How FICO Orchestrates Contextual Intelligence to Fight Fraud
FICO’s contextual intelligence capabilities allow organizations to become more efficient and effective in two important ways related to fraud and financial crime compliance
I recently spoke with FICO’s Adam Davies about contextual intelligence, a new approach that banks, other financial institutions and telecommunications companies are embracing to prevent fraud and financial crimes. Contextual intelligence builds on the convergence of fraud and compliance systems, solving the essential question, “What answer, to what question, do I need to know, at what moment in time in the customer journey, to make sure the transaction is legitimate?” In this blog, the second in a two-part series, I’ll talk with Adam about how FICO can help organizations get on the path toward applying contextual intelligence.
Doug: That’s a pretty complex diagram! Please explain.
Adam: This diagram captures a standard process flow for credit originations. It’s a generalized flow that could be for an application for a new credit card at a bank, a new phone at a mobile service provider, a car loan or many other types of credit. There are five distinct stages that require validating the applicant’s information and assessing their creditworthiness. Similar types of flows can be established for enterprise fraud detection, know your customer (KYC) for anti-money laundering (AML).
Doug: How are processes handled in most organizations today?
Adam: Complex processes like credit originations, fraud detection, KYC and AML are traditionally managed by different teams. Each of those teams may have their own technology platform, built and managed independent of the others. But all of these processes share many of the same components. As an example, let’s look at the use of the mobile phone as a verification variable. Credit, enterprise fraud, KYC and AML share numerous common questions including:
- How long has this person been a customer?
- How long has it been since they last accessed their account?
- How long has it been since they last changed their phone number?
- How many phone numbers does the customer have on file?
- How many devices do they use to access their accounts?
In addition, each of these groups typically pays for their own external data streams, another expensive duplication.
Doug: That’s a lot of redundant efforts. How can FICO help to reduce these inefficiencies today?
Adam: FICO’s contextual intelligence capabilities allow organizations to become more efficient and effective in two important ways.
First, contextual intelligence is the ultimate vision for FICO® Falcon® X, our converged solution for fighting fraud and financial crime. We’ve talked a lot about the convergence of fraud and financial crime management in a single system, and the process efficiencies that can be gained. Contextual intelligence is the natural next step — it offers a powerful new level of insight that is “greater than the sum of the parts.”
The FICO® Platform provides a powerful, polished environment for building an organization’s contextual intelligence engine. The Platform allows repeatable processes to be built — like I mentioned in answering your first question — that can be orchestrated and deployed again and again, reducing redundancies and bringing new efficiencies. From an execution standpoint, DMP’s Data Orchestrator is a key tool. It allows third-party data to be grabbed in the most cost-effective ways, to optimize the consumption of external data.
Doug: So, what FICO is doing is providing organizations with the capability and the technology stack to be able to create amazing insight — create it once and use it for multiple different decisions, regardless of whether it's an online banking login from a new and very different location, or a compliance check.
Adam: Exactly!
Doug: How about one more example of how contextual intelligence makes for more effective customer interactions?
Adam: OK. In our previous conversation we talked about a customer being on holiday in Thailand, properly authenticated in accordance with the risk level of the activity she wanted to do: pay a bill. Let’s say she next wants to do a new activity, wiring $3,000 to a new beneficiary. This raises many more risk flags that require stepped-up authentication. Not only is the customer using a new device from a relatively risky geolocation, she failed five login attempts before getting in, and her initial navigation around the main online banking page is inconsistent with previous patterns.
In this instance, we will step up to biometric authentication. When the customer successfully authenticates with a voice or face biometric login, the bank can be quite certain it’s really her making the transaction. The bank allows the wire transaction to go through without further friction.
In older, siloed environments, a fraud management system could easily flag as fraudulent an out-of-pattern transaction like this, a money wire to a new recipient, placed from a location half a world away from her home. Restricting the customer from the wire, particularly if she’d just authenticated to pay a bill, frustrates the customer and is highly inefficient for both her and the bank.
Doug: Thank you, Adam, for explaining how contextual intelligence simplifies the complex world of banking we now live in, helping banks to be more efficient and effective in delivering experiences that delight customers.
Don’t miss my colleague, TJ Horan, at the upcoming Aite Financial Crime Forum, where he’ll participate in the feature panel, Best Practices for Operationalizing Converged Intelligence, on Tuesday, September 14 at 10:30 am ET. Learn more here.
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<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>. 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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>
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