Tag: risk management

Previously, the Global Identity and Fraud Report called for businesses to meet consumer expectations for online recognition and security while improving the digital experience. Organizations have answered this call with investments and new initiatives, but the fraud risk persists and consumers are relying on businesses to protect them. In our latest report, we explore the issues associated with siloed recognition processes, consumer expectations and preferences, and effective risk strategies.   We surveyed more than 6,000 consumers and 1,800 businesses worldwide about this connection for our 2022 Global Identity and Fraud Report.   This year’s report dives into:   How online security yields engagement and trust with today’s digital consumers The role of businesses in protecting online consumers, and the associated benefits The current opportunity for businesses to implement multiple identity and fraud solutions The role that orchestration and outsourcing play in helping companies prevent fraud   To earn consumer trust and loyalty, organizations need to leverage automated solutions to identify and protect consumers across their online journeys while providing seamless recognition and low-friction fraud prevention with a robust and flexible fraud platform. To learn more about our findings and how to implement an effective solution, download Experian’s 2022 Global Identity and Fraud Report. Read the report Review your fraud strategy

Experian’s Sure Profile was selected as a Platinum winner in the “Fraud and Security Innovation” category in the sixth annual Fintech & Payments awards from Juniper Research, a firm dedicated to delivering thought leadership and analysis in the Fintech and Payment industries.   An innovative service in the fight against synthetic identity fraud, Sure Profile is a comprehensive credit profile that provides a composite history of a consumer’s identification, public record, and credit information in order to detect synthetic identities. It utilizes premium data to help businesses identify potential synthetic fraud threats across credit inquiries, thus allowing lenders to transact more confidently with the vast majority of legitimate consumers.   “Experian has always been a leader in delivering innovative services that both combat fraud and provide identity verification and trust to lending environments. Sure Profile delivers an industry-first fraud offering—integrated directly into the credit profile—that mitigates lender losses while protecting millions of legitimate consumers’ identities,” said Keir Breitenfeld, Senior Vice President, Portfolio Marketing, Experian Decision Analytics. “In times of rapid changes to customer interactions, growth strategies, and risk management practices, it’s particularly important to focus on building tools that can help businesses make better decisions and I’m proud that Experian has again provided an instrument to enable those decisions.”   To learn more about Sure Profile and how Experian is working to solve this multibillion-dollar problem, visit us or request a call. Learn more

Lately, I’ve been surprised by the emphasis that some fraud prevention practitioners still place on manual fraud reviews and treatment. With the market’s intense focus on real-time decisions and customer experience, it seems that fraud processing isn’t always keeping up with the trends. I’ve been involved in several lively discussions on this topic. On one side of the argument sit the analytical experts who are incredibly good at distilling mountains of detailed information into the most accurate fraud risk prediction possible. Their work is intended to relieve users from the burden of scrutinizing all of that data. On the other side of the argument sits the human side of the debate. Their position is that only a human being is able to balance the complexity of judging risk with the sensitivity of handling a potential customer. All of this has led me to consider the pros and cons of manual fraud reviews. The Pros of Manual Review When we consider the requirements for review, it certainly seems that there could be a strong case for using a manual process rather than artificial intelligence. Human beings can bring knowledge and experience that is outside of the data that an analytical decision can see. Knowing what type of product or service the customer is asking for and whether or not it’s attractive to criminals leaps to mind. Or perhaps the customer is part of a small community where they’re known to the institution through other types of relationships—like a credit union with a community- or employer-based field of membership. In cases like these, there are valuable insights that come from the reviewer’s knowledge of the world outside of the data that’s available for analytics. The Cons of Manual Review When we look at the cons of manual fraud review, there’s a lot to consider. First, the costs can be high. This goes beyond the dollars paid to people who handle the review to the good customers that are lost because of delays and friction that occurs as part of the review process. In a past webinar, we asked approximately 150 practitioners how often an application flagged for identity discrepancies resulted in that application being abandoned. Half of the audience indicated that more than 50% of those customers were lost. Another 30% didn’t know what the impact was. Those potentially good customers were lost because the manual review process took too long. Additionally, the results are subjective. Two reviewers with different levels of skill and expertise could look at the same information and choose a different course of action or make a different decision. A single reviewer can be inconsistent, too—especially if they’re expected to meet productivity measures. Finally, manual fraud review doesn’t support policy development. In another webinar earlier this year, a fraud prevention practitioner mentioned that her organization’s past reliance on manual review left them unable to review fraud cases and figure out how the criminals were able to succeed. Her organization simply couldn’t recreate the reviewer’s thought process and find the mistake that lead to a fraud loss. To Review or Not to Review? With compelling arguments on both sides, what is the best practice for manually reviewing cases of fraud risk? Hopefully, the following list will help: DO: Get comfortable with what analytics tell you. Analytics divide events into groups that share a measurable level of fraud risk. Use the analytics to define different tiers of risk and assign each tier to a set of next steps. Start simple, breaking the accounts that need scrutiny into high, medium and low risk groups. Perhaps the high risk group includes one instance of fraud out of every five cases. Have a plan for how these will be handled. You might require additional identity documentation that would be hard for a criminal to falsify or some other action. Another group might include one instance in every 20 cases. A less burdensome treatment can be used here – like a one-time-passcode (OTP) sent to a confirmed mobile number. Any cases that remain unverified might then be asked for the same verification you used on the high-risk group. DON’T: Rely on a single analytical score threshold or risk indicator to create one giant pile of work that has to be sorted out manually. This approach usually results in a poor experience for a large number of customers, and a strong possibility that the next steps are not aligned to the level of risk. DO: Reserve manual review for situations where the reviewer can bring some new information or knowledge to the cases they review. DON’T: Use the same underlying data that generated the analytics as the basis of a review. Consider two simplistic cases that use a new address with no past association to the individual. In one case, there are several other people with different surnames that have recently been using the same address. In the other, there are only two, and they share the same surname. In the best possible case, the reviewer recognizes how the other information affects the risk, and they duplicate what the analytics have already done – flagging the first application as suspicious. In other cases, connections will be missed, resulting in a costly mistake. In real situations, automated reviews are able to compare each piece of information to thousands of others, making it more likely that second-guessing the analytics using the same data will be problematic. DO: Focus your most experienced and talented reviewers on creating fraud strategies. The best way to use their time and skill is to create a cycle where risk groups are defined (using analytics), a verification treatment is prescribed and used consistently, and the results are measured. With this approach, the outcome of every case is the result of deliberate action. When fraud occurs, it’s either because the case was miscategorized and received treatment that was too easy to discourage the criminal—or it was categorized correctly and the treatment wasn’t challenging enough. Gaining Value While there is a middle ground where manual review and skill can be a force-multiplier for strong analytics, my sense is that many organizations aren’t getting the best value from their most talented fraud practitioners. To improve this, businesses can start by understanding how analytics can help group customers based on levels of risk—not just one group but a few—where the number of good vs. fraudulent cases are understood. Decide how you want to handle each of those groups and reserve challenging treatments for the riskiest groups while applying easier treatments when the number of good customers per fraud attempt is very high. Set up a consistent waterfall process where customers either successfully verify, cascade to a more challenging treatment, or abandon the process. Focus your manual efforts on monitoring the process you’ve put in place. Start collecting data that shows you how both good and bad cases flow through the process. Know what types of challenges the bad guys are outsmarting so you can route them to challenges that they won’t beat so easily. Most importantly, have a plan and be consistent. Be sure to keep an eye out for a new post where we’ll talk about how this analytical approach can also help you grow your business. Contact us

Over the last several weeks, I’ve shared articles about the problems surrounding third-party, first-party and synthetic identity fraud. To wrap up this series, I’d like to talk about account takeover fraud and how digital transformation has impacted it over the last year. What is account takeover fraud? Account takeover fraud is a form of identity theft that involves unauthorized access to a user’s online accounts to enable financial crimes. Criminals can obtain information in a number of ways, including the dark web, spyware and malware, and phishing to allow them to make unauthorized transactions with the user’s account. Fraudsters have made efforts to also gain control of mobile or email accounts so they can intercept one-time passwords or password change instructions to retain control of the account. Once fraudsters have control of one account, they can use it to access other personal information to breach additional accounts and graduate to full-scale identity theft. How does account takeover fraud impact me? Account takeover fraud is damaging to businesses and consumers. It leads to losses and well as resources invested to confirm fraud. The potential losses from account takeover fraud have spiked over the last year, in large part due to the opportunities created by the rapid increase of digital interactions and the influx of users interacting with merchants and financial institutions online for the first time. Aite research shows that 64% of financial institutions are seeing higher rates of ATO fraud attacks now than prior to the pandemic. – Trace Fooshee, Senior Analyst, Aite Group1 Account takeover can also be difficult to detect. Unlike credit card fraud where the true owner might quickly notice suspicious charges, an account takeover attack can go undetected for long periods of time. That’s because the criminal can change login and contact information, ensuring that the real accountholder doesn’t realize they’ve been compromised immediately. Solving the account takeover fraud problem A good account takeover fraud prevention strategy requires two things: frictionless customer experience and robust risk management. It’s clear that customers expect seamless interactions with merchants and lenders. At the same time, businesses need to be able to spot risky or suspicious behavior before a bad transaction occurs. That’s where a layered fraud management solution comes into play. With the right tools—including risk-based identity and device authentication and targeted step-up authentication—businesses can provide a good customer experience and only pull in staff for deeper investigations where necessary. With this strategy in place, businesses can easily recognize good customers and provide a more personalized experience, while at the same time combatting fraud – boosting growth and minimizing losses in the long run. I hope this series has helped provide insights into the different types of fraud and why each of them requires different treatment. To learn more about the risks of account takeover and how a layered fraud management solution can help protect your business and your customers, feel free to contact us. 1Key Trends Driving Fraud Transformation in 2021 and Beyond, Aite Group, December 2020

Recently, I shared articles about the problems surrounding third-party and first-party fraud. Now I’d like to explore a hybrid type – synthetic identity fraud – and how it can be the hardest type of fraud to detect. What is synthetic identity fraud? Synthetic identity fraud occurs when a criminal creates a new identity by mixing real and fictitious information. This may include blending real names, addresses, and Social Security numbers with fabricated information to create a single identity.   Once created, fraudsters will use their synthetic identities to apply for credit. They employ a well-researched process to accumulate access to credit. These criminals often know which lenders have more liberal identity verification policies that will forgive data discrepancies and extend credit to people who appear to be new or emerging consumers. With each account that they add, the synthetic identity builds more credibility.   Eventually, the synthetic identity will “bust out,” or max out all available credit before disappearing. Because there is no single person whose identity was stolen or misused there’s no one to track down when this happens, leaving businesses to deal with the fall out.   More confounding for the lenders involved is that each of them sees the same scam through a different lens. For some, these were longer-term reliable customers who went bad. For others, the same borrower was brand new and never made a payment. Synthetic identities don't appear consistently as a new account problem or a portfolio problem or correlate to thick- or thin-filed identities, further complicating the issue.   How does synthetic identity fraud impact me?   As mentioned, when synthetic identities bust out, businesses are stuck footing the bill.   Annual SIF (synthetic identity fraud) charge-offs in the United States alone could be as high as $11 billion. – Steven D’Alfonso, research director, IDC Financial Insights1   Unlike first- and third-party fraud, which deal with true identities and can be tracked back to a single person (or the criminal impersonating them), synthetic identities aren’t linked to an individual. This means that the tools used to identify those types of fraud won’t work on synthetics because there’s no victim to contact (as with third-party fraud), or real customer to contact in order to collect or pursue other remedies.   Solving the synthetic identity fraud problem   Preventing and detecting synthetic identities requires a multi-level solution that includes robust checkpoints throughout the customer lifecycle.   During the application process, lenders must look beyond the credit report. By looking past the individual identity and analyzing its connections and relationships to other individuals and characteristics, lenders can better detect anomalies to pinpoint false identities.   Consistent portfolio review is also necessary. This is best done using a risk management system that continuously monitors for all types of fraudulent activities across multiple use cases and channels. A layered approach can help prevent and detect fraud while still optimizing the customer experience.   With the right tools, data, and analytics, fraud prevention can teach you more about your customers, improving your relationships with them and creating opportunities for growth while minimizing fraud losses.   To wrap up this series, I’ll explore account takeover fraud and how the correct strategy can help you manage all four types of fraud while still optimizing the customer experience. To learn more about the impact of synthetic identities, download our “Preventing Synthetic Identity Fraud” white paper and call us to learn more about innovative solutions you can use to detect and prevent fraud.   Contact us Download whitepaper   1Synthetic Identity Fraud Update: Effects of COVID-19 and a Potential Cure from Experian, IDC Financial Insights, July 2020

Preventing account takeover (ATO) fraud is paramount in today’s increasingly digital world. In this two-part series, we’ll explore the benefits and considerations of a Defense in Depth strategy for stopping ATO. The challenges with preventing account takeover Historically, managing fraud and identity risk in online banking has been a trade-off between customer experience and the effectiveness of fraud controls. The basic control structure relies on a lock on the front door of online banking front door—login—as the primary authentication control to defend against ATO. Within this structure, there are two choices. The first is tightening the lock, which equals a higher rate of step-up authentication challenges and lower fraud losses. The second is loosening the lock, which results in a lower challenge rate and higher fraud loses. Businesses can layer in more controls to reduce the false positives, but that only allows marginal efficiency increases and usually represents a significant expense in both time and budget to add in new controls. Now is the perfect time for businesses reassess their online banking authentication strategy for a multitude of reasons: ATO is on the rise: According to Javelin Strategy & Research, ATO increased 72% in 2019.1 Users’ identities and credentials are at more risk than ever before: Spear phishing and data breaches are now a fact of life leading to reduced effectiveness of traditional authentication controls. Online banking enrollments are on the rise: According to BioCatch, in the months following initial shelter-in-place orders across the country, banks have seen a massive spike in first time online banking access. Users expect security in online banking: Half of consumers continue to cite security as the most important factor in their online experience. Businesses who reassess the control structure for their online banking will increase the effectiveness of their tools and reduce the number of customers challenged at the same time – giving them Defense in Depth. What is Defense in Depth? Defense in Depth refers to a strategy in which a series of defense mechanisms are layered in order to protect data and information. The basic assumptions underlying the value of a Defense in Depth strategy are: Different types of transactions within online banking have different levels of inherent risk (e.g., external money movement is considerably higher risk compared to viewing recent credit card transactions) At login, the overall transaction risk associated with the session risk is unknown The risk associated with online banking is concentrated in relatively small populations – the vast majority of digital transactions are low risk This is the Pareto principle at play – i.e., about 80% of online banking risk is concentrated within about 20% of sessions. Experian research shows that risk is even more concentrated – closer to >90% of the risk is concentrated in <10% of transactions. This is relatively intuitive, as the most common activities within online banking consist of users checking their balance or reviewing recent transactions. It is much less common for customers to engage in higher risk transaction. The challenge is that businesses cannot know the session risk at the time of challenge, thus their efficiency is destined to be sub-optimal. The benefits of Defense in Depth A Defense in Depth strategy can really change the economics of an online banking security program. Adopting a strategy that continuously assesses the overall session risk as a user navigates through their session allows more efficient risk decisions at moments that matter most to the user. With that increased efficiency, businesses are better set up to prevent fraud without frustrating legitimate users. Defense in Depth allows businesses to intelligently layer security protocols to protect against vulnerability – helping to prevent theft and reputational losses and minimize end-user frustration. In addition to these benefits, a continuous risk-based approach can have lower overall operational costs than a traditional security approach. The second part of this series will explore the cost considerations associated with the Defense in Depth strategy explored above. In the meantime, feel free to reach out to discuss options. Contact us 1Identity Fraud in the Digital Age, Javelin Strategy & Research, September 2020

It’s clear that the digital transformation we experienced this year is here to stay. While there are many positives associated with this transformation – innovation, new ways to work, and greater online connectedness – it’s important that we review the risks associated with these trends as well.   In late 2019 and throughout 2020, Experian surveyed consumers and businesses. We asked about online habits, expectations for information security and plans for future spending. Unsurprisingly, about half of consumers think they’ll continue to spend more online in the coming year. Those same consumers now have a higher expectation for their online experience than before the onset of COVID-19.   Hand-in-hand with the online activity trends come increased risks associated with identity theft and fraud as criminals find new chances to steal information. In response to both of these trends, businesses and consumers want a balance between security and convenience.   Our latest trends report dives into the new opportunities 2020 has created for fraud, and the opportunities to prevent identity theft or manipulation and the associated losses while building stronger relationships.   Download the full North America Trends Report for a look into North American trends over the last year and to learn how fraud prevention and positive customer relationships are actually two sides of the same coin. North America Trends Report

The response to the coronavirus (COVID-19) health crisis requires a brand-new mindset from businesses across the country. As part of our recently launched Q&A perspective series, Jim Bander, Market Lead of Analytics and Optimization and Kathleen Peters, Senior Vice President of Fraud and Identity, provided insight into how businesses can work to mitigate fraud and portfolio risk. Q: How can financial institutions mitigate fraud risk while monitoring portfolios? JB: The most important shift in portfolio monitoring is the view of the customer, because it’s very different during times of crisis than it is during expansionary periods. Financial institutions need to take a holistic view of their customers and use additional credit dimensions to understand consumers’ reactions to stress. While many businesses were preparing for a recession, the economic downturn caused by the coronavirus has already surpassed the stress-testing that most businesses performed. To help mitigate the increased risk, businesses need to understand how their stress testing was performed in the past and run new stress tests to understand how financially sound their institution is. KP: Most businesses—and particularly financial institutions—have suspended or relaxed many of their usual risk mitigation tools and strategies, in an effort to help support customers during this time of uncertainty. Many financial institutions are offering debt and late fee forgiveness, credit extensions, and more to help consumers bridge the financial gaps caused by the economic downturn. Unfortunately, the same actions that help consumers can hamstring fraud prevention efforts because they impact the usual risk indicators. To weather this storm, financial institutions need to pivot from standard risk mitigation strategies to more targeted fraud and identity strategies. Q: How can financial institutions’ exposure to risk be managed? JB: Financial institutions are trying to extend as much credit as is reasonably possible—per government guidelines—but when the first stage of this crisis passes, they need to be prepared to deal with the consequences. Specifically, which borrowers will actually repay their loans. Financial institutions should monitor consumer health and use proactive outreach to offer assistance while keeping a finger on the pulse of their customers’ financial health. For the foreseeable future, the focus will be on extending credit, not collecting on debt, but now is the time to start preparing for the economic aftermath. Consumer health monitoring is key, and it must include a strategy to differentiate credit abusers and other fraudsters from overall good consumers who are just financially stressed. KP: As financial institutions work to get all of their customers set up with online and mobile banking and account access, there’s an influx of new requests that all require consumer authentication, device identification, and sometimes even underwriting. All of this puts pressure on already strained resources which means increased fraud risk. To manage this risk, businesses need to balance customer experience—particularly minimizing friction—with vigilance against fraudsters and reputational risk. It will require a robust and flexible fraud strategy that utilizes automated tools as much as possible to free up personnel to follow up on the riskiest users and transactions.   Experian is closely monitoring the updates around the coronavirus outbreak and its widespread impact on both consumers and businesses. We will continue to share industry-leading insights to help financial institutions manage their portfolios and protect against losses. Learn more About Our Experts: [avatar user="jim.bander" /] Jim Bander, Market Lead, Analytics and Optimization, Experian Decision Analytics, North America Jim joined Experian in April 2018 and is responsible for solutions and value propositions applying analytics for financial institutions and other Experian business-to-business clients throughout North America. He has over 20 years of analytics, software, engineering and risk management experience across a variety of industries and disciplines. Jim has applied decision science to many industries, including banking, transportation and the public sector. [avatar user="kathleen.peters" /] Kathleen Peters, Vice President, Fraud and Identity, Experian Decision Analytics, North America Kathleen joined Experian in 2013 to lead business development and international sales for the recently acquired 41st Parameter business in San Jose, Calif. She went on to lead product management for Experian’s fraud and identity group within the global Decision Analytics organization, launching Experian’s CrossCore® platform in 2016, a groundbreaking and award-winning new offering for the fraud and identity market. The last two years, Kathleen has been named a “Top 100 Influencer in Identity” by One World Identity (OWI), an exclusive list that annually recognizes influencers and leaders from across the globe, showcasing a who’s who of people to know in the identity space.

As financial institutions and other organizations scramble to formulate crisis response plans, it’s important to consider the power of data and analytics. Jim Bander, PhD, Experian’s Analytics and Optimization Market Lead discusses the ways that data, analytics and models can help during a crisis. Check out what he had to say: What implications does the global pandemic have on financial institutions’ analytical needs?  JB: COVID-19 is a humanitarian crisis, one that parallels Hurricanes Sandy and Katrina and other natural disasters but which far exceeds their magnitude. It is difficult to predict the impact as huge parts of the global economy have shut down. Another dimension of this disaster is the financial impact: in the US alone, more than 17 million people applied for unemployment in the first 6 weeks of the COVID-19 crisis. That compares to 15 million people in 18 months during the Great Recession. Data and analytics are more important than ever as financial institutions formulate their responses to this crisis. Those institutions need to focus on three key things: safety, soundness, and compliance. Safety: Financial institutions are taking immediate action to mitigate safety risks for their employees and their customers. Soundness: Organizations need to mitigate credit and fraud risk and to evaluate capital and liquidity. Some executives may need a better understanding of how their bank’s stress scenarios were calculated in the past to understand how they must be updated for the future. Important analytic functions include performing portfolio monitoring and benchmarking—quantifying the effects not only of consumer distress, but also of low interest rates. Compliance: Understanding and meeting complex regulatory and compliance requirements is crucial at this time. Companies have to adapt to new credit reporting guidelines. CECL requirements have been relaxed but lenders should assess the effects of COVID, and not only during their annual stress tests. As more consumers seek credit, from an analytics perspective, what considerations should financial institutions make during this time?  JB: During this volatile time, analytics will help financial institutions: Identify financially stressed consumers with early warning indicators Predict future consumer behavior Respond quickly to changes Deliver the best treatments at the right time for individual customers given their specific situations and their specific behavior. Financial institutions should be reevaluating where their organizations have the most vulnerability and should be taking immediate action to mitigate these risks. Some important areas to keep an eye on include early warning indicators, changes in fraudulent behavior (with the increase in digital engagements), and changes in customer behavior. Banks are already offering payment flexibility, deferments, and credit reporting accommodations. If volatility continues or increases, they may need to offer debt forgiveness plans. These organizations should also be prepared to understand their own changing constraints—such as budget, staffing levels, and liquidity requirements— especially as consumers accelerate their move to digital channels. In the near future, lenders should be optimizing their operations, servicing treatments, and lending policies to meet a number of possibly conflicting objectives in the presence of changing constraints and somewhat unpredictable transaction volumes.   What is the smartest next play for financial institutions?  JB: I see our smartest clients doing four things: Adapting to the new normal Maintaining engagement with existing customers by refreshing data that companies have on-hand for these consumers, and obtain additional views of these customers for analytics and data-driven decisioning Reallocating operational resources and anticipating the need for increased capacity in various servicing departments in the future Improving their risk management practices   What is Experian doing to help clients improve their risk management? JB: During this time, banks and other financial institutions are searching for ways to predict consumer behavior, especially during a crisis that combines aspects of a natural disaster with characteristics of a global recession. It is more important than ever to use analytics and optimization. But some of the details of the methodology is different now than during a time of economic expansion. For example, while credit scores (like FICO® and VantageScore® credit scores) will continue to rank consumers in terms of their probability to pay, those scores must be interpreted differently. Furthermore, those scores should be combined with other views of the consumer—such as trends in consumer behavior and with expanded FCRA-compliant data (data that isn’t reported to traditional credit bureaus). One way we’re helping clients improve their credit risk management is to provide them with a list of 140 consumer credit data attributes in 10 categories. With this list, companies will be able to better manage portfolio risk, to better understand consumer behavior, and to select the next best action for each consumer. Four other things we’re doing: We’re quickly updating our loss forecasting and liquidity management offerings to account for new stress scenarios. We’re helping clients review their statistical models’ performance and their customer segmentation practices, and helping to update the models that need refreshing. Our consulting team—Experian Advisory Services—has been meeting with clients virtually--helping them update, execute their crisis and downturn responses, and whiteboard new or updated tactical plans. Last but not least, we’re helping lenders and consumers defend themselves against a variety of fraud and identity theft schemes. Experian is committed to helping your organization during these uncertain times. For more resources, visit our Look Ahead 2020 Hub. Learn more Jim Bander, PhD, Analytics and Optimization Market Lead, Decision Analytics, Experian North America Jim Bander, PhD joined Experian in April 2018 and is responsible for solutions and value propositions applying analytics for financial institutions and other Experian business-to-business clients throughout North America. Jim has over 20 years of analytics, software, engineering and risk management experience across a variety of industries and disciplines. He has applied decision science to many industries including banking, transportation and the public sector. He is a consultant and frequent speaker on topics ranging from artificial intelligence and machine learning to debt management and recession readiness. Prior to joining Experian, he led the Decision Sciences team in the Risk Management department at Toyota Financial Services.

In the face of severe financial stress, such as that brought about by an economic downturn, lenders seeking to reduce their credit risk exposure often resort to tactics executed at the portfolio level, such as raising credit score cut-offs for new loans or reducing credit limits on existing accounts. What if lenders could tune their portfolio throughout economic cycles so they don’t have to rely on abrupt measures when faced with current or future economic disruptions? Now they can. The impact of economic downturns on financial institutions Historically, economic hardships have directly impacted loan performance due to differences in demand, supply or a combination of both. For example, let’s explore the Great Recession of 2008, which challenged financial institutions with credit losses, declines in the value of investments and reductions in new business revenues. Over the short term, the financial crisis of 2008 affected the lending market by causing financial institutions to lose money on mortgage defaults and credit to consumers and businesses to dry up. For the much longer term, loan growth at commercial banks decreased substantially and remained negative for almost four years after the financial crisis. Additionally, lending from banks to small businesses decreased by 18 percent between 2008-2011. And – it was no walk in the park for consumers. Already faced with a rise in unemployment and a decline in stock values, they suddenly found it harder to qualify for an extension of credit, as lenders tightened their standards for both businesses and consumers. Are you prepared to navigate and successfully respond to the current environment? Those who prove adaptable to harsh economic conditions will be the ones most poised to lead when the economy picks up again. Introducing the FICO® Resilience Index The FICO® Resilience Index provides an additional way to evaluate the quality of portfolios at any point in an economic cycle. This allows financial institutions to discover and manage potential latent risk within groups of consumers bearing similar FICO® Scores, without cutting off access to credit for resilient consumers. By incorporating the FICO® Resilience Index into your lending strategies, you can gain deeper insight into consumer sensitivity for more precise credit decisioning. What are the benefits? The FICO® Resilience Index is designed to assess consumers with respect to their resilience or sensitivity to an economic downturn and provides insight into which consumers are more likely to default during periods of economic stress. It can be used by lenders as another input in credit decisions and account strategies across the credit lifecycle and can be delivered with a credit file, along with the FICO® Score. No matter what factors lead to an economic correction, downturns can result in unexpected stressors, affecting consumers’ ability or willingness to repay. The FICO® Resilience Index can easily be added to your current FICO® Score processes to become a key part of your resilience-building strategies. Learn more

Understanding the behaviors of best-in-class credit risk managers For financial institutions to achieve superior performance, having the appropriate set of credit risk managers is a prerequisite. The ability to gain insight from data and customer behavior and to use that insight for strategic advantage is a critical ingredient for success. At the same time, the risk-management community is under increasing pressure to understand and explain underlying trends in credit portfolios — and to monitor, interpret and explain these trends with ever-greater accuracy. A common problem financial institutions face when confronting staff resource needs is the difficulty in recruiting and retaining experienced risk-management professionals. The risk-management community is notoriously small, and hiring expertise from within this community is extremely difficult. Skilled risk managers truly are a finite resource, but their skill set is in huge demand. Hiring the right talent is crucial to job satisfaction, leading to higher engagement levels and reduced attrition costs. On top of that, employee engagement is vital to an organization’s success. It drives employee productivity and fosters a culture of innovation, which leads to higher profitability for the entire organization. Building, attracting and retaining risk-management resources requires a commitment to engaging in staff personal development. A great way to support employee engagement is to invest in their personal and professional development, including opportunities for training and team building. If an organization can show that it is committed to developing its people and providing opportunities for career growth, employee engagement levels will rise, with all the benefits this entails. Typically, financial institutions bridge the resource skill gap by either hiring skilled statistical and analytical experts or developing in-house resources. Both of these approaches, however, require significant on-the-job training to teach employees how to link raw statistical techniques and procedures to influencing the profit and loss statement of the business line which they support. The challenge is often broadening the understanding of these skill set “silos” and their contribution to the overall portfolio. By opening that view, the organization generates additional value from these resources as lines of communication are improved and insights and opportunities found within the data are shared more effectively across the organizational team. Experian’s Global Consulting Practice provides a solution to this problem. Our two-day Risk and Portfolio Management Essentials training workshop offers the opportunity to understand the behaviors of best-in-class risk managers. What are the tools and enablers required for the role? How do they prepare for the process of managing credit risk? What areas must risk managers consider managers across the Customer Life Cycle? What differentiates the good from the great? To complement the training modules, Experian® offers an interactive, team-based approach that engages course participants in the build options of a defined portfolio. Participants leverage the best-in-class techniques presented in the sessions in a series of competitive, team-based exercises. This set of cross-organizational exercises drives home the best-in-class techniques and further builds understanding that resonates across the organization long after the course is concluded. For our current offerings, locations and to register click here.  

Driver of success: Mitigate auto lending risk A culture of learning is a key driver of success. Does your risk culture continue to adapt? There are many issues within auto lending that are unique to other financial services ecosystems: the direct versus indirect relationship, insights of the asset influencing the risk insights, new versus used vehicle transactions influencing risk and terms, and more. However, there is one universal standard common to all financial services cultures — change.. Change is constant, and an institution’s marketing and risk organizations need to be constantly learning to stay abreast of dealer, consumer, competitor and regulatory issues. No one has said it better than Jack Welch: “An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.” This statement was quickly followed by a command: “Change before you have to.” So the challenge for the portfolio manager is to ensure there are the system features, data sources, management reporting structures, data access features, analytic skills, broad management team skill sets, and employee feedback and incentive plans to drive the organization to a constant state of renewal. The challenge for many smaller and midsize lenders is to determine what systems and skills need to be in-house and what tasks are better left for a third party to handle. For consumer-level data, vehicle history and valuation data, and fraud alert flags, it seems reasonable to leverage solutions from established third parties: credit reporting agencies. After that, the solutions to the many other needs may be more specific to the lender legacy skill set and other support relationships: Are there strong in-house data-management and analytic skills? There is a significant difference between management information and data analysis driving policy and portfolio performance forecasts. Does the internal team have both? Is the current operating platform(s) feature-rich and able to be managed and enhanced by internal resources within tight time frames? Is the management team broadly experienced and constantly updating best-practice insights? Is the in-house team frequently engaged with the regulatory community to stay abreast of new mandates and initiatives? There is a solution. Experian® offers the data, software, solutions, management information, analytic solutions and consulting services to tie everything together for a lender-specific best configuration. We look forward to hearing from you to discuss how we can help.

As a global leader in providing credit-decisioning information, analytical tools and marketing services to organizations and consumers, Experian is no stranger to telecommunications or to TRMA. In fact, the current TRMA home page reflects this connection, listing Experian as TRMA’s 2009 Best In Class Affiliate Award recipient and leader atop the Fall, 2010 Affiliate scorecard. Finding treasure in Vegas More importantly, however, the page reminds visitors that TRMA’s primary goal is “reducing fraud and uncollectibles in the telecom industry.” Toward that end, they’ve put together a dynamic, information-rich conference for February 22-23 entitled “Sailing towards Treasured Results.” This year, several Experian executives – including myself – will have the privilege of contributing knowledge and expertise to the proceedings. Get connected before, during and after TRMA In these days before the event, I’ll virtually introduce you to each of Experian’s TRMA speakers and give you the opportunity to learn more about them and their topics. During the conference, as time permits, some will be tweeting and blogging their thoughts, opinions and observations. They’ll analyze and unpack conference developments, and share their analysis with our followers and readers. Stop wondering, start following We expect a lot of actionable information from TRMA. So if you aren’t following us on Twitter (@experiancredit) or checking this site regularly, before, during or after the event would be the ideal time to start. You’ll gain a lot of insights from people who really understand telecom’s unique credit challenges and opportunities. And if you're attending TRMA, I certainly hope to see you there.

By: Kari Michel What is Basel II?  Basel II is the international convergence of Capital Measurement and Capital Standards. It is a revised framework and is the second iteration of an international standard of laws. The purpose of Basel II is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operations risk banks face.  Basel II ultimately implements standards to assist in maintaining a healthy financial system. The business challenge The framework for Basel II compels the supervisors to ensure that banks implement credit rating techniques that represent their particular risk profile.  Besides the risk inputs (Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD)) calculation, the final Basel accord includes the “use test” requirement which is the requirement for a firm to use an advanced approach more widely in its business and met merely for calculation of regulatory capital. Therefore many financial institutions are required to make considerable changes in their approach to risk management (i.e. infrastructure, systems, processes, data requirements).  Experian is a leading provider of risk management solutions -- products and services for the new Basel Capital Accord (Basel II).  Experian’s approach includes consultancy, software, and analytics tailored to meet the lender’s Basel II requirements.  

A recent January 29, 2010 article in the Wall Street Journal * discussing the repurchasing of loans by banks from Freddie Mae and Fannie Mac included a simple, yet compelling statement that I feel is worth further analysis. The article stated that "while growth in subprime defaults is slowing, defaults on prime loans are accelerating." I think this statement might come as a surprise to some who feel that there is some amount of credit risk and economic immunity for prime and super-prime consumers – many of whom are highly sought-after in today’s credit market. To support this statement, I reference a few statistics from the Experian-Oliver Wyman Market Intelligence Reports: • From Q1 2007 to Q1 2008, 30+ DPD mortgage delinquency rates for VantageScore® credit score A and B consumers remained flat (actually down 2%); while near-prime, subprime, and deep-subprime consumers experienced an increase of over 36% in 30+ rates. • From Q4 2008 to Q4 2009, 30+ DPD mortgage delinquency rates for VantageScore® credit score A and B consumers increased by 42%; whereas consumers in the lower VantageScore® credit score tiers saw their 30+ DPD rate increase by only 23% in the same period Clearly, whether through economic or some other form of impact, repayment practices of prime and super-prime, consumers have been changing as of late, and this is translating to higher delinquency rates. The call-to-action for lenders, in their financial risk management and credit risk modeling efforts, is increased attentiveness in assessing credit risk beyond just a credit score...whether this be using a combination of scores, or adding Premier Attributes into lending models – in order to fully assess each consumer’s risk profile. *  http://online.wsj.com/article/SB10001424052748704343104575033543886200942.html