Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation's express consent. © 2010 Fair Isaac Corporation. 1 Using cutting edge predictive analytics to better know your customer Andrew Jennings Chief Research Officer FICO November, 2010

© 2010 Fair Isaac Corporation. Confidential. 2 Three Analytic Themes in the Reset Economy Better Information »Theme 1: Broader: New data sources, Know your customer. Better Approach »Theme 2: Less emphasis on scores and more emphasis on what to do with them. Making Better Decisions »Theme 3: The future will not be like the immediate past.

© 2010 Fair Isaac Corporation. Confidential. 3 How Do We Get Inside Customer’s Heads? »Turn 360-degree customer view inside out »More data—better models »Relationship pricing »Ask better questions »What capacity do my customers have ? »How can I increase spend with my bank ?

© 2010 Fair Isaac Corporation. Confidential. 4 Asking Better Questions: Credit Capacity (Theoretical Example) »Larry, Mary and Harry—Similar Risk Score…different capacities …risk impact converges at extreme debt levels

© 2010 Fair Isaac Corporation. Confidential. 5 It Turns Out That We Can Model Capacity »Low CCI consumers are more than twice as risky as higher CCI »Deeper insight from across relationship data Large lender validation: new card accounts FICO ® 8 Bankcard Score Above 755 Segment

© 2010 Fair Isaac Corporation. Confidential. 6 Personalization in Action Retail Action Manager from FICO™ 2 Apply Business Rules 3 Apply Analytics 5 Create Custom Treatments 1 Collect Consumer Information Tara Lauren Jake 4 Apply Optimization »Contact strategy »Purchase frequency and recency exclusions »Offer parameters »Customer preferences Retail Action Manager »Creates eligibility matrix of all target customers and all target Items »Modeling »Time sensitive predictive analytics »Scoring »Creates a matrix of scores for all customer / item combinations »Eligibility »Scores »Constraints »Creates customer specific offers POS Coupon Offer Personalized offers by »Transaction Data »Demographic Info »Response Data »Transaction Data »Demographic Info »Response Data »Transaction Data »Demographic Info »Transaction Data »Demographic Info »Transaction Data »Demographic Info »Online Behavior »Survey Data »Transaction Data »Demographic Info »Online Behavior »Survey Data Deliver the right message to the right consumer through the right channel at the right time Customized Web Content

© 2010 Fair Isaac Corporation. Confidential. 7 7 Retail Action Manager Campaign Results »30% increase in top tier membership »Increase in additional supplier marketing funding »$15 million profit contribution in 4 months »Over 100 million tailored offers in a single month »Increased relevance of offers… Positive feedback from focus groups »Double digit repeat purchases without incentive after initial targeted introduction »Generated between $1–5 million per week in incremental sales in first 2 months of platform launch »18% increase in campaign contribution margin Across Different Customer Segments For Both Low Ticket and High Tickets Items And for New Product Trials Positive Results Across Multiple Campaign Concepts & Objectives

© 2010 Fair Isaac Corporation. Confidential. 8 Three Analytic Themes in the Reset Economy Better Information »Theme 1: Broader: New data sources, Know your customer. Better Approach »Theme 2: Less emphasis on scores and more emphasis on what to do with them. Making Better Decisions »Theme 3: The future will not be like the immediate past.

© 2010 Fair Isaac Corporation. Confidential. 9 Decision Trees Can Quickly Get Out of Hand

© 2010 Fair Isaac Corporation. Confidential. 10 Lets Think About The Structure Of The Problem: A Simple Decision Model (Influence Diagram) What we observe What we compute What we decide What we optimize

© 2010 Fair Isaac Corporation. Confidential. 11 Optimized Strategy Design: Constraint Definition This constraint simply says “send catalogs to no more that 25% of your customers”

© 2010 Fair Isaac Corporation. Confidential. 12 © 2010 Fair Isaac Corporation. Confidential. 12 Optimized Strategy Design: Strategy Generation

© 2010 Fair Isaac Corporation. Confidential. 13 © 2010 Fair Isaac Corporation. Confidential. 13 A Variant of the Previous Strategy

© 2010 Fair Isaac Corporation. Confidential. 14 What’s Going On? »Well, the second strategy is clearly different from the first »Comparison of swap sets can reveal structural/logical differences between the strategies »But how do those differences connect to the original business problem as represented by the influence diagram? »We simply cannot tell by inspection of the strategies alone. That information is lost in the translation »But if we refer back to the influence diagram, it becomes obvious: The constraint now says “send catalogs to no more than 35% of your customers”

© 2010 Fair Isaac Corporation. Confidential. 15 Before I Create This….. Shouldn’t I really understand this?

© 2010 Fair Isaac Corporation. Confidential. 16 The Efficient Frontier The Efficient Frontier allows users to simulate multiple “what-if” scenarios and see what is possible to achieve while exploring tradeoffs between business goals and constraints. $95 $100 $105 $110 $115 $120 Projected Average Profit per Account Efficient Frontier Possible operating points $100$200$300$400$500 $ Loss per account Current operating point

© 2010 Fair Isaac Corporation. Confidential. 17 Three Analytic Themes in the Reset Economy Better Information »Theme 1: Broader: New data sources, Know your customer. Better Approach »Theme 2: Less emphasis on scores and more emphasis on what to do with them. Making Better Decisions »Theme 3: The future will not be like the immediate past.

© 2010 Fair Isaac Corporation. Confidential. 18 Mortgage Remediation Key Action-Effect Relationships Qualitatively Represented

© 2010 Fair Isaac Corporation. Confidential. 19 Unknown Optimal Approach Single Approach Decision Space Considered Unknown Optimal Approach Champion Challenger 1 Challenger 2 Decision Space Considered The Better the Map You Have The Easier it is to Navigate! Unknown Optimal Approach New Approach New Modelled Decision Space New Learning Approaches / Extrapolations The Risk Managers Map: Champion-Challenger

© 2010 Fair Isaac Corporation. Confidential. 20 Three Analytic Themes in the Reset Economy Better Information »Theme 1: Broader: New data sources, Know your customer. Better Approach »Theme 2: Less emphasis on scores and more emphasis on what to do with them. Making Better Decisions »Theme 3: The future will not be like the immediate past.

Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation's express consent. © 2010 Fair Isaac Corporation. 21 THANK YOU Andrew Jennings Phone November, 2010