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© 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Customer Centric Decisioning at Lloyds Banking Group Chris Keeling Head of Risk Programmes, Risk Infrastructure Lloyds Banking Group Jeremy Bryson Head of Architecture and Risk Systems Lloyds Banking Group
© 2014 Fair Isaac Corporation. Confidential. Lloyds Banking Group is on a journey to develop Customer Centric Decisioning to support their Risk process for personal customers across retail products. Jeremy and Chris will provide an insight into their drivers for this and progress to date which is underpinned by the implementation of FICO ® Origination Manager and FICO ® TRIAD ® Customer Manager. 2
Agenda © 2014 Fair Isaac Corporation. Confidential. ► Lloyds Banking Group and Our Risk Transformation Programme ► The context of Lloyds Banking Group and its credit function ► Our vision for risk transformation and investment rationale ► Why we picked FICO and what influenced our choice ► Implementation of Acquisition Decisioning Using FICO ® Origination Manager ► Scope and Objectives ► Delivery Experience and Lessons Learned ► Creating a Customer Centric Organisation Using FICO ® TRIAD ® Customer Manager ► Our strategy and approach ► Closing Comments and Questions 3
© 2014 Fair Isaac Corporation. Confidential. Chris Keeling Head of Risk Programmes, Risk Infrastructure Lloyds Banking Group ► Lloyds Banking Group and Our Risk Transformation Programme 4
© 2014 Fair Isaac Corporation. Confidential. LBG Is the United Kingdom’s Largest Consumer Bank 5 LBG formed 2009… dates back to 1695 Relationship banking model UK focused, Retail, SME & Corporate MODEL 30m customers, 22m current accounts 2300 branches, 98,000 staff Provides 1 in 5 of all UK mortgages SCALE Critical to UK Economy and communities Supports home buyers, SMEs, social inclusion 25% UK government stake CSR
© 2014 Fair Isaac Corporation. Confidential. Plus 10 more major brands addressing specific products and market segments We Operate Three Strategic “Relationship” Brands 6
© 2014 Fair Isaac Corporation. Confidential. Today, Parts of Our IT Estate Are Complex and Organically Derived… Target LBGHBOS Legacy Fraud Manual Underwriting Acquire Your Finances PBSCLPI/BT/BMSP+WinXcelFEBSLSPMSPPLP CEMS/ SCEMS Open Account B2B Manual Underwriting SAS Analytics LeMans Acquisition Decisioning Fraud Hunter SIRA CRAs Acquisition Decisioning SAS Analytics APPSCOREASM Caps SM v2 Credit Score DB CDS Results DB Experian Call Credit Equifax SW v2 SW v1.5 SW v2 CapS v3.34 SMG3 SM v3 CapS V3.33 CapS V3.34 RDI ME Provisioning CBS Debt Manager Bank CMF CLP Bank Letters GDW Lifecycle Decisioning Regulatory Reporting TDO1 FTC CPC LDO2 BD02 Lifecycle Decisioning Regulatory Reporting BASEL 5 CMT Overrides CMT AMT Retail BASEL (via CDS) Asset Impairment CDS EM DARIL Credit Cards AMT Dynamic Decisioning 7
© 2014 Fair Isaac Corporation. Confidential. Or Put Another Way… 8
© 2014 Fair Isaac Corporation. Confidential. Retail Credit Risk Transformation Programme 9 Trailing to industry best practice ► Sustainable business growth ► Simplify architecture and processes ► Significant new business capabilities ► Strengthen the control environment ► Deliver material income and impairment benefits throughout the lifecycle Focus on Strategic End State: ► Early quick wins ► Continuous delivery Benefits Delivered: ► Benefits overtook investment Q ► Income Growth ► Reduced Impairments ► Enhanced Productivity
© 2014 Fair Isaac Corporation. Confidential. The Programme Is Delivering through Investment in Four Key Capability Blocks Outstanding Breadth, Depth and Recency of Customer Data ► All relevant internal data available at all significant decision points ► Broad use of external data such as credit referencing, income verification, housing equity, and fraud indicators ► Today’s data today (and real time in selected instances) 1 Powerful, Agile and Fully Integrated Decisioning Capability ► Able to accommodate high bandwidth of change at low cost ► Overnight decision review where customer circumstances change ► Capable of taking customer- level decisions ► Joined up across credit, fraud, collections and marketing 2 Slick, Highly Automated Enactment of Decisions ► Individual customer decisions hit operating systems quickly ► Strategy changes can be deployed without lead times ► Need for human intervention removed wherever practicable ► Multi-channel technology used to deliver customer experience 3 Underpinned by Great Analytics and Insight Capability and Robust Control Environment ► Train of thought analysis enabled and improved analyst throughput ► Rapid scorecard and model development ► Executive information systems and automated performance monitoring 4 10
© 2014 Fair Isaac Corporation. Confidential. The Retail Credit Risk Investment Vision Creates a Simple, Modern, Agile Technology Landscape Customer Acquisition Fraud Screening CRA Data Collections Analytics & Reporting Capital & Impairment FICO ® Origination Manager Application Fraud Prevention/Falcon v6 Agile Bureau Hub FICO ® TRIAD ® Customer Manager v9.1 + FICO ® Debt Manager™ solution v9 SAS Analytics 2017 Vision Customer Management FICO ® TRIAD ® Customer Manager v9.1 Personal Current Accounts (PCA) CardsLoans Mortgage Core Mortgage Buy To Let Small Business Banking Asset Finance Wealth 11
© 2014 Fair Isaac Corporation. Confidential. Selection Criteria for Our Solutions: Product and Supplier The Product ► Meets all our functional requirements ► Compatible with our existing architecture ► Scalable to our size/customer base ► Easy to implement ► Easy to use/maintain/improve ► Enable rapid speed to market when live The Supplier ► A strong implementation track record ► A large, skilled team to support us ► A team we can trust when the going gets tough ► A partner who will stretch our thinking ► A clear roadmap on the future product strategy ► A competitive price! 12
© 2014 Fair Isaac Corporation. Confidential. ► Ability to deliver ► Passion ► Clear articulation how systems work with our key processes ► Proactive demonstration of benefits short- and long-term ► Competitive price ► Strong FICO executive commitment We Selected FICO for Both Acquisition and Customer Management…Here’s Why 13
© 2014 Fair Isaac Corporation. Confidential. Chris Keeling Head of Risk Programmes ► Implementing Acquisition Decisioning 14
© 2014 Fair Isaac Corporation. Confidential. Our Initial Plans Were Ambitious—and Evolved! Mobilisation, Selection of FICO and Ambitious Scope Review of Scope/ Plans and Budget Define and Build for Unsecured Acquisition Testing and Implementation Key Events H1 2012H2 2012H1 2013H
© 2014 Fair Isaac Corporation. Confidential. Clear Success Criteria Established—and Achieved 16 Success CriteriaRAGExamples Robust platform delivered which can handle LBG volumes/response times Green ► OM now supporting all core brand Unsecured Acquisition Decisioning ► Zero unplanned downtime since live ► Over 1m applications/month processed (c500k new accounts and 500k limit increases) Improved Quality of Credit Decisions and increased cross-sale opportunities Green ► Improved portfolio performance across all products ► Initial uplift in credit card cross sales from Current Account applications Improved speed to market/response times for strategy changes Green ► Significant reduction achieved, average turnaround has gone from months to days ► 46 OM releases and 128 scorecard & strategy changes implemented (31/10/2014) More consistent and simpler credit strategies developed Amber ► Current account and Credit Card policy rules aligned ► Cross heritage scorecards implemented ► 160k fewer referral to underwriting per annum ► 260k fewer bureau calls per annum ► Good progress made but more opportunities to take Improved ability to support other LBG initiatives and reduce regulatory costs Green ► 12 instances of legacy engine replaced by single solution ► Enabled business programme to provide unsecured loans to non franchised customers ► Significantly reduced complexity and costs of achieving Consumer Credit Reform compliance Clear advocacy amongst stakeholders and users for new system Green ► Strong advocacy with users ► Improved cross team knowledge and collaboration ► Intense demand from stakeholders to deliver Mortgage Acquisition, SME lending etc. Tangible Financial return on InvestmentGreen ► Income, Impairment and efficiency benefits interlocked ► On track for 2 year payback on investment
© 2014 Fair Isaac Corporation. Confidential. Jeremy Bryson Head of Architecture and Risk Systems Lloyds Banking Group ► Creating a Customer—Centric Organization 17
© 2014 Fair Isaac Corporation. Confidential. The Architecture We Are Working to Credit Risk Insight: Consolidate on a single analytical solution as the preferred solution for use of insight Credit Risk Operations: FICO ® Origination Manager, FICO ® TRIAD ® Customer Manager, underwriting and fraud solutions Risk Data Management Layer: to actively manage data used in retail credit risk Group Data Management Layer: acting as the master for customer and our source of transactions Internal source system level data Core source system data Integrated reporting layer Derived level data Data Layer Separate layer Operational collections and recoveries/scorecard/fraud/underwriting layer External source level data Capital System Data Accuracy System Impairment System Credit Risk Analytics System Operational Underwriting System Operational Collections and Recoveries System Fraud System Real-time Decisioning System Batch Decisioning System Credit Risk Analytics System Risk Operation Data Store (RODS) Data ServiceRisk Service Model Repository Bureaux Hub Model Repository Credit Reference Agencies Valuations Source Systems Acquisition Systems Operational Application Analytics System Customer System Workflow System Operational Collections and Recoveries System Derived Source Data Transactional Operational Data Store (TODS) Customer Operational Data Store (CODS) Credit risk data Event level data Transaction level data Customer level data Core Non- Core 18
© 2014 Fair Isaac Corporation. Confidential. We Have Wrestled with the Customer/Product Dilemma… PCACardsLoansMortgage LBG currently operates independent product strategies ► Each product has independent scorecards, policy rules, segmentation, and decision rules ► Changes can be made without impacting other products ► Common logic is not supported The FICO solution offers the opportunity to embrace a customer-level approach ► One tree using common rule blocks to segment & filter ► Contains scorecards and decision logic for each product ► Supports different decisions/limits per product ► Introduces interdependency in strategy design Customer 19
© 2014 Fair Isaac Corporation. Confidential. …And This Is a Significant Decision for Us ► Drives consistent, coherent customer treatment ► Facilitates re-use of common logic ► Forces simplification of strategy and elimination of arbitrary complexity ► Avoids technology overhead of executing multiple Triad runs ► Demands additional work to align and simplify current product risk strategies ► Need to avoid mutual co-dependence blocking agile product changes ► Need to preserve legitimate product differences and value-adding sophistication ► Aligned to strategic direction of LBG, ‘Best bank for customers’ ► FICO case studies highlight broad client aspirations to customer approach, but reality often lags ► Needs to preserve the multi brand approach ► Need to leverage FICO ® TRIAD ® Customer Manager 8.5 capabilities (e.g. FICO ® Blaze Advisor ® logic) fully to achieve modular, manageable outcome & avoid exponential complexity ► Challenges today’s operating model Customer strategy drives significant benefits… …but requires several design challenges to be solved 20
© 2014 Fair Isaac Corporation. Confidential. Evolving Towards a Customer Strategy Product credit decisioning strategies Customer enabled product credit decisioning strategies Customer strategies ► Common rules ► Common data ► Single rule set ► One data source ► Unique product rules ► Unrelated data 21
© 2014 Fair Isaac Corporation. Confidential. Customer Enabled Product Credit Decisioning Strategies! 22 LoansCredit cards Personal Current Accounts (PCA) Lloyds Bank LoansCredit cards PCA Halifax, Bank of Scotland Credit Policy Decline Customer Less Than 18 Years Old Customer Is Not A UK Resident Decline: Level Of Indebtedness Adverse Credit Bureau (With Noc) Adverse Credit Bureau (Without Noc) Fraud Customer Less Than 18 Years OldAdverse Credit Bureau (Without Noc) Customer Is Not A UK ResidentAdverse Credit Card Performance Customer Is UnemployedAdverse Mortgage Performance Employment StatusProduct Inappropriate Decline: Level Of IndebtednessFraud Account On Repayment PlanPrevious Loans Adverse Credit Bureau (With Notice of Correction (Noc))
© 2014 Fair Isaac Corporation. Confidential. Our Vision for a Genuinely Customer-Centric Approach to Lending Decisions Qualify for all lending products— customer needs determine take up Eligibility extended through product specific tailoring Detailed customer assessment required to determine eligibility Customers considered ineligible based on risk appetite—“no-go” area Fully Eligible Fully Eligible Limited Eligibility Further Review Ineligible Increasing Credit Worthiness And Affordability 23
© 2014 Fair Isaac Corporation. Confidential. Customer Strategy Hierarchy 5. Product Risk Profile All Customers 1. Risk appetite & common rules 2. Relationship Strength 3. Affordability Assessment 4. Customer-level Risk Profile No-Go Further Review Low Core EligibleEnhanced Eligibility Fail Weak Fail High Medium Unclear 6. Limit Calculations7. Limit Management (increase/reduction) 24
© 2014 Fair Isaac Corporation. Confidential. Jeremy Bryson Head of Architecture and Risk Systems Lloyds Banking Group ► Closing Comments 25
© 2014 Fair Isaac Corporation. Confidential. ► Changes to product profitability measures ► Changes to the customer experience ► Changes to the customer proposition by brand ► Testing ‘as is’ product decisions against ‘to be’ customer decisions is not that easy ► A healthy tension to implement customer scores early on current systems ► Customer strategy segmentation may not align to marketing segmentation The Law of Unintended Consequences 26
© 2014 Fair Isaac Corporation. Confidential. ► Lessons learned ► Stakeholders extend beyond the risk function ► Regulators ► Product owners ► Collections and recoveries ► Fraud management ► Senior management ► Marketing ► Look at the current operation and see if you are doing elements of customer decisioning already ► A need for common data definitions and common credit decisioning rules In Conclusions 27
© 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Thank You! Chris Keeling Head of Risk Programmes, Risk Infrastructure Lloyds Banking Group Jeremy Bryson Head of Architecture and Risk Systems Lloyds Banking Group
© 2014 Fair Isaac Corporation. Confidential. Please rate this session online! Chris Keeling Head of Risk Programmes, Risk Infrastructure Lloyds Banking Group 29 Jeremy Bryson Head of Architecture and Risk Systems Lloyds Banking Group
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