Fair Isaac shoots for broader analytics

In the year to April 2007, UK consumers added $116 billion to their personal debt, bringing their total borrowings to £1.32 trillion, according to the charity Credit Action. For the financial institutions behind that lending, the prospect of huge profits sit alongside the need to limit their risks on a customer-by-customer basis.

Managing that kind of risk has often been the core of low-profile, specialist companies. But one that is intent on changing that perception is predictive analytics technology vendor Fair Isaac. It wants to apply its expertise in fresh and broader arenas, and so fuel a rapid upswing from its already substantial $825 million revenue base.

UKbanks, among them Royal Bank of Scotland, HBOS and HSBC, for example, are using its products to tackle new types of fraud. Such banks have come to the conclusion that a large segment of their bad debt portfolio is not actually coming from customers defaulting, but is resulting for the most part from ‘first party fraud’, where people come in specifically to get a loan they have no intention of paying back. On the surface, it looks like bad debt but a greater depth of analysis reveals patterns of deception.

Fair Isaac’s CEO, Mark Greene, explains the role of predictive analytics in such applications: "We can help provide visibility, clarity in the midst of this chaos. We use predictive analytics to help companies navigate overwhelming complexity, to give a clearer view of the future. Predictive analytics simplifies data to amplify data. We take billions of possible outcomes and find the best possible one."

And the company is certainly well-placed to discover new types of fraud as they emerge. With vast amounts of transactional data provided by their banking clients, "we can see patterns of fraud and recognise attacks on banks so they can respond in kind. Change in the financial markets, for example, can happen very quickly. As the bad guys get better, we have to move fast," says the company’s COO Mike Campbell.

A new trend in fraud perpetrated particularly in the UK and US – and giving lenders sleepless nights – is ‘bust out’, Campbell explains. "Fraudsters are getting very good at understanding that our banks are still fairly silo-ed. They will go in understanding what triggers make them look like an excellent customer. They play the system, pay loans on time, score high on credit rating, and get their credit line increased.”

Then they ‘bust out’, exploiting multiple, large loans and running up huge debt in a relatively short time. “They take the cash and disappear,” says Campbell. “Instead of a typical credit card fraud transaction of, say, a couple of hundred pounds, they can walk away with hundreds of thousands of pounds."

Fair Isaac offers sophisticated products that aim to spot the build up to such events. And it has some pedigree to draw on.

The 51-year-old company is still most famous as the creator of the FICO score, used by most US financial institutions as the standard measure of consumer credit risk. A new offering, FICO global scoring is now available in 40 countries outside the US.

"The company invented this industry of credit scoring and analytics and [more recently] enterprise decision management and for 50 years we have been pushing the envelope on that,” says Campbell.

Financial services has been its primary focus to date, but by combining its mix of advanced analytics, cutting-edge technology and industry expertise Fair Isaac is moving into other industries that its executives maintain are under-served by analytics. Targeted areas include insurance, healthcare and retail.

The aim is to provide customers in these sectors with more powerful tools for acquiring new, profitable clients, retain existing clients and effectively cross-sell products. "We have been pioneering analytics in financial services for decades. The financial services industry is incredibly capable and fine tune things themselves. We can take the same power and apply it to other industries. We can use the same set of analytics to sell washing machines as to eliminate fraud in your credit card business,” says Campbell.

Fair Isaacs has been working with retailers on a model known as ‘Best Next Action’. Despite marketing ROI, the vast majority of messages and offers continue to reach a large number of the wrong people, through the wrong channels, at the wrong time. This model helps companies understand that if a particular customer buys a particular group of products, they can predict the next thing the customer is going to buy. The model works with a very high accuracy, according to Fair Isaac, and allows retailers to hone very specific incentive programmes in merchandising and promotions.

"We are looking at lots of data in an undisciplined market and helping retailers say, ‘next Friday would be a good day to put washing machines on sale and to advertise it to particular select customers’. The returns on these kind of marketing campaigns are huge; the numbers speak for themselves," says Campbell.

But expansion beyond its traditional markets presents some challenges: a company that was historically product-centric is now attempting to become a more client-focused organisation.

Related to that are questions of product integration. At the recent Fair Isaac InterAct Conference in Lisbon, Mark Greene admitted that, while customers appreciate that much of the company’s product line up is best of breed, the products “are not as well integrated as the [company’s] Enterprise Decision Management vision speaks [of]; so we have some more work to do to further connect the dots.”

However, no-one doubts that the information-intense problems Fair Isaac tries to solve are just going to get harder. And with such challenges increasingly evident across a much wider group of industries, the company is likely to become a name that is associated with a whole lot more than credit scores and loan fraud.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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