Fraud and Financial Crimes Convergence: Technology
A Fireside Chat with Julie Conroy, Research Director of Aite and TJ Horan, VP of Product Management at FICO
Many in the industry know that I’m a strong proponent of Fraud and Financial Crimes Convergence, so I’m often asked about just what organizations should do from a technology standpoint.
Julie Conroy, research director for Aite Group's Fraud & AML practice, and I recently sat down for a fireside chat to discuss just that topic as part of a three-part series on how to converge fraud and financial crime capabilities at your institution.
Check out this video as we discuss what you need to plan and implement to be able to converge fraud and AML technology. Keep reading for an excerpt from the video.
Julie: What are the key things financial institutions should be thinking about as they are evolving their technology backbone?
My top two would be as you are looking for your next generation solutions make sure that you have a unified and holistic data infrastructure that can be shared across both fraud and AML competencies so that you can leverage all of the commonalities of both internal and external data that can benefit your detection routines and investigations. Also, real time detection is table stakes at this point, and you have to have that real time detection and interdiction capability to keep up with the patterns of bad activity.
TJ, I know you are helping a lot of organizations with this journey, so what else should financial institutions be thinking about as they are applying technology to this challenge?
TJ: I wanted to expand on two of the points that you raised. One around the data and having a technology framework that allows you to harness the data. You need to be able to have flexibility in how you ingest the data, flexibility in how you combine the data, flexibility in how you optionally go out and look for other pieces of data that you might need in your decision flow process.
You can have all of the best intentions in the world, but at the end of the day, if your operational systems are unable to ingest and make business relevant or business contextual sense of that data in a way to let you make better decisions for your customers, you’re going to fail the technology hurdle. That’s one key area: make sure your technology investments have the flexibility to handle all of this variability in data.
The other aspect around that is analytics. We see analytics everywhere and a lot of organizations are investing in data scientists and teams who are building new analytic capabilities. Very often the deployment of those analytics becomes a challenge and that is one of the largest areas of investment here at FICO – building a platform that has the capability not only to deploy analytics but also to leverage flexibility around data ingestion.
Another area of investment that we have been doing is building up capabilities so that customers can build their own analytics to be deployed on the platform. They can leverage open source technologies as well as FICO proprietary technologies like InstantML. We’re putting the power of FICO IP in the hands of customers to build analytics, so they can deploy models seamlessly on the platform and marry that with the data ingestion capabilities we offer. This is one of our keys to our future, one of the areas that we believe drives a lot of the convergence of fraud and AML.
Julie, are there other technology areas that people should be exploring as they look at this convergence topic?
If you’re dying to know Julie’s take on that question, make sure to watch the video. We also recently shared another part of this series where focus on data. Watch the video here.
Come back to watch the last video where we discuss considerations regarding people and processes.
Follow me on Twitter @FraudBird for more updates on the latest fraud topics.
Popular Posts
Average U.S. FICO® Score at 716, Indicating Improvement in Consumer Credit Behaviors Despite Pandemic
The FICO Score is a broad-based, independent standard measure of credit risk
Read more
The GSE Data Is Public. Here's What It Shows About Credit Score Modernization.
Independent Milliman analysis of GSE historical data confirms what anyone can now verify directly: FICO® Score 10T is the most predictive score.
Read more
FICO® Score High Achievers: Is Age the Only Factor?
<p>FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores.</p> <p>As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall <a href="http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" target="_blank">FICO® Score calculation</a>.</p> <p>But for younger consumers, it isn’t too helpful to say, “just wait until you are 50 years old, and that will fix things!” Thus, I decided to dive deeper with our analysis, including looking at the credit behavioural characteristics of younger consumers with high FICO® Scores.</p> <p>In this analysis, I looked at credit characteristics for the two highest score bands, 750-799 and 800-850, which have about 16% and 23% of the population, respectively. I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO<strong>®</strong> Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score.</p> <p><a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a></p> <p>Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li><strong>Credit history.</strong> Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li><strong>New credit.</strong> High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li><strong>Pay on time.</strong> As you might expect, the further in the past the delinquency, the higher the score – and that’s <u>if</u> a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li><strong>Balance and utilization.</strong> Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of <u>available</u> revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards<em>. </em>The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li><strong>Benchmarks.</strong> I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data.</p> <p>In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage.</p> <p>In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances.</p> <p>Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!</p>
Read moreTake the next step
Connect with FICO for answers to all your product and solution questions. Interested in becoming a business partner? Contact us to learn more. We look forward to hearing from you.