Category Archives: FICO

How 4Finance Meets AML Rules in 10 Countries

4finance AML Award How 4Finance Meets AML Rules in 10 Countries

Meeting the separate AML compliance requirements of multiple countries can be a nightmare, not only because of differences in rules but differences in data sources. To meet this challenge, global fintech 4finance, based in the Baltics, turned to FICO, and their results earned them a FICO Decisions Award for regulatory compliance. Here’s what they did.

Meeting the EU ML Directives

Being under the regulation of the EU, 4finance had to comply with the 4th EU ML directive as well as the upcoming 5th EU ML directive. Speed was an issue because the risk of non-compliance was high and their reputation had to be secured.

Complying with the EU’s ML directive means:

  • Identifying politically exposed persons (PEP)
  • Preventing sanction persons and entities from doing business with 4finance
  • Detecting loan applications and businesses related to money laundering
  • Detecting any kind of unusual behavior

From a technical perspective, 4finance faced a distributed environment, with the need to support 10 countries with 20 data source systems.. As a fintech lender, short application cycles had to be considered – 4finance has a goal to issue a loan within 15 minutes.


Due to the short timeline for compliance, 4finance decided to use an in-the-cloud implementation of the FICO TONBELLER Siron solution, leveraging Amazon Web Services (AWS).

We defined a project plan to support every phase of the project with senior staff members. These included:

  • A project manager to align with 4Finance on the milestones, achievements and also the escalation process.
  • A technical consultant to work on data interfaces during onboarding – how to integrate Siron®KYC into the existing application process. For transaction monitoring with Siron®KYC, we also defined a data mapping to 4finance’s 20 data systems.

Working closely with 4finance, we overachieved against the deadlines and went live with a cloud-based implementation in less than four months.

Reacting to New Threats

Today 4finance is capable of using the solution without our support. If new money laundering risks show up, 4finance’s team can quickly refine detection scenarios and define new ones. From my point of view, that’s a great success story.

I am proud to be giving a presentation on that at our FICO World 2018 conference in April, together with 4finance. Join us!

Our Siron customers are also invited to listen to 4finance during our annual Siron® User Group Conference in Berlin on March 15-16.

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How Are UK Retailers Managing the £200 Billion Credit “Tick”?

Retail credit tick How Are UK Retailers Managing the £200 Billion Credit “Tick”?

For all the talk in the UK about disruptors and fintechs and new entrants to the credit market, and about how banks and card issuers need to manage customers in arrears, there’s one group that seems strangely absent from this focus: retailers. It is estimated over £200 billion of UK household debt is in unsecured retail credit. Much of this is covered by credit and debit cards, and we have seen upwards of 86% of car sales funded through finance schemes and upwards of 40% of online shopping being done through credit instruments.

Paying at your local “on tick” (putting your drinks on a tab, in the American parlance) was part of the fabric of our communities in years gone by. That tick still exists, but today the customer is faceless to many retailers and the means by which the tick gets settled is multi-faceted.

Now there is plenty of evidence that consumers are pulling in their belts as real wage levels have fallen but inflation rises. Whilst retail sales in many areas fell, online ecommerce continued its upward trend and through 2018 is expected to cater for more than 25% of all retail spending in the UK. Most ecommerce is in some form of credit for a large number of the online shoppers.

Those providing or facilitating retail credit have a worrying enough back drop, as the FCA focuses on the 3.3 million borrowers in persistent debt, falling consumer confidence affects retail sales, and banks and financial institutions brace themselves for the result of both their IFRS 9 compliance and the potential impacts of Brexit.

In this uncertain environment, are retailers doing enough to manage the vast amount of “tick” consumers have amounted?

I suspect the answer is no, at least at the industry level. There are world-class collections operations in the retail space, of course. Are you one of them?

Here are five questions for retailer collections, risk management and credit operations professionals managing retail credit:

  1. How prepared are you for a PSD2, IFRS 9, GDPR, NPLG world? Even if you don’t believe you need to be, these requirements are pushing your banking, fintechs and disruptor competitors to be far more efficient and effective than they were previously in how they manage their collections and recovery portfolios. They may turn compliance to their advantage — and your disadvantage.
  2. Have you moved from descriptive analytics (BI, clustering) to predictive analytics? If not, then you are likely to be over-working some accounts and not working others when and how you should.
  3. Have you moved from predictive to prescriptive analytics? If you are not among the growing group of UK risk teams deploying true mathematical, solver-based optimization across your collections and recovery capabilities, then you are likely to be missing opportunities to reduce losses, cost and unnecessary customer attrition.
  4. Can your team make changes to your strategies without a heavy reliance on IT? If not, then you are unlikely to have the agility and flexibility you need to compete against your peers.
  5. Do you rely on collections staff for all your customer contact? If so, then you are probably not maximizing the use of omnichannel customer engagement.

Even if you are one of the very few organizations that have all of the above covered, you may just want to find out what else the lead organizations in your and other global markets are doing to ensure their collections capability is seen as a business profit determinant, generating significant value whilst also meeting the many demands of customer satisfaction, seasonal and economic change, and regulator and accounting standards.

We at FICO work with leading providers of retail credit, and every other kind of credit. We welcome the opportunity to share our experience, solutions and services that more than 8,000 clients in 100+ countries have selected to manage their credit risk. Give us a call.

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Facial Recognition: The Latest Biometric Security Blanket

Biometric security blanket cybersecurity Facial Recognition: The Latest Biometric Security Blanket

As a kid, I was a big fan of “Peanuts,” the legendary comic strip by Charles Schulz. Linus was, and still is, my favorite Peanuts character. Linus always had the thoughtful answer and the confidence to tell his friends the truth, despite the silly security blanket.  Schulz said, “Linus, my serious side, is the house intellectual, bright, well-informed — which, I suppose, may contribute to his feelings of insecurity.”

As an adult with a serious professional interest in security, I am surprised as to why bright, well-informed data and cybersecurity professionals don’t feel more insecure about the efficacy of biometric information as a security device. Is it because biometrics are today’s security blanket?

The Myth of Biometric “Security Blankets”

I have been a contrarian about biometrics for some time. As I blogged last year:

To protect against consumer financial fraud, there’s a lot of buzz now about using biometric information — fingerprints, iris and facial recognition, and other unique physical characteristics — to authenticate payment card transactions…

Like encryption, however, biometrics are not a silver bullet to stop hackers. As a defense mechanism, biometric authentication is actually worse because it can create a false sense of security. But once that information is corrupted or stolen by hackers, how do you prove who you really are? This excellent article in Scientific American captures the high-level privacy and cybersecurity implications that should be central to any discussion of biometrics:

“… [O]nce your face, iris or DNA profile becomes a digital file, that file will be difficult to protect. As the recent NSA revelations have made clear, the boundary between commercial and government data is porous at best. Biometric identifiers could also be stolen. It’s easy to replace a swiped credit card, but good luck changing the patterns on your iris.”

Since I posted that blog a year ago, Apple released Face ID as the mechanism to unlock its new iPhone X. Almost as quickly, stories began to appear about how Face ID could be effectively fooled by twins, kids and dudes with beards (almost).

Facial Recognition Imparts a False Sense of Security

The most serious and obvious argument against biometrics is this: They are really no more secure than any other form of authentication.

Whether it’s your face, fingerprint, iris or even your heartbeat, biometric data is imminently hackable. If stolen, the cybercriminal isn’t going to make his or herself look like you. They’re going to associate their digitized face, fingerprint, iris or heartbeat with your account.

This is what makes biometrics more risky than other forms of authentication comes after a compromise has occurred; once your biometrics are corrupted, how do you prove you’re really you?

In the wake of the first big biometric hack earlier this year, of India’s Aadhaar, the world’s largest biometric identification system, the general public is becoming increasingly aware that fingerprints are as easy to steal as passwords. And for the criminal fraudster or hacker looking to gain improper access to information or systems, associating their biometrics with your credentials is really no more difficult than changing your password, or any number of other tried-and-true account takeover tactics that have been around for years.

The scary difference is the misplaced faith that people are putting in biometrics. Like a security blanket, this technology makes people feel good but provides no substantive improvement in protection. I view biometrics as a trending fashion in security, not a credible long-term contender for materially improving security outcomes. What difficulty might consumers face (no pun intended) in reestablishing their own physical provenance when the inevitable hack takes place?

Stay Safe, Stay Vigilant

As I said in my biometrics blog last year, when it comes to ever-more resourceful and clever hackers, there is no single technology that can stop criminals in their tracks. As with other applications of security technology, the best defense for your financial life is constant vigilance, such as monitoring of activity on all of your cards and accounts, and setting up alerts with your bank’s mobile app and credit bureaus. If your bank offers card freeze technology, learn to use it so it’s available when you need it.

All defenses can be compromised, and when that happens, enterprises need to know about it, quickly. FICO® Cybersecurity Solutions deliver exactly that, allowing organizations to anticipate risks, identify emerging cyber threats, quantify cyber exposure, and fight cyber crime in real time.

If you’re looking for a real security blanket, visit the Charles Schulz Museum in Santa Rosa, California. And follow me on Twitter @dougoclare.

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How Direct Debits Can Help with Persistent Debt and IFRS 9

The introduction of IFRS 9 and persistent debt initiatives in the UK credit card market may see an increase in the promotion and take-up of Direct Debits, and greater flexibility offered to those paying this way.

With IFRS 9, issuers will be looking at ways to prevent credit card accounts moving from stage 1, where they must provision for a 12-month expected loss (based on the balance and a proportion of the remaining limit), to stage 2, where this moves to a lifetime losses provision. If issuers are more cautious this could be 100% of the remaining available balance. Stage 2 will occur if an account goes 30 days past due (there may be a mixture within the industry as to whether this means 1 or 2 missed payments), or the level of risk has significantly increased since the account was opened. The latter will be open to interpretation at an individual issuer level.

Although accounts can roll back into stage 1, as this may be a lengthy process it is anticipated that more effort will be placed on trying to prevent accounts’ risk levels increasing, including trying to stop accounts moving into delinquency in the first place. This may be achieved by identifying external risk factors more quickly. The provision will need to be all of the balance plus the percentage of the remaining available credit which the issuer thinks will be a loss over the account lifetime.

In a previous post, I commented  on the over £90 billion in unused credit sitting on UK credit cards and the anticipation of limit decreases campaigns on inactive or low-utilised accounts.

The FCA’s recent release in December 2017 containing their definition of persistent debt may also influence the promotion of Direct Debits.  Issuers will need to monitor accounts over a 12-36 month period to determine if cardholders are paying more in fees and interest than the principal balance, and if so take specific actions. This may particularly impact cardholders who consistently make late payments due to forgetting to make manual payments (“lazy payers”). Other groups potentially impacted include those on minimum payments with a high interest rate, missed or late payments or fees due to exceeding their card limit and those with a large balance transfer fee and an interest-bearing balance.

Who Has a Direct Debit?

The December 2017 FICO Risk Benchmarking results show that about 37% of all UK card accounts have a Direct Debit in place. For those <5 years on book, the rate is over 45% and for those 5+ years it drops to 30%. This same pattern can be seen for the Classic and Premium card averages, with only 28% of the Classic population having a Direct Debit set-up to pay their credit card balance, and this is where the highest proportion of accounts report. Student cards have the highest overall percentage (56%), with over 80% of new accounts (<12 months on book) having a Direct Debit. This implies issuers are strongly promoting in this sub population.

Direct Debit Persistent Debt How Direct Debits Can Help with Persistent Debt and IFRS 9

FICO looked in more detail at four clients’ data, and accounts without a Direct Debit had a bad rate (bankrupt, charge-off or 3+ cycles in the following 6 months) of between 1.5 to 3 times higher than that of those with a Direct Debit. This takes into account the fact that subsequently the payment could have bounced in the next few months. Whilst this does not mean that all accounts where you set up a Direct Debit will improve payment behavior, it could cover the lazy payers or those who have payment problems. This would be in the cardholders’ interest too, as this would avoid fees and potentially poor credit information being logged at the credit bureaux. This could also help to improve consumers’ credit scores, making future borrowing easier.

There was some evidence that when an account had its statement produced — which influences the payment due date — also impacted bad rates. Issuers could consider a more sophisticated approach to setting the statement date, rather than just linking it to account opening, to ensure it is optimal based on salary date. For existing customers this could form part of a customer service call script. This is a more proactive approach, as currently the majority of issuers rely on the consumer to change the date to suit their circumstances.

Our review also showed that consumers <30 years of age were less likely to have a Direct Debit in place, as they may be more likely to use mobile or internet banking options.

Flexible Direct Debits

After discussions with Bacs, the organisation behind Direct Debit in the UK, it became clear that flexibility in both payment date and frequency can have a significant impact on take-up rates. Offering consumers the option to choose a date, or dates, which suit them best – perhaps to coincide with payday – can have a positive effect. Given the rise of the ‘gig economy’ and the number of people being paid weekly,  considering a move away from just a monthly frequency for Direct Debit collection is also worth looking at to encourage more people to opt to pay this way. Find out more about how to promote Direct Debit at

It’s also worth addressing another potential misconception, which is that only minimum or full payments can be taken through Direct Debit. In fact, any % or amount is available — this flexibility could be very useful relating to these two initiatives. Some issuers make it easier than others to change to a more flexible payment structure and this is expected to expand. It would also help with demonstrating to the regulators that customers are being treated fairly.

Increased Direct Debits may result in a loss of revenue for issuers, but this loss may be far outweighed by the cost of provisioning for stage 2 or for the actions required in a persistent debt situation. This trade-off may help issuers build a business case for incentivising Direct Debit usage.

Affordability will have to be taken into account by issuers when determining whether a consumer can increase their monthly payments. Greater use of affordability metrics, including bureau data, is also anticipated.

Issuers could consider

  • General Direct Debit education programme
  • More visible promotion at originations stage
  • Offering multiple Direct Debits in a month if appropriate at the consumer level
  • Promoting options for percentages or amounts rather than just minimum or full balance
  • Incentivising Direct Debit adoption with preferential offers, such as reduced interest rates or longer balance transfer periods
  • Ensuring statement and hence payment due date are aligned to customers’ salary dates
  • Targeted campaigns for more mature accounts
  • Targeted campaigns based on consumer age
  • SMS use for promotions

Organisations interested in finding out more about how offering greater Direct Debit flexibility can drive take-up rates should contact

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FICO Data: Warning Signs for New Card Accounts in Ireland

Card Delinquency UK Irish FICO FICO Data: Warning Signs for New Card Accounts in Ireland

Our analysis of UK and Ireland card trends in the FICO® Benchmark Reporting Service has revealed some worrying trends for cards issued in Ireland. Over the past few months, the percentage of new Irish card accounts that are delinquent has climbed to around 10%, more than twice the average for UK cards.

We see a similar trend with delinquent balances on new Irish cards, where 13.5% of balances were delinquent in December, compared with 3.5% for UK cards. New accounts are those on book less than a year.

This indicates a riskier population are being accepted in Ireland, and it is worth Irish issuers identifying the reasons for this, as changes to originations policies may be needed. The trend is reinforced by the recent sharp rise in average credit lines for new accounts in the Irish market, allowing potentially higher delinquent balances to flow through.

Average delinquency balances on all cards are more in line with the UK, despite credit limits being approximately 18% lower than the UK, and the more mature accounts are influencing this. For new accounts, though, average 2-cycle delinquent balances are more than 36% higher than in the UK.

Other Trends in Irish Cards vs. UK Cards

  • More accounts use cash in Ireland (12.4% vs. 6.2%) and the most noticeable difference is for new cards (27.7% vs. 12%). The proportion of cash sales to total sales is also higher, again more noticeably for new accounts, with average total sales (combination of cash and merchandise) higher in Ireland.
  • Not surprisingly, looking at the delinquency rates, a higher proportion of accounts are not paying the full amount due in Ireland. However, the highest proportion of accounts in both markets pays the full balance off each month.
  • There is a higher proportion of accounts with a direct debit in the UK. Lower rates in Ireland are influenced by accounts >1 year on book, so there are opportunities here to promote direct debit usage as well.
  • Average credit lines for accounts >1 year on book Ireland are lower than in the UK. This is influenced by the difference in the regulations, as limits can only be increased at the request of a cardholder in Ireland. However, average credit lines on new Irish accounts have moved noticeably above the UK average in July 2017 and have remained at this level since.

Given these trends, it is not surprising to see a higher overall percentage of overlimit accounts in Ireland. Despite the higher average lines for new accounts in Ireland vs. the UK, the percentage of overlimit accounts also exceeds the UK average. The average amount overlimit in Ireland for accounts <5 years on book is significantly higher than in the UK. Collections teams could review to determine if specific action is required on this subpopulation.

FICO’s Benchmarking Services

The card performance figures are part of the data shared with subscribers of the FICO® Benchmark Reporting Service, which compares overall market performance in the UK cards market with individual card issuers’ performance. The data sample comes from client reports generated by the FICO® TRIAD® Customer Manager solution in use by most UK and Irish card issuers. For more information on the new service, please contact me at

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Globe Telecom Cuts Delinquencies 40% Using FICO CCS

Globe Telecom (Globe), one of the major telecommunications services providers in the Philippines, has reduced account delinquencies by 40 percent year-on-year, since its deployment of FICO® Customer Communication Services(CCS) in 2016. By automating a portion of its collections efforts, the company has also managed to reduce the cost to collect by 15 percent and the time it takes to collect by three days.

The introduction of the CCS solution was seen as essential to cope with Globe Telecom’s rapidly growing business. With more than 59 million mobile customers, and more than 1.2 million broadband customers, Globe had to scale its collections efforts quickly while considering cost and improving customer care.

Mon Pernia 300x295 Globe Telecom Cuts Delinquencies 40% Using FICO CCS

Mon Pernia, head of consumer collections at Globe, explains how the project has changed collections for the company:

How has adding analytically driven collections been received at Globe?

This use of ‘machine calling’ instead of traditional ways of agents calling customers was an innovation in itself.

Though it was a new kind of technology for us, the roll-out turned out to be a success that revolutionized the way we do business. Today, we are better equipped to manage our collections, improve collections performance, increase customer satisfaction, and finally decrease churn and costs dramatically.

What were the top criteria Globe used in selecting the solution?

We were looking for non-traditional ways of reaching out to our huge customer base without compromising cost and customer experience. At the same time we wanted to take the next step towards automation and digitalization. That was when FICO offered their solution and best practices across the region.

In the deployment of the FICO CCS what misconceptions did you have that were proven wrong by the project?

This was a new solution, new to us and most probably, new to our customers. We were quite excited to know how our customers would respond this non-human interaction. We thought that our customers were not ready yet so we had doubts that this will not be as effective e as a person making the call – we were wrong.

What lesson did Globe learned from the use of an analytics-based solution?

Keep studying our customers. What’s working for us today may no longer be effective tomorrow. FICO CCS had enough intelligence to pick up trends so we set-up periodic champion-challenger strategies to determine the best we to interact with our customers.

What areas of operations is Globe looking to improve following this project?

We are working with FICO and other accredited vendors of Globe to set up an over-the-phone payment system. I believe this is another first of it’s kind in the country.


Post-implementation, Globe Telecom’s Net Promoter Scores (NPS) improved. Its NPS continues to improve month-on-month and the business has seen the lowest levels of customer complaints and customer churn to date. The use of the CCS solution has shown that most customers at early-stage collections prefer communication via SMS and the ability to address the matter without an awkward conversation with an actual agent.

For its achievements, Globe won the 2017 FICO Decisions Award for Debt Management.

Read more about this project in regional trade bibleTelecom Asia: Globe Telecom slashes delinquencies by 40%

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The Financial Industry’s Digital Transformation

Mobile Banking The Financial Industry’s Digital Transformation

The financial industry is undergoing a major digital transformation. While it’s not unusual for any industry to reinvent itself periodically, this latest evolution doesn’t resemble most of the scenarios of the recent past.

Typically, competition, innovation, and/or regulatory changes drive transformation, resulting in new products, providers, and pricing plans for consumers. A textbook example of this would be Amazon and eBay disrupting the retail sector. Through their own innovations and an overall advancement in technology, online retailers attracted customers away from legacy retailers with a wide variety of choices, low prices, and high convenience. This new model forced many traditional brick-and-mortar retailers who failed to adapt to go out of business, leaving very different and much more digitally-oriented sector leaders.

While the financial industry transformation features some of the same elements as their retail counterparts, its origins and intra-competitive responses are unique, and the results are still excitingly in flux.

Consumers Demand Personalized Digital Engagement from Banks, In Real Time, On Any Channel

The financial and retail sectors both have emerging competitors who are more technologically sophisticated than the incumbents. However, while financial technology (FinTech) startups have created challenges for their legacy competitors, traditional banks and credit unions have been much more resilient than their equivalents in retail. As of now, many of the banks you and I grew up with are still here (though they likely have gone through a merger or four). That’s because consumers still mostly rely on them for traditional banking, while FinTechs have largely confined themselves to more niche, specialized services (think of Venmo/Paypal for online shopping and peer-to-peer money transfers).

For the average customer, the banking disruption has taken the form of more digital fulfillment options, rather than required in-branch visits. And the origins of that shift are pretty easy to identity: having had a taste of the convenience of the digital revolution in other industries, consumers demanded it of their banks as well. But unlike their shopping center counterparts, established banks were able to accommodate consumer demand more ably. According to a survey by, nearly 40% of Americans have not stepped into the branch of a bank or credit union in the last six months. That’s not because old banks went extinct, but because they met consumer demand by shifting many services online or to ATMs. Thus, we haven’t seen digital disruptors take over the industry in the same way that Amazon captured retail (at least, not yet).

By no means, though, is the banking digital transformation complete. And one of the clouds obscuring the financial industry’s future ought to be in the shape of a smartphone. With mobile phones, consumers continue to gain unprecedented access to more information and services in the palm of their hand. As a result, smartphone-enabled consumers continue demanding more convenience from their financial institutions; the upshot is that the more basic services banks and FinTechs can migrate to smartphones, the firmer their staying power.

However, it’s not just convenience that consumers want. As a consequence of trends driven by Big Data and abetted by devices such as smartphones, today’s digital consumer has a new behavioral pattern compared to previous generations.

For instance, digital consumers are increasingly demanding “always-on” interactions in real-time from their financial institutions that are also personalized, relevant, and multichannel. Satisfying those demands is extremely challenging, and that’s even before considering that individual customers exhibit multiple personas across multiple devices. In a survey conducted by Forrester, 58% of consumers report using “cross-channel journeys” to shop for financial products, meaning that they’re browsing with one touchpoint—web, phone, app, or in-branch—and eventually enrolling or purchasing with another. That percentage will likely grow larger in the coming years, necessitating that financial institutions track and guide these different personas throughout their journeys. That can be a tall order, and data from Accenture confirms as much: 70% of consumers feel that their relationship with banks today is “transactional” in nature, rather than “relationship-based.”

If that percentage seems high to you, perhaps it’s because you thought “only millennials” have those kinds of needs. And while you may be right about that, banks can no longer afford to dismiss this demographic. According to Accenture, millennials now number 1.8 billion globally and are expected to have a lifetime value of $ 10 trillion. Having grown up in the digital age, this group is technologically advanced, focused on securing their financial futures, and expecting personalized experiences and convenience from all industries, including financial institutions. And yet, according to The Financial Brand, nearly half (46%) of millennials don’t think their bank markets products that are relevant to their future financial needs.

3 Imperatives for Financial Institutions Making a Digital Transformation

According to the Digital Banking Report, 84% of financial service professionals consider it important to know their customers. Financial institutions understand the need to tailor experiences to individual needs and personalize their interactions. In fact, more than half (55%) of bankers plan to increase spending on customer experience initiatives [CSI], and nearly 80% consider it important to deliver guidance to customers in real-time [The Financial Brand]. Currently, though, only about 20% of financial institutions are delivering more than basic personalization [Digital Banking Report/Everage]; clearly, there is still a significant gap to fill.

We’ve identified three key imperatives financial institutions need to address to deliver personalized, real-time experiences.

#1 Focus on Data Gathering and Consolidation

All of these multichannel, “always on” interactions that we’ve referenced generate large amounts of data, which is typically captured in various sources such as CRM applications, transactional data stores, disparate account management data stores, etc. Each data source provides a fragmented image of a consumer—a glimpse into one of the personas. Financial institutions need to bring these data sources together to create a comprehensive profile of a consumer, rather than a series of disconnected account holders across platforms and lines of business. By connecting the digital clues and gaining a single customer view, it’s then possible to interpret and anticipate future needs. Currently, according to Forrester only 0.5% of all generated data is analyzed. Richard Joyce, a Senior Analyst at Forrester says, “Just a 10% increase in data accessibility will result in more than $ 65 million additional net income for a typical Fortune 1000 company.” These stats are simply overwhelming and identify a clear-cut target for which the industry must aim.

#2 Build Powerful Analytic Engines that Predict and Prescribe

Personalization is not a matter of simply gathering data, but also acting on that data. And the hard truth is that anticipating customer needs requires powerful analytics engines that were once thought of as “nice-to-have.” However, only about 55% of organizations were expected to increase budgets for data analytics in 2017 [The Financial Brand]. Machine learning and predictive analytics are necessary to optimize how financial institutions market to digital consumers and should no longer be considered “optional.”

#3 Deliver Data-Driven, Highly Personalized Customer Experiences         

Having covered the need to gather and analyze data, our third imperative is about putting it all together into a cohesive system. Because digital consumers demand tailored, contextualized, interactive dialogues, marketing workflows need to synthesize and coordinate inbound requests for information with the appropriate outbound messaging. While certain modular tools can provide short-term fixes to these challenges, financial institutions will ultimately need to undergo organizational changes that break down silos and connect systems, thereby improving data flow and knowledge sharing.

The digital transformations that are shaking the financial industry—unlike comparable evolutions in the retail sector—sprung from consumer demands that remain largely unmet. Both the incumbents and the upstarts are still scrambling to harness the tools and advancements necessary to drive loyalty and engagement. The obstacles involve consolidating and acting on data, and agility in engaging with customers across channels.

If you are interested in hearing more, especially about how FICO and AWS have partnered to help financial institutions address these imperatives, you can join me for a free webinar on Tuesday, January 30th at 1pm EST / 10am PST (simply register by clicking here). As you can probably tell, we at FICO are passionate about this topic, and I hope to see you there!

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What Data Do I Need to Fight Application Fraud?

In previous blogs, we’ve defined application fraud, explored the role of hackers and cyber terrorists in perpetrating fraud, and the reflected on the importance of establishing a fraud risk appetite. A key takeaway from all of these posts is that to strengthen defenses across the enterprise, we must improve synergies between data, technology and analytics. When it comes to application fraud, our framework must seamlessly bridge intelligence across the customer lifecycle to enable smarter decisioning.

That brings me to the topic that comes up in every application fraud conversation: data. While the value of data may seem self-evident — particularly with the global investments in digital transformation strategies leading to faster, more faceless decisions — one question inevitably surfaces: What kind of data do I actually need?

Data from Inside and Outside

It’s raining data left and right, and reaping the benefits of this data downpour requires understanding what information you already have at your fingertips and where there are gaps.

Financial institutions often underplay the usefulness of their own data assets, or, in some cases are unaware of powerful data assets that reside within other functions of their own organization, including Compliance, Risk and even Marketing.

Vendors also play a critical role in the data landscape, providing innovative solutions that are derived from cross-industry experiences (not just your institution) and with roadmaps that evolve over time to meet changing market needs. With the digitization boom, the number of relevant data assets continues to rapidly expand, with examples include device profiling, email reputation, biometrics – whether behavioral or physical – and more.

These technologies are subject to breach as well, however. For example, in China, we’ve seen fraudsters already exploit “selfie with your driver’s license” controls that leverage facial recognition (comparing the selfie to the driver’s license photo) and optical character recognition (reading the driver’s license information to compare to the supplied application data). To that end, a new level of physical biometrics is being explored that includes movement analysis in video sources. We anticipate that leveraging this type of personal data will spark an interesting privacy and regulatory debate in the years to come.

Your Data Checklist

What are the key data elements you should be considering in your application fraud detection ecosystem? The following list is designed to help you inventory:

Application Fraud Data FICO What Data Do I Need to Fight Application Fraud?

One important factor to bear in mind is that no matter how smart this data is, the utility will be limited if any data source is used in isolation. Rather than evaluating data via point-in-process solutions — e.g., the applicant’s physical biometrics passed checks, now how about their email reputation — an integrated decision across all of your data elements provides the optimal ROI to create an informed decision.

Consult Your Data Strategy

Before you run out to buy data missing from your list, consider this: You have to balance the value the data adds with the investment in integration efforts adding this data will require. We recommend that prioritizing your data gaps to align with your overall data strategy is critical.

A realistic and robust data strategy requires understanding risk at the channel, product and regional level to help assess not only the viability of data, but also prioritize where there are anticipated or existing vulnerabilities.

The following graphic provides several questions that can guide you in defining your data strategy.

Application Fraud Data Questions FICO What Data Do I Need to Fight Application Fraud?

With application fraud on a meteoric rise, financial institutions must take full advantage of the vast amounts of the data available to them. Agility is key to ensure fraud controls are faster and smarter than the bad guys. Implementing a unified data hub that brings together key information from all data sources is critical. Accessed via a single holistic point, centralized data assets can galvanize powerful machine learning analytics.

In fact, machine learning is a topic for one of my upcoming blogs. So stay tuned.

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Will You Turn Your Body into a Human Smartphone?

Human Smartphone Mobile Device Will You Turn Your Body into a Human Smartphone?

Are you ready to turn your body into a human smartphone? And if you are, how will you secure the data your body transmits?

These are a couple of the thought-provoking question raised by the ‘Future of Mobile Life’ report that O2 issued in the UK just before the holiday period. Some of the more eye-catching predictions pose questions such as “What if we replaced mobile devices with a mobile tech enabled body?” The report describes how “sensors embedded in the skin and augmented reality visors worn at all times will provide wearable tech to make humans a walking version of everything the handheld device is to us in 2017”.

In what sounds like the lead-up to a Black Mirror episode, 56% of the consumers surveyed for the research said they would consider augmenting their bodies in such a way if there were practical convenience benefits such as health monitoring, foreign language translation or unlocking doors.

Forget Google Glass — O2 suggest augmented reality visors or contact lenses will be worn by almost everybody on a permanent basis so that simple activities such as walking down the street will provide overlays which “share common interests between passers-by, showing information such as their favourite TV show or music choice”. Given the social media driven world we inhabit today, it isn’t too difficult to imagine such a world, even if it does conjure images of Tom Cruise being bombarded with personalised augmented reality pop-up adverts in Minority Report (one day, marketers, one day).

Regardless of whether visions of a human smartphone are borne out, it is likely that some form of mobile device will continue to play an increasingly intrinsic part as our gateway to daily life and being central to everything we do. And with that come the concerns around how personal data is regulated, stored, used and accessed.

Securing Your Augmented Body

The theory of being able to connect with like-minded individuals or companies as they walk past one another sounds like an extension of privacy settings on today’s apps (imagine how long-winded the terms and conditions might be), but security and identifying potentially fraudulent behaviour will become more important than ever, particularly if criminals were able to see everything you see or feel everything you feel by accessing your visor and sensors. Or track your real-time vital signs.

With the report suggesting that physical security credentials (keys and passes) and documentation (passports, visas, insurance certificates) could disappear in the next decade, there will be some fundamental questions for organisations and individuals to consider when it comes to protecting themselves and their customers. Cybersecurity protections and fraud monitoring systems will continue to evolve and take advantage of the vast amount of real-time streaming data generated, and artificial intelligence will continue to adapt and spot abnormalities in the data that can be used to identify threats.

Furthermore, the predictions throughout the report are centred around consumers trading convenience against an ever-increasing reliance on tech. So, it isn’t a difficult leap to conclude that industries and companies offering services through emerging mobile technology will continue to need to make instant, data-driven decisions at scale in order to personalise the experience for each customer.

Prescriptive analytics coupled with artificial intelligence and machine learning technology are already helping organisations to build competitive advantage by unlocking new sources of value creation. As mobility continues to turn science fiction into fact though the coming decades, and even the potential era of the human smartphone, powerful data analytics and decision management platforms will underpin business innovation.

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Top 5 Fraud & Security Posts: AI Meets AML (and Hackers)

One of the newer applications of artificial intelligence rose to the top of the Fraud & Security blog last year: anti-money laundering. Readers were also keenly interested in learning more about cybersecurity and ATM compromise trends.

Here were the top 5 posts of 2017 in the Fraud & Security category:

AI AML Top 5 Fraud & Security Posts: AI Meets AML (and Hackers)

As FICO began using AI to detect money laundering patterns, three of our business leaders blogged about why and how AI was being applied. Two of the top posts of the year related to this topic, with TJ Horan explaining why advanced analytics are needed. He noted three ways AI systems improve on traditional AML solutions:

  • More effective than rules-based systems: “As regulations become ever more demanding, the rules-based systems grow more and more complex with hundreds of rules driving know your customer (KYC) activity and Suspicious Activity Report (SAR) filing. As more rules get added, more and more cases get flagged for investigation while false positive rates keep increasing. Sophisticated criminals learn how to work around the transaction monitoring rules, avoiding known suspicious patterns of behavior.”
  • Powerful customer segmentation: “Traditional AML solutions resort to hard segmentation of customers based on the KYC data or sequence of behavior patterns. FICO’s approach recognizes that customers are too complex to be assigned to hard-and-fast segments, and need to be monitored continuously for anomalous behavior.”
  • Rank-ordering of AML alarms: “Using machine learning technology, FICO has also created an AML Threat Score that prioritizes investigation queues for SARs, leveraging behavioral analytics capability from Falcon Fraud Manager. This is a significant improvement, since finding true money-laundering behavior among tens of thousands of SARs is a true needle-in-the-haystack analogy.”

FICO Chief Analytics Officer Dr. Scott Zoldi followed up by explaining two techniques FICO has applied to AML, soft clustering and behavior-sorted lists. Of the first, he wrote:

“Using a generative model based on an unsupervised Bayesian learning technique, we take customers’ banking transactions in aggregate and generate “archetypes” of customer behavior. Each customer is a mixture of these archetypes and in real time these archetypes are adjusted with financial and non-financial activity of customers.  We find that using clustering techniques based on the customer’s archetypes allows customer clusters to be formed within their KYC hard segmentation.”

Clustering Top 5 Fraud & Security Posts: AI Meets AML (and Hackers)

Read the series on AI and AML

Cyber Risk Score 3 Top 5 Fraud & Security Posts: AI Meets AML (and Hackers)

The latest trend in cybersecurity is enterprise security ratings that benchmark a firm’s cybersecurity posture over time, and also against other organizations. Sarah Rutherford explained exactly what these scores measure.

“The cybersecurity posture of an organisation refers to its overall cybersecurity strength,” she wrote. “This expresses the relative security of your IT estate, particularly as it relates to the internet and its vulnerability to outside threats.

“Hardware and software, and how they are managed through policies, procedures or controls, are part of cybersecurity and can be referred to individually as such. Referring to any of these aspects individually is talking about cybersecurity, but to understand the likelihood of a breach a more holistic approach must be taken and an understanding of the cybersecurity posture developed. This includes not only the state of the IT infrastructure, but also the state of practices, processes, and human behaviours. These are harder to measure, but can be reliably inferred from observation.”

Read the full post

ATM Hacked Top 5 Fraud & Security Posts: AI Meets AML (and Hackers)

2017 saw a continued increase in compromised ATMs in the US. As TJ Horan reported:

  • The number of payment cards compromised at U.S. ATMs and merchants monitored rose 70 percent in 2016.
  • The number of hacked card readers at U.S. ATMs, restaurants and merchants rose 30 percent in 2016. This new data follows a 546 percent increase in compromised ATMs from 2014 to 2015.

TJ also provided tips for consumers using ATMs.

Read the full post

Dick Dastardly Top 5 Fraud & Security Posts: AI Meets AML (and Hackers)

With all the focus on data breaches, Sarah Rutherford posed this question, and provided the top three reasons:

  1. For financial gain
  2. To make a political or social point
  3. For the intellectual challenge

“The ‘why’ of cybercrime is complex,” she added. “In addition to the motivations already mentioned, hackers could also be motivated by revenge or wish to spy to gain commercial or political advantage. The different motivational factors for hacking can coincide; a hacker who is looking for an intellectual challenge may be happy to also use their interest to make money or advance their political agenda.”

Read the full post

Follow this blog for our 2018 insights into fraud, financial crime and cybersecurity.

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