Moving away from a fixed view of customer behavior

These days, portfolio growth and a bank's ability to quickly understand and adapt to changing consumer behavior are interconnected. The challenge, of course, is that traditional approaches to acquisitions and originations, based on analyzing past behavioral data, provide a historic view of customer risk and reward potential. But in today's markets, customer behavior is changing.

The situation is something like this familiar scene in films and TV: A guard watching a live video monitor is fooled when a segment of video is copied and looped in place of the live feed. The monitor shows the scene unchanged, even though there's actually a lot of activity going on.

Instead of this fixed, historic view, banks need growth strategies to reflect what's going on in markets now. The way to achieve this without organizational and infrastructure upheaval is to thread an “analytic learning loop” through existing processes.

An analytic learning loop provides timely, constant feedback on the performance of decision strategies in operations, and early warnings of changing market and economic factors affecting customer behavior. While analytic learning loops don't eliminate uncertainty, they do help banks become more effective at managing customer decisions in the midst of it.

FICO recently published an Insights white paper (#51) discussing the fundamentals of analytic learning loops with a detailed "in action" example. I encourage you to take a look.