Recession causes FICO® Score swings

Last month I posted that the national distribution of FICO® 8 Scores has had two major shifts during the recession. Some readers were puzzled that the observed shifts weren’t significantly larger, in light of the sour US economy. Actually, what appear to be small national shifts are quite dramatic changes,...

The Regulator Said What? Q&A with BankersLab

With regulation a central topic at next week's FICO World, FICO interviewed BankersLab CEO Michelle Katics, who will co-present, "The Regulator Said What? And You Said What Back?" In this session, Katics will lead an interactive discussion of the more unusual, occasionally vague and not always successful attempts at regulatory...

Take Our Brief Regulation Survey

At next week's FICO World 2011, we will discuss best practices on how the financial industry and regulators can work together. Even if you can't attend the conference, we hope you'll take a few minutes to complete our regulation survey. In it, we ask you to share the regulatory challenges...

Get a preview of PNC Bank’s FICO World keynote

Want a sneak peek into next week's FICO World? Then we invite you to watch the recorded FICO World preview webinars. The FICO World 2011 conference takes place November 1-4 in New York City. Revitalizing Growth in the Reset Economy Gordon Cameron, SVP, PNC and Mark Greene, CEO, FICO In...

Building Customer-Level Profitability: Q&A with Mashreq Bank

In the lead-up to FICO World in November, FICO interviewed Mashreq Bank Vice President Khalid Zafar, who will co-present “Building Customer-Level Profitability in a Changing Environment.” At the conference, Zafar will share how Mashreq Bank redefined its predictive analytics and decision strategies to better deal with changing consumer behavior, risk-reward...

Mixed news on fraud in Brazil

During an October seminar about Electronic Crimes and Methods of Protection, the Federation of Goods, Services, and Tourism of the State of São Paulo (Fecomercio-SP) shared grim news on the state of electronic fraud in Brazil. A survey by the agency, which consists of retailers and service companies in the...

How do you treat a strategic defaulter?

As I've mentioned previously on this blog, strategic defaulters have a unique set of characteristics not found among other defaulters. That means traditional account management and collections methods are less effective with them. So what's a mortgage servicer to do? Segment populations based on the dual dimensions of credit risk...

Fighting Enterprise Fraud

Increasingly banks are looking to leverage the full breadth of data related to customers to make better decisions, and fraud is no exception. There is a strong desire to break down silos, so fraud/risk behaviors in one area of the customer’s interaction with the bank can be utilized in other...

Two Banks. Two Opposite Sides of the World. One Big Challenge.

Greater regulation in the credit card market has become a fact of life since the Global Financial Crisis, whether it’s the USA CARD Act, the NCCP Act in Australia or Canada’s new credit card regulations. As my colleague Evan blogged about earlier, in January 2011 new regulations came into effect...

New Analytics for Emerging Payments

Payment cards are changing. Whereas a plastic card used to access a single funding account, now we increasingly see cards—and very soon, mobile phones—that can access multiple funding accounts. This trend not only increases personalization options, but also fraud detection capabilities, if you leverage a cardholder’s history of what funding...

US/Europe Debt Crisis 2011: React or Ignore?

The past few months have been a roller coaster ride for the global investor community. Gold touched US1900/oz, a historical high indicating lack of faith in the stock market and other global currencies. Rumour has it that it may go much higher in 2012. Is the world going to face another recession?

Yes or no. It depends on whom you ask.

Numerous debates are going on. IMF chief Christine Lagarde recently commented that 40 million people could be put back into poverty if we don’t succeed, but 20 million jobs could be created if crisis is averted. Some industry veterans are more positive. During his recent visit to Singapore, Citi chief Vikram Pandit commented that “The chances of another financial crisis hitting the global economy are slim.” He is bullish about Asia and expressed his faith in the banking system here.

These observations point us in one direction. We are entering unchartered waters, and nobody is sure what will happen next. 

In Asia, countries like China and India who have large domestic demand fared much better during the 2008 crisis, compared to smaller export-led economies. Even so, India and China did not emerge unscathed. The Indian IT industry, which depended very much on US demand, was badly hit. In China, several factory workers were laid off after the manufacturing sector lost millions of dollars in orders from the US. 

The impact may be worse next time. As some Indian fund advisers have commented, “None of the problems since September 2008 in the global financial sector have been resolved in the real sense by the governments all across the world.” They have just been swept under the carpet by politicians. 

Whatever is the cause of the current turmoil, India—which is witnessing strong macroeconomic growth, as well as growth in banking and financial services—can’t afford to lose momentum now. India has a very dynamic banking environment that is growing rapidly. RBI (Central Bank) is also in the process of opening up the sector by allowing entry of new banks, NBFCs, credit bureaus and others to compete. 

In India and other markets keen on maintaining momentum through economic turmoil, bankers can’t assume that this time the market mechanisms will work, and things will automatically correct themselves. There is no “happily ever after.” 

How should banks and financial institutions manage risk in such an increasingly risky world? Lenders need game-changing, proactive strategies. Regulators have long suggested that banking strategies should incorporate long-term macroeconomic indicators for day-to-day decision making. Strategies should not only consider local indicators, but the indicators of foreign economies to which the local economy is tied. 

Sounds logical, right? Yet many lenders today don’t or can’t. 

In Asia, the data-capturing process for these macroeconomic indicators often lags, and accuracy is questionable. Even if data is captured, there is a lack of initiative in using them for day-to-day decisions via predictive science and forecasting methodologies, often because the process of mathematical linking is complex.

We can’t let this stand in our way. Proper data collection needs to become institutionalized. With good data comes the ability to model macroeconomic factors. With this type of proactive approach, risk in the banking system will be completely attuned to the volatility in the market. Risk policies will be changed dynamically. In the end, we’ll be able to weather economic storms much better.  

Asia is extremely fortunate not to have the serious debt crisis that West is facing today. Let us not blow it up by ignoring the value of quality data, the warnings that economic indicators provide and the power of predictive science. 

FICO Analysis: Strategic Default Problem Grows

A recent FICO data analysis found more than six million U.S. homeowners have a current-loan-to-value ratio of 120 or higher, meaning they are at least 20 percent underwater on their mortgages. Based on recent data from Fannie Mae, these homeowners are more than twice as likely as other borrowers to...

Electronic fraud on the rise in Brazil

The Brazilian Banks Federation (Febraban) recently released data from a survey revealing that losses caused by electronic fraud are on the rise. These losses totaled R$ 685 million (US$ 460 million) from January to June this year, up from R$ 504 million (US$ 340 million) for the same period last...

Consumer credit is still dicey

In my last blog post, I noted that the results of our quarterly survey of bank risk managers were quite negative on the topic of residential real estate. Unfortunately, the bad news didn’t stop there. When asked their opinions about consumer credit over the next six months, a large number...

A New Approach to Credit Scoring (video)

In the wake of the recession, and with a rocky recovery in the UK, lenders need to get a more holistic view of borrower risk. FICO and Equifax have partnered to bring two new scores to the UK market, to indicate a consumer's credit capacity and show how their risk...

FICO CEO discusses risk survey on CNBC, Reuters, Yahoo! Finance

FICO's latest quarterly survey of US bank risk professionals offered a decidedly pessimistic outlook, reversing the growing optimism seen in late 2010 and early 2011. The survey shows that bankers expect delinquencies on consumer loans to rise, underwriting standards to become stricter, and the housing sector to continue struggling far...