40
Q & A
standard of living, or grow their business. By contrast, banks that ignore risk while pursuing market share will vulnerable to economic downturns, and also put consumers and businesses at risk by making loans that can’t be repaid. Risk management is a discipline with a long history, and risk professionals learn how to balance these two forces to maximise responsible growth. In one of the FICO World sessions, a large international bank explained they implemented a new process merging their originations and customer management systems to pre- approve customers for products they might be interested in and simplify the application process. They saw a huge growth in sales and a significant drop in delinquencies. They expanded credit, with prudent risk decisions.
IBS Journal: Has there been a shift in the consumer’s mindset in terms of being happy for banks and FIs to use their data to offer them a wider range of services etc? Traditionally, reluctant consumers have been a challenge for the data analytics sector.
FICO: While there will always be consumers who do not want data about them used for marketing or cross-selling purposes, in general we see a shift in society’s attitudes about data use. People are becoming much more aware that they are being tracked and analysed, and that mathematical models are responsible for more and more decisions about them.
This does raise ethical and even legal questions. Who makes sure these models are accurate? Will there be legal consequences for flawed models that adversely affect individuals? How can someone fix the data — or even the model — to make it more accurate? And even if it is accurate, who wins and who loses when our digital selves are driving so many decisions about us?
Clearly, the vast majority of society chooses to participate in an increasingly online world. People know that as there are trade-offs here, and that they sacrifice some degree of privacy in order to receive benefits, whether they’re shopping at Amazon, Googling questions or banking online. People can’t stop the data from flowing and being modelled. But they will want to stop the data from being manipulated and exploited, and they are increasingly demanding greater transparency about how their personal
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data is being used and what they’re getting for it in return.
The analytics community needs to engage in the debate about how our increasingly digitised society will work in order to ensure it provides the maximum benefits for people, businesses and society.
IBS Journal: Stuart Wells raised the issue of the global productivity crisis, and said that complexity and lack of collaboration are choking performance and competition. Is this a particular problem for banks and what chance them overcoming such sizeable obstacles as outdated legacy systems?
FICO: Yes, banks suffer as much as other businesses in terms of maintaining legacy systems, and quite often their problems in this respect are more pronounced, as banks tend to rely on older systems that are expensive to replace. This is why cloud-based systems are so important. Using cloud-based decision management technology, for example, enables banks to access newer technology and “cloud-source” specific decisions, without the need to rip-and-replace software systems.
This model has worked very well for banks in the past. For instance, large and small banks worldwide will outsource specific card management functions to processors such as TSYS and First Data. The rise of cloud computing enables banks to access many more kinds of services at a low cost.
We have developed the FICO Analytic Cloud not only to dramatically increase availability of our analytic tools, but also to make it easier than ever for businesses to leverage our industry-leading solutions for fraud management, customer management, collections, regulatory compliance and other mission-critical functions. These cloud-based services give banks the ability to upgrade their legacy systems on their own schedule, while providing state-of-the-art decisioning technology via the cloud. Cloud-based services can run alongside their legacy infrastructure, not requiring a fork-lift upgrade, but rather a gradual path to move towards the cloud and new more agile systems.
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