How machine-learning technology can provide insights that drive growth with less risk
Soaring increases in computing volume and available data are transforming how financial institutions use and apply risk-based analytics. Traditional logistic regression models [think: everyone above the line is approved and everyone below is declined] are giving way to progressive, non-linear neural networks that are more predictive and inclusive. Unfortunately, they have challenges with lending transparency and have limited value in more regulated industries.
However, now Equifax has merged the best of both worlds by developing the industry’s only next-gen risk modeling technology called NeuroDecisionTM. It blends the advanced, machine-learning technology of neural networks so it’s highly granular and predictive. Yet, like traditional models, it also offers actionable reason codes that easily explain the resulting scores, which makes it compliant with regulatory requirements.
The bottom line? Financial institutions can finally access a high-performing scoring model that maximizes predictiveness and accuracy, in addition to helping address regulatory scrutiny. Here’s how this exclusive new modeling technology can help financial organizations perform better.
Score and approve more customers, including new businesses and smaller firms
The commercial credit world is challenged by scarcity of data – when the average small business is closed within three years of opening. Therefore, the window to collect data is limited. For the same reasons, data available when making a decision on a new business is also small. This makes decisions hard to make and business risk hard to predict. This can also make lenders conservative in the way that they lend to businesses that are just starting out, but have a bright future.
Conversely, NeuroDecision helps you capture more of these notoriously hard-to-score businesses that are not quite prime, but are clearly trending in the right direction. It creates a curved, non-linear tract that automatically opens up a wider audience of prospects and customers based on inter-related attributes that indicate improving financial behaviors and conditions. In fact, early testing within Equifax shows that when compared to legacy models, NeuroDecision can help deliver up to a 10 percent increase in predictiveness.
The net result is this: you can grow your business by suddenly connecting with and approving a wider audience of customers without investing additional cost in expanded sales and marketing campaigns, but rather approving more customers at time of application.
Hold default rates constant, without taking on more risk
Logically, you would think that if you approve more customers from the same audience, you’ll eventually increase your default risk. That’s not the case with NeuroDecision. Unlike traditional models, NeuroDecision optimizes predictive power with machine-learning methods that utilize big data and big variable lists, while also remaining regulatory compliant and explainable.
This improves your ability to predict future account performance so you can confidently serve more commercial customers of different revenue size across more industries and sectors while maintaining your existing risk policies. In other words, your customer base grows and account profitability rises while predicted default rates remain steady.
Improve portfolio profitability
NeuroDecision can also be used post-origination for ongoing account management. Configurable models can help predict performance throughout the account lifecycle for proactive upgrade offers and relationship expansion, credit line assignment, default or even collections. With deeper, more predictive and accurate insight into and across your customer portfolios, you can better position your organization for growth and increased profitability.
Gain a true competitive edge
The only way to access our exclusive NeuroDecision modeling technology is through membership in the Commercial Financial Network (CFN). That means as you compete for business against other financial service providers who are not CFN members, you’ll have the distinct advantage of NeuroDecision modeling technology on your side. Easy to implement, it’s applicable and deployable wherever traditional scorecards are used to help strengthen your customer decisions, boost profitability and stabilize risk.
CFN membership also gives you direct access to the industry’s fastest-growing commercial database which includes more than 28 million business records, five major data categories that expand beyond the traditional credit bureau model and more than 1,300 commercial payment data contributors. All this data and more can fuel your customer decisions—as it does our NeuroDecision technology—to give you a comprehensive, big-picture view of businesses, especially the many new and small businesses that lack a traditional credit file.
If you’re looking to strengthen your commercial lending strategy, or if you simply want more information on CFN membership, please visit us at http://www.equifax.com/business/commercial-financial-network.
For more information about our next-gen NeuroDecision modeling technology, click here to watch a quick video.
At Equifax, our goal is to help grow your business and optimize the value of your customer relationships by giving you a wider view of your customers across the account lifecycle. For more information about the many ways we can help your business, please visit: http://www.equifax.com/business/business-services.