FICO Platform

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Empowering banks to navigate the interest rates volatility

How APAC banks can thrive in a fluctuating interest rate environment

Executive Brief
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How banks can thrive in a fluctuating interest rate environment

With stubbornly high inflation numbers, several Asian countries have suggested keeping interest rates higher for longer, including Indonesia, Thailand, Philippines, Hong Kong, and Vietnam. Understandably, households feel the pressure of rising rates, but we’re possibly looking down the barrel of interest rate volatility being a more permanent fixture of our lives, particularly in Asia.

This was an observation made by departing Reserve Bank of Australia Governor Philip Lowe in September, where he said the ongoing presence of wider macro-economic risks of deglobalization, climate change, and shifting demographics will lead to more volatile inflation in the future. The need for central banks to take these global trends more fully into account when managing interest rates was echoed in an August speech by BIS Deputy General Manager Luiz Pereira da Silva.

These macro-economic and societal trends are unprecedented in their size, scale, and complexity, making it a paradigm shift for governments, businesses, and consumers alike.

The increased prevalence of supply shocks, deglobalization, climate change, the energy transition, and shifts in demographics mean either steeper supply curves or more variable supply curves. While this doesn’t mean that the inflation target can’t be achieved on average, it does mean that inflation is likely to be more variable around that target.

Governor Philip Lowe
Reserve Bank of Australia

Market reality

Ongoing interest rate volatility — a very real risk for Asian-based banks Rate changes require lending teams to swing into action — fast Operational silos prevent banks from delivering actions in real time

Ongoing interest rate volatility — a very real risk for Asian-based banks

This prospect of ongoing interest rate volatility is a real pressure point for the region and an ongoing challenge for Asian-focused banks to drive strong customer outcomes while managing shareholder return.

The shadow of prolonged interest rate volatility presents challenges for banks into 2024 and beyond, including slower and compressed credit growth as banks become wary of increased asset deterioration from higher mortgage defaults, higher mortgage funding costs from the increased interest rates on deposits, and regulators seeking a tightening of credit standards.

Five ways FICO® Platform will give banks an edge in 2024

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Driving stronger and quicker credit risk and affordability assessment

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Getting the pricing right

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Delivering personalized offers

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Increasing customer retention and portfolio health check analytics

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Improving margins and operational efficiency

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FICO empowers banks to break the silos and move fast to meet customer needs

FICO empowers banks to break the silos and move fast to meet customer needs

Banks can bring their teams together in a collaborative and agile manner by decomposing their large processes with the power of advanced analytics intelligence. The increased velocity of interest rate fluctuations are going to place significant pressure on a bank’s ability to balance the changing credit risk while delivering competitive pricing and offers. With FICO’s state-of-the-art, cloud-hosted technology solution, FICO® Platform, enterprises are empowered to uniquely address a spectrum of challenges across their customer lifecycle with an end-to-end set of composable analytics capabilities. It fuses together your enterprise data and alternate data with human intelligence to build a holistic and real-time understanding of each customer’s financial health. FICO® Platform enables teams across the enterprise to develop and execute insight-driven lending strategies that will deliver the optimal commercial and customer value — with agility, in real time, and at scale.
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Increase accuracy in credit risk, fraud, and affordability assessment

Increase accuracy in credit risk, fraud, and affordability assessment

Traditionally, banks assess loan applications based on a restrictive set of data points, including income history. The challenge is that these may be limiting when banks need the nuance to understand the opportunity and risk an applicant will bring — more heightened during volatile interest rate periods. FICO® Platform enables loan and credit teams to go deeper on understanding an applicant’s profile, drawing on more insightful and granular data points that shine a light on financial behavior — including income, expenses, and other financial patterns. This richer tapestry of insight enables banks to quickly form a quick view on where the applicant would sit on a risk-to-profitability spectrum for the bank — not just now, but over periods of heightened financial strain. Moreover, FICO® Platform has the capability to reveal anomalies that signal the falsification of information at the time of application, preventing fraud losses from the start.
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Increase speed-to-response and stay competitive

Increase speed-to-response and stay competitive

Customers want a convenient, easy, and tailored experience, and banks will want to ensure they make the right impression from the start, particularly in an increasingly competitive landscape. But continually meeting consumer expectations at the point of origination is a challenging balancing act particularly when the credit stakes are higher. Successful growth hinges on the ability to make risk-aware lending decisions within a matter of seconds that consistently suit the needs of every one of your prospective borrowers. FICO® Platform offers an application-to-decision-to-onboarding platform that aims to alleviate these issues by creating an end-to-end, frictionless-as-possible loan origination solution. This is done at a significantly increased speed and combines internal and alternate data sources for risk and fraud assessment — enabling you to say “YES” to loan applications quicker, yet streamlining your operations and preventing bad debt and regulatory risk.
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Optimize margins and acquisition with hyper-personalized pricing and offers

Optimize margins and acquisition with hyper-personalized pricing and offers

Ongoing interest rate volatility will mobilize more customers to test the market more frequently. This makes for a choppy competitive landscape where price sensitivity is high. In this environment, banks will not only need to know they’re correctly assessing an applicant’s credit risk but also have confidence they’re applying the right price and offer to reflect the applicant’s level of commercial attractiveness. On the flipside, customers want to be rewarded for good financial behavior. Through FICO® Platform, banks can reach the optimal intersection point that provides customers with offers that meet their financial objectives and needs while delivering the most profitable outcome for the bank. This is for new applicants, as well as for reviewing or adjusting current customers’ portfolios. In a low banking credit growth environment, this could be the edge that banks need — increase the acceptance rate of product offers, retain customers, and optimize returns.

Proactive customer management, including early detection of potential delinquencies

Rapid rate changes will inevitably trigger changes in customer behavior – whether testing the market for more attractive rates or changing their lifestyle and spending to account for a shift in re-payment levels. Having the ability to understand clients’ evolving financial position more deeply can help a bank make stronger customer connections.

Transaction analytics powered by FICO® Platform can undertake a daily review of millions of customers’ portfolios across the entire loan portfolio book to understand their financial health, habits, and preferences. It profiles customers “individually” in real time, which enables the banks to proactively:

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Develop

strong offers before the customer considers looking elsewhere
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Create

hyper-personalized plans to nurture loyalty and increase customer lifetime value
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Identify

increasing risks or warning signals of distressed customers much earlier in the cycle

ANZ Introduces Daily Transaction Scoring from FICO to Improve Credit Risk Decisions for 7M Customers

ANZ’s CRO talks about how transaction analytics have helped them feel more connected with their customers.

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Improve margins while maintaining or lowering operational costs — even with inflation!

Regular rate fluctuations can be a margin-eating experience for banks, especially for those burdened by a significant amount of in-built manual and siloed processes, which can hinder the speed to decide and execute your rate strategy. 

FICO® Platform can be a game changer for running a more efficient and profitable business through:

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Increased automation

to amplify loan volume by auto-decisioning more applications, which reduces labor and costs while delivering precise decisions
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Outcome simulations

by running champion/challenger scenarios on a regular basis to test strategies before deployment to determine the most profitable route to take
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Composable capabilities and learning loops

that optimize credit and customer decisions with a machine learning loop. Monitor portfolio profitability at a fine granular level to reduce any revenue leakages and optimize cost.
The case for FICO® Platform

Lenders across Asia will be moving into highly aggressive markets in 2024 — all want to retain and grow market share, while maximizing profit and maintaining acceptable risk levels. 

By plugging into the power of analytics, AI, and machine learning, lenders can deliver faster, smarter, automated, and risk-aware digital decisions at speed and at scale and make stronger predictions.

FICO Platform can help banks thrive in a fluctuating interest rate environment. By integrating various functionalities into a unified and adaptable platform, it provides the agility to quickly draw upon multiple different data sources to enable faster, better, and more hyper-personalized customer decisions. It provides stronger customer experience and brings together data that connects your operations for stronger business performance. 

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Learn how to drive impactful customer connections — especially with consumers’ high expectations.

Watch this video series showing how FICO® Platform empowers financial institutions to deliver hyper-personalized interactions with highly discerning customers across their banking lifecycle.
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