Winning at Digital Transformation: Be First, Be Smarter, or Cheat
The outcomes FICO Platform clients are experiencing demonstrate that when you are faster and smarter than your competition, and deliver excellent results, you don't need to cheat
For those of us old enough to remember the September 2008 financial crisis, the movie Margin Call is a fascinating, art-imitating-life financial drama. It takes place at an unnamed investment bank the night before the mortgage-backed securities sell-off and meltdown. Alarms go off at 10:00 p.m., when a junior member of the risk management team used analytics to discover that the firm's position in mortgage-backed securities was far over-leveraged; it will likely bankrupt the company unless immediate, drastic action is taken.
Six hours later the CEO, John Tuld, calls a 4:00 a.m. emergency meeting of the board of directors and top executives; Tuld asks his senior leadership how the company might best survive the impending financial carnage; his questions draw blank stares from his team. Frustrated, Tuld corners them with the question, “What have I told you since the first day you stepped into my office? There are three ways to make a living in this business: be first… be smarter…or cheat,” quickly adding, “and I don’t cheat.”
It's a memorable line – and a handy recipe for success. In fact, I found that FICO Platform clients are winning by being first and smarter.
1) Be First
Speed is a formidable benefit in the financial services business. That’s why “first mover advantage” is such an enviable position: being first enables a company to forge a strong market presence, use artificial intelligence, machine learning, and other new technologies to set the customer experience standard for others to follow, and grab market share among innovators and early adopters with groundbreaking products and services.
Here are 10 examples of FICO Platform helping clients work faster:
- A new digital in bank in Singapore acquired 100,000 customers in just 10 days.
- A Brazilian bank decreased the time to approve credit decisions from weeks to just two days as part of its digital transformation progress.
- 10x faster new solution delivery was achieved at multinational bank based in Europe.
- As part of its digital transformation effort, a leading North American bank is launching new offerings 5X faster than before.
- A Latin American bank now generates offers 97% faster than before.
- An EMEA bank is going live with digital technologies projects in half the time they did previously.
- A 10-weeks-to-days reduction in implementation timelines was achieved by a Canadian bank.
- A Latin American bank achieved a 90% reduction in new credit policy production time.
- An EMEA bank now makes system modifications 96% faster since its digital transformation.
- After just 12 months, a global credit card firm recouped its digital technologies investment 20x.
2) Be Smarter
Of course, outsmarting the competition is the end-goal of digital transformation, and is usually better than speed. Take an area like loan approvals: it’s possible to use digital technologies to make approvals faster than other lenders, but not if it means cutting corners on analysis, which introduces the possibility of added risk. Speed and smarts together is the ideal combination – the highest, ultimate state of digital transformation – especially when they represent the combined domain expertise of your smartest team members, and their combined innovation.
Here are 10 examples of FICO Platform helping clients work faster and smarter:
- Post- digital transformation, more than 90% of customers of an APAC bank are now onboarded with no manual intervention.
- A 16% lift in acceptance rate and 22% increase in revenue was enjoyed a by Brazilian bank.
- A Latin American bank sharpened its digital technologies to achieve a 25% lift in bookings.
- An APAC bank introduced a daily transaction score for more than 7.5 million customers.
- A 60% increase in digital transactions was experienced by a Latin American bank.
- A Latin American bank grew credit line revenue and number of users by around 15%.
- As part of a company-wide digital transformation, 20+ siloed decisioning areas were consolidated onto a single centralized platform by a Canadian bank.
- A 20% reduction in IT development and digital technologies expenditure was achieved by Latin American bank after its digital transformation.
- A 160% YOY gain in automated approvals was experienced a North American lender.
- A Latin American bank increased credit delivered by 55% and renegotiation rate by 22%, while reducing bad debt by 41%.
3) Cheat
FICO obviously does not advocate cheating; to the contrary, we are a leader in fraud detection and financial crime prevention.
We do, however, enjoy giving our clients undertaking their digital transformations an “unfair advantage” over their competitors, to leverage innovation and deliver exceptional business results. Is it cheating to bring innovative new products and services to market faster than your competitors? Or create new double-digital revenue streams, while others’ growth is flat? Of course not.
The bottom line is that long before Margin Call was released, FICO has been instrumental in helping clients to make faster, smarter more profitable decisions, and apply innovation to achieve their digital transformation goals. Since the launch of FICO Platform, 130 of them are outpacing and outsmarting the others.
John Tuld would be very pleased.
Learn How FICO Platform Can Power Your Digital Transformation and Boost Collaboration
- Explore innovation with FICO Platform
- Watch the video “FICO® Platform: Applied Intelligence, when and where it matters”
- See customers discuss their use of FICO Platform
- Read my article from The Journal of Digital Banking, “How Financial Services Leaders Are Using Enterprise Intelligence to Optimize Efficiency Ratios”
- Watch FICO Platform in action with the story of your everyday consumer, Digital Jane
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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>. 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>
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