(Posted by guest blogger, James Taylor)
As Mark is the CEO of Fair Isaac I thought I would blog this one over on this blog rather than on the Smart (enough) Systems blog where the rest are going to be.
Mark started off talking about the increased risk management issues prevalent in the markets today - the sub-prime crisis - and that have made it a tough year for financial services. Financial services companies are facing a range of old and new issues like rising risk, changing payment behaviors (what gets paid off first), organic growth, fraud, consolidation and its focus on operational efficiency, competitive pressure on profits and the old standby of compliance with new and old regulations. Managing risk in this environment is key and this, managing risk, is the theme of the conference.
A recent Tower Group study of banks found that the #1 technology imperative for coping with the current situation is improved analytics. This is clearly Fair Isaac's focus - new and improved analytic models and techniques. Fair Isaac scores, technology and approaches are critical in assessing risk, detecting fraud and managing clients. The challenges of the market are not lost on Fair Isaac, specifically whether the FICO score stood up to the sub-prime market. Fair Isaac feels that the score continued to do what it does but that, as always, it must be combined with other good lending practices like loan to value ratios. Part of the problem with the sub-prime crisis was an over-reliance on the score as a stand-alone item.
That said, clearly Fair Isaac could help in new ways beyond just educating companies on using scores. Innovation includes:
- Forward-looking credit capacity score
- Portfolio performance sensitivity
- Portfolio valuation based on some of the same analytics as the Basel II work
- Optimization, through the acquisition of Dash
Besides this research oriented stuff, Fair Isaac has also been working on FICO 08, a new FICO score. The plan was to improve the score particularly in its ability to predict risk in credit shoppers and sub-prime borrowers. The score should be available from the bureaus this summer.
Fair Isaac is also investing in its software platform for decision management. Using Blaze Advisor for business rules and Model Builder, Fair Isaac's analytic platform, the solution is based on the IBM Middleware platform. This was announced last year and new applications based on this will start coming towards the end of the year and will be discussed tomorrow in the keynote.
Research Exchange Partnership was another program announced last year to work on client's premises to solve tough problems. One of these was an optimization factory for HSBC where the research was to introduce uncertainty into the models - something I am sure Ian Ayres would appreciate given his focus on confidence intervals. The second was to help a large Canadian company to establish analytics to improve share of wallet by focusing on their most profitable customers and trading off profitability and attractiveness to customers. In particular new work on segmentation was critical - Action Segments is the name of the new product. Nominations for the next REP projects are open so it will be interesting to see what projects come up.
Mark closed with a nice little factoid - 10,000 people have attended InterACT over the years in the US, Europe, Japan and most recently China. Ian Ayres is up next and I will blog over on the Smart (enough) Systems blog for the next few sessions, including his.