What does 2015 hold for risk managers? As 2014 comes to a close, I find myself looking ahead and thinking about the innovations and changes we’re likely to see next year. I predict an exciting yet challenging year ahead in risk management. Here is my quick take on five trends that risk managers can expect:
- Mind the wealth gap. In our last quarterly survey, we asked risk mangers how they felt about the growing wealth gap vis-à-vis systemic financial risk. More than 60% felt it posed “a growing risk.” And new data from the Pew Center indicates the wealth gap is nearing historic levels, particularly along demographic lines. This phenomenon may cause risk managers to reevaluate their models and reassess their policies.
- Alternative data takes center stage. There has been increasing chatter lately about the opportunity to bring more consumers into the “lendable” population. While traditional credit scores are the bedrock for most lending decisions, there is a growing awareness that credit scores based on alternative data (e.g., phone bills, rental history) will have a helpful role to play. In fact, a session on this topic at our FICO World conference last month was one of the most popular.
- Automation, automation, automation. Model management and reporting will become more automated, and the need to trade efficiency, transparency and consistency will become paramount in all aspects of model and data governance. As just one example, solutions like automated workflow tools will become increasingly leveraged within model management infrastructures to track who made what decision and why, as well as record the basis of variable calculations and sources of data. This is an inevitable evolution driven by the need for greater efficiency, more agile modeling and robust compliance.
- The great student loan panic of 2014 subsides. With $1 trillion outstanding, concerns about student loans won’t disappear anytime soon. However, an improving job market is easing some of the pressure on loan repayment, and according to our risk manager surveys, the panic about defaults seems to be evolving into a more pedestrian sense that we have an ongoing issue that must be managed.
- Alternative lending goes mainstream. P2P lending apps. Microlending websites. Lenders developing new tools to facilitate non-prime lending. As this niche grows and begins to impact traditional lenders, risk managers will be asked to find ways to help large banks get in on the action.
One last prediction I’m certain will come to pass is that we’ll continue to see extensive innovation and investment in risk management. It’s exciting to see that our field has become so strategic to so many institutions.