Transcript The New Normal

FICO™ Forum: The New Normal
Introduction
Nigel Young
Senior Director, Northern Europe
FICO
16 November, 2010
Confidential. This presentation is provided for the recipient only and cannot
be reproduced or shared without Fair Isaac Corporation's express consent.
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© 2010 Fair Isaac Corporation.
Welcome
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© 2010 Fair Isaac Corporation. Confidential.
© 2010 Fair Isaac Corporation. Confidential.
FICO’s predictive analytics help
businesses gain deep consumer
insight and make smarter
decisions
FICO: make every decision count
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2010 Fair Isaac Corporation. Confidential.
© 2009
FICO is the Leader in Predictive Analytics
for Decision Management
“FICO is growing its presence in and beyond financial services
by extending the precision of analytics across all decision
areas and by bringing more advanced decision modeling and
mathematical optimization within the reach of decision
management professionals.”
— The Forrester Wave: Predictive Analytics and Data Mining Solutions, Q1 2010 (February 4,
2010)
“FICO continues to lead the services operations analytic
applications segment of the market.”
—Worldwide Business Analytics Software 2009-2013 Forecast and 2008 Vendor Shares, August
2009, IDC #219383
“FICO is notable among analytic application providers in its
extensive experience in delivering high value in industryspecific, decision-centric applications.”
— Henry Morris, Senior Vice President , Worldwide Software and Services IDC
.”
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© 2010 Fair Isaac Corporation. Confidential.
FICO’s Decision Management Platform
Manage Strategies and Make Connected Decisions
Across Products and Lifecycle
Decision Management Application Suite
Originations
FICO
Originations
Manager 4
Customer
Management
Collections &
Recovery
Fraud
FICO TRIAD 8.5
FICO Debt
Manager 8
FICO Fraud
Manager 6
Decision Management Common Components
Data Model
Rules
Management
Process Server
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© 2010 Fair Isaac Corporation. Confidential.
Model and Rules
Repository
Portal
Case
Management
Application Server
Reporting
ESB
‘Connected Decisions’
Connected Decisions
Originations
Customer &
Account
Management
Collections &
Recovery
» Case Management
» Management Information
» Rules
» Data
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© 2010 Fair Isaac Corporation. Confidential.
Fraud
We Work with Leaders Around Europe
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Financial
Services
Origination
Risk Management
Marketing
Fraud
Collections & Recovery
Insurance
Underwriting
Claims Management
Fraud
Retail
Marketing & Merchandising
Credit Management
Fraud
2010 Fair Isaac Corporation. Confidential.
© 2009
Our Commitment to the UK
» Continued product advances
»
»
»
Common component architecture
Connected Decisions across the lifecycle
Major release within the year for every major lifecycle and tools
area
» Analytic innovations to support your needs
»
»
»
Stress testing
Basel III – Counter-cyclical capital management
Credit capacity
» Significant growth in ‘A team’ support
» Doubling size of fraud consultants
» New staff: Associate Client Partners added, additional Sales
Support, Sales Operations, Professional Service resources
» More local involvement from CEO, product development, research
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© 2010 Fair Isaac Corporation. Confidential.
We Would Like to Thank Our Guest Speakers
» Keith Binley
Head of Credit Risk and Fraud Strategy, Metro Bank
» Lee Gordon
Head of Fraud Management – Senior Vice President, Citibank
» Mark Tingey
Senior Fraud Prevention Manager, Global Lead, Cards, RBS
» Richard Hurley
Communications Manager, CIFAS
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© 2010 Fair Isaac Corporation. Confidential.
Today’s Agenda
9:00
Welcome – Nigel Young
9:30
The New Normal – Mike Gordon
10:30
Break
10:45
Counter Cyclical Capital Management (David Molyneaux) or
Foiling Fraudsters: A Panel Discussion (Martin Warwick host)
12:15
Lunch
13:30
Modelling: The 360° Customer View (Neill Crossley) or
The Originations Imperative (Daniel Melo)
14:45
Break
15:00
Customer Centricity = Customer Profitability (Janice Horan, Daniel Melo) or
Leveraging Data through Optimisation (Neill Crossley)
16:00
Customer Risk, Customer Affordability and the Consequences of Economic Impact – All
That From a Bureau? (Brian Cooper)
or
Designing an Infrastructure for Better Customer Experience – A Case Study (Fernando
Donati Jorge and Keith Binley. Head of Credit Risk and Fraud Strategy, Metro Bank)
17:00
Reception
Consultations and Product Demonstrations offered on demand throughout the day.
Sign up at reception. Accommodated on a first come, first served basis.
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© 2010 Fair Isaac Corporation. Confidential.
Throughout the Day Today
» Ask questions of our speakers
» Presentations will be sent to you electronically
» Exchange ideas with each other
» Share thoughts during breaks
» Join us at a reception this evening
» Seek consultations with our staff
» Let us know how we can serve you today
» Tell us the things you’d like to see from FICO in the future
Enjoy the day!
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© 2010 Fair Isaac Corporation. Confidential.
FICO™ Forum: The New Normal
Navigating Change in the Reset Economy
Mike Gordon
VP & Managing Director, EMEA
FICO
16 November, 2010
Confidential. This presentation is provided for the recipient only and cannot
be reproduced or shared without Fair Isaac Corporation's express consent.
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© 2010 Fair Isaac Corporation.
The New Normal, Defined
“A state of regulation and business realities
that will take 2-3 years to settle in, but will
represent permanent change for the financial
services system.”
Risk Management – What is the New Normal, IDC
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2010 Fair Isaac Corporation. Confidential.
© 2009
The New Normal, Defined
“A state of regulation and business realities
that will take 2-3 years to settle in, but will
represent permanent change for the financial
services system.”
Definition of Change:
The act, process, or result
of becoming different
Risk Management – What is the New Normal, IDC; Webster’s Ninth New
Collegiate Dictionary
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2010 Fair Isaac Corporation. Confidential.
© 2009
The New Normal, Somewhat Defined
“A state of regulation and business realities
that will take 2-3 years to settle in, but will
represent permanent change for the financial
services system.”
Definition of Permanent:
Definition of Change:
Continuing or enduring
without fundamental or
marked change
The act, process, or result
of becoming different
Risk Management – What is the New Normal, IDC; Webster’s Ninth New
Collegiate Dictionary
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2010 Fair Isaac Corporation. Confidential.
© 2009
Navigating the New Normal
» The New Normal is a new way of managing risk,
dealing with customers and operating your bank
» It requires adoption of new level of analytic
excellence leveraging a rapid test-and-learn
mentality
» It requires the ability to evolve rapidly and over
maintain this flexibility over the long-term
» To achieve sustainable competitive advantage, it
will require a rethink of how to approach
customers
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© 2010 Fair Isaac Corporation. Confidential.
Previous Normal:
Rapid Expansion of Consumer Credit / Financial Innovation
» Economic Market:
» 1980-2008: Rapid expansion of consumer credit supply and demand
» Technology impacts - new channels, touch points for customers
» Consumer spending as key driver of economic growth
» Consumers:
» Period ending 2008 saw record employment in many regions
» Consumers comfortable and relaxed with high personal debt loads
» Maximum spending, minimum or no saving the norm for majority of
households
» Housing price appreciation seen as adding to personal wealth
» Retail Banking Industry:
» Entry of non-bank credit grantors in most regions
» Consolidation of banking industry
» Record profits generated from consumer lending, securitization of
consumer loans
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© 2010 Fair Isaac Corporation. Confidential.
The Crisis Normal:
Reign in the “Party” to Limit Downside Impacts
» Economic Market:
» Liquidity crisis, collapse of housing markets created global economic
crisis in the period 2007-2009
» Markets in 2010 in various stages of recovery
» Consumers:
» Unemployment nearing 10% in UK at its peak
» Dramatically curtailed spending, shift to saving where possible
» Housing price depreciation
» Retail Banking Industry:
» Bailouts and attempts to raise capital characteristic of large players
» Rising delinquency, fears over long term portfolio health for
consumer lending portfolios
» Severe reduction in credit granted
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© 2010 Fair Isaac Corporation. Confidential.
The New Normal:
Learning to Live with Change and Imbalances
» Economic Market – The Good and the Bad
»
»
»
»
A return to GDP growth
Dark underside of continued long-term unemployment
Looming challenge when fiscal stimulus, favourable rates removed
A potential era of trade protectionism through currency wars
» Consumers – Key behavioral shifts towards savings
» Apprehensive about future employment
» Conservative spending, low demand for credit, decreased utilization
» New caution in borrowing, housing market consideration
» Retail Banking Industry – Increase in capital
»
»
»
»
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Bailouts being repaid and profitability returning
New players focusing on entry strategies into the market
Continued expansion of regulatory scrutiny
How to identify profitable customers for sustained growth
© 2010 Fair Isaac Corporation. Confidential.
The New Normal – More Growth Than Expected?...
GDP
3
% change qtr ago
2
% change yr ago
1
0
-1
-2
-3
-4
-5
-6
08Q1
08Q3
09Q1
09Q3
10Q1
10Q3
» Most economists in the UK agree that growth is close to trend…
» …however output is unlikely to pass previous economic peak
(early 2008) until the end of 2012
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© 2010 Fair Isaac Corporation. Confidential.
Source: Moody’s Economy.com, Business Outlook, UK Country Page, 27 October 2010
…However, Other Factors Continue to Point to
a Long, Diminished Recovery
» Consumer confidence remains weak due to high household
indebtedness…
» …as well as a weak labour market in which there is persistent
high long-term unemployment
Source: Moody’s Economy.com, UK Country Page, Key Indicators, 8 November 2010
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© 2010 Fair Isaac Corporation. Confidential.
The Statistics Continue to Show Consumers Are
Struggling...
» 1,567 individuals daily being made
redundant June – August 2010
» Approximately 1 in 127 active
companies (0.8%) went into
liquidation in year ended Q2 2010
» Unemployment rate at 7.7% is
down from prior periods, below
Eurozone average
» Duration of unemployment a bigger
concern: 821,000 out of work for
more than 12 months
» 56% of the population have had to
dip into savings unexpectedly…
» …30% of British adults have less
than 5 days pay set aside
Source: CreditAction.org.uk, Credit Action Debt Facts and
Figures, November 2010
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© 2010 Fair Isaac Corporation. Confidential.
…As UK Housing Price Instability Remains a
Concern for Long-Term Stability for Consumers
Nationwide House Price Index
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10
9
8
7
6
5
4
3
2
1
0
-1
-2
% change qtr ago
Jan 10
Mar 10
% change yr ago
May 10
Jul 10
Sep 10
» Growth that was occurring early in 2010 has diminished significantly
in the second half of the year
» This will put significant pressure on individual household recoveries
Source: Moody’s Economy.com, Macro Round-up, Western Europe Country Page, 1 October 2010
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© 2010 Fair Isaac Corporation. Confidential.
At a Household Level, Indebtedness Has Improved
Over the Past Two Years…
Gross debt-to-household income, %
160
140
120
2008
100
80
2010
60
40
20
0
UK
Euro zone
France
Germany
Italy
» Today, 15% of average UK household income is spent toward debt
service
» The average owed by every UK adult including mortgages is
£29,891
Source: Moody’s Economy.com, UK Outlook, UK Country Page, 27 October 2010
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© 2010 Fair Isaac Corporation. Confidential.
Source: Eurostat
…And Other Economic Indicators Indicate Some
Market Momentum for Consumers
» Secured and unsecured lending
are now growing over a year ago
» Access to consumer credit has
increased to £216 billion…
» …and the annual growth rate has
doubled since last year
» Additionally, industrial production
in the United Kingdom is
improving
» This can be seen through an
improvement of merchandise
trade imbalance
» UK productivity has increased
back to pre-crisis levels
Source: Moody’s Economy.com,
UK Country Page, 8 November 2010
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© 2010 Fair Isaac Corporation. Confidential.
National Statistics Online
While Consumers Are Sill Concerned, Opportunities
Are Evolving for Banks
» Consumer Savings has increased though
average weekly earnings has decreased
since 2008
» Today, 52% of population setting
money aside each month
» Consumers saved an average of £2.87
every day this past year - £20.09 per
week
» The household savings rate has
increased by 60%
» As savings increase, historical growth has
grown through an increase in the need for
credit
» 1 of 3 consumers under-35 actively seek
borrowing: Generation Recognised In
Need of Credit Help (the GRINCH
generation)
» Demand for unsecured lending is
increasing
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© 2010 Fair Isaac Corporation. Confidential.
Source: CreditAction.org.uk, Credit Action Debt
Facts and Figures, November 2010
At the Same Time, Banking Competition Has
Increased...
» Branches are open longer and on more days
» New entrants who are focused on customer experience are
joining the banking market
»
»
»
»
Not burdened by legacy systems
Leverage reward programmes create tremendous customer insight
Mobile banking, Point of Sale channels included in launch strategy
Focus on Customer Experience with different branch design and
distinct service concept
» Current bankers are leveraging their current
accounts to create new stickiness…
» …and seek to leverage their data in new
ways to further segment their customers to
find opportunity
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© 2010 Fair Isaac Corporation. Confidential.
…While Regulations Continue to Evolve to Improve
Market and Customer Protection
» Basel III calling for more
formulaic calculation of capital,
more capital in absolute terms
» A focus on customer advocacy
as “affordability” continues to be
a focus
» Increased standards
» Payment applications
» Rulings on maximum fees
» Increased scrutiny and
reporting on decisioning
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© 2010 Fair Isaac Corporation. Confidential.
The New Normal – FICO Defined
“The New Normal is emerging from a market
discontinuity, and represents a paradigm shift
for economic markets, consumers and
bankers alike.
Due to continued changes in the market,
behaviors and regulation disequilibrium will
continue to persist for the next few years”
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2010 Fair Isaac Corporation. Confidential.
© 2009
Navigating the New Normal – More to Come Today
» Utilize existing customer data and
new predictive analytics for a holistic
customer view that facilitates
responsible lending
537 - 616
429 - 588
278 - 783
690 - 631
454 - 166
» Adopt customer optimization
techniques around customer
segments and align “best next
offers”
583 - 926
» Incorporate an economic view in
decision making and in addressing
capital concerns to facilitate
regulatory compliance
» Leverage new decisioning
technologies across legacy
processing systems to increase
operating flexibility
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© 2010 Fair Isaac Corporation. Confidential.
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THANK YOU!
16 November, 2010
Confidential. This presentation is provided for the recipient only and cannot
be reproduced or shared without Fair Isaac Corporation's express consent.
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© 2010 Fair Isaac Corporation.