and roughly 7% were affected by card cloning. These findings echo those from a Brazilian Banks Federation survey, which as I discussed in my last post, revealed that electronic fraud losses are on the rise. But it's not all bad news on the fraud front in Brazil. Overall losses from credit card fraud are declining, even though the use of credit cards is growing. Card fraud losses in Brazil decreased from R$ 301 million (US$ 177 million) a year in 2005 to R$ 213 million (US$ 125 million) in 2010....

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Analytics & Optimization Analysis and creativity in decision-making


Scott Thurm recently wrote a piece in the WSJ Marketplace section - Now, It's Business By Data, but Numbers Still Can't Tell Future. He talked about the growing trend of trying to run companies more analytically, more "by the numbers", and the success some of those companies have had with this approach including those profiled in Tom Davenport's book "Competing on Analytics" (reviewed here). He quoted Robert Sutton (one of the authors of Hard Facts, Dangerous Half-Truths And Total Nonsense, reviewed here) who contrasted running a business by the numbers with running it based on "faith, fear, superstition and mindless imitation"! However, Scott then goes on to identify two key risks inherent in an analytic or data-driven approach. Change upsets the basis for the analysis Too much focus on analysis stifles the creativity needed for innovation and tomorrow's growth These are both good points and made me think about enterprise decision management(EDM) in this context. Now Tom Davenport talked about the need to make "quick, accurate decisions on an...

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Analytics & Optimization Using EDM to respond to trends in Financial Services


Guillermo Kopp over at Tower Group wrote this piece - Top 10 Trends in Financial Services: New Approaches in a Changing World (subscription required). It is an interesting paper, though I hope he will write some follow-up pieces as there are some really interesting areas that are dealt with very quickly! Anyway, to quote from the summary, two main themes seem to me to require enterprise decision management (EDM) for an effective response: TowerGroup has found that, for both retail and wholesale interactions, consumer preferences will influence the financial services agenda. To improve delivery channels, products, and services, FSIs are embarking on a creative race for competitive differentiation and giving priority to strategic technology initiatives. So consumer-driven banks offering creative differentiation across multiple channels through complex sets of products and services. All in a heavily regulated world where you need to get a return on compliance and where enterprise fraud management and enterprise risk management are critical....


Analytics & Optimization Book Review: Making Robust Decisions


I just finished reading Dr David Ullman's new book, "Making Robust Decisions". The book is a discussion of the challenges of making complex decisions, especially those with alternatives and uncertainty, and a methodology/software platform for approaching these kinds of decisions. It's a quick read with some great advice for anyone trying to make decisions, even if they don't want to adopt a more formal methodology. The sections on uncertainty, weighting of criteria and belief maps were particularly interesting. A couple of things stood out from an EDM perspective: There was a great list of questions about a decision that could be applied to a decision you were automating as easily as they can be to a more manual one: Which is the best alternative? What is the risk that our decision will not turn out as we expect? Do we know enough to make a good decision yet? Is there buy-in for the decision? What do we need to do next to feel confident about our decision, within the scope of our limited resources? David also had a great definition of the phrase...

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Analytics & Optimization Book Review: Blink


This book has been a hot topic recently. I first heard about it at InterACT where Larry Rosenberger used it as part of his discussion on the future of analytics. The book is an easy read and full of wonderful stories and vignettes that illustrate Malcolm's points. Essentially the book is about how people make rapid decisions, often before consciously processing the available data, and the good and bad consequences of this. We are all familiar with some of the negative consequences - racial stereotyping for instance - but Malcolm discuses some of the positive ways this impacts effective decision-making. Using a relatively small case of characters and some richly described stories he leads us through an understanding of how rapid cognition works, why it is different from how we analyze things and how it can be more or less effective that any approaches to problem solving. I particularly enjoyed the stores about people who had trained their snap judgments so that they could make quick and accurate assessments of situations while not being distracted by misplaced...

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Analytics & Optimization Predictive analytics can detect growing fraud in Healthcare Claims


I saw an interesting article in CIO Insight the other day: Health IT Must Target Fraud, Group Says. The report - from the Foundation of Research and Education (FORE) of the American Health Information Management Association (AHIMA) - says that it is essential that fraud management programs be built into the new National Health Information Network (NHIN) to significantly reduce health care fraud losses. The report calls for interoperable Electronic Health Records as a major enabler - integrated data being no less important for healthcare than it is for CRM - and goes on to say that major strides can be made in reducing health care fraud by applying advanced analytics like those used so  successfully in the financial services industry.  The best results will be driven by both prospective and retrospective approaches, the report said, and made a fairly dramatic prediction of the value:“By 2007, healthcare payer organizations that adopt automated systems for fraud and abuse detection will see a return on investment of at least 5 to 1,”The report was...

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