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By: Kristan Frend I was recently pleased to see that the state I reside in, Minnesota finished in the bottom third of a state ranking.  Luckily the rankings weren’t about overall health (#6), high school graduation (#3), or SAT scores (#2); instead it was the Federal Trade Commission’s state identity theft complaint ranks.  Minnesota has just 49.2 complaints per 100,000 population, whereas the highest ranked state, Florida, as 114.8 complaints per 100,000 population.   The top three states leading identity theft consumer complaints (per 100,000 population) included Florida, Arizona, and California.   Besides warm sunshine and top-tier golf courses, what do these three states have in common?  According to the February 2011 RealtyTrac U.S. Foreclosure Market Report™, all three rank in the top 5 states for foreclosure, and two of the three (Florida and California) rank #49 and #50 in unemployment rates, according to a March 2011 report released by the Bureau of Labor Statistics.    On a national level unemployment rates and identity fraud incidence rates both improved from 2009 to 2010.  From 2009 to 2010, unemployment rates went from 10.0% to 9.4% while according to Javelin’s 2010 Annual Identity Fraud Survey Report, identity fraud incidence rates fell from 4.8% to 3.5%.    While it may be inaccurate to state that economic distress causes higher rates of identity fraud, there does seem to be a natural correlation between economic downswings and fraudulent activity.   As we move further into 2011, it will be interesting to see if identity fraud incidence rates will continue to decrease as unemployment and economic outlook is on the upward swing. 

Well, actually, it isn’t. The better question to ask is when to use knowledge based authentication (KBA). I know I have written before about using it as part of a risk based authentication approach to fraud account management, but I am often asked what I mean by that statement. So, I thought it might be a good idea to provide a few more details and give some examples. Basically, what I mean is this: risk segmentation based on binary verification is unwise. Binary verification can occur based on identity elements, or it can occur based on pass/fail performance from out of wallet questions, but the fact remains that the primary decisioning strategy is relying on a condition with two outcomes – verified or not verified, pass or fail – and that is unwise. When we recommend a risk based authentication approach, the view is more broadly based. We advocate using analytics and weighting many factors, including those identity elements and knowledge based authentication performance as part of an overall decision, rather than an as end-all decision. If you take this kind of approach, when might you want to use this kind of approach? The answer to that is just about any time a transaction contains a level of risk, understanding that each organization will have a unique definition and tolerance for “risk”. It could be an origination or account opening scenario, when you do not yet have a relationship with a consumer. It could be in an account management setting, when you have a relationship with the consumer and know their expected behavior (and therefore anything outside of expected behavior is risk). It could be in transactional settings where there is an exchange of money or information belonging to the consumer. All of these are appropriate uses for KBA as part of a risk based approach.

This paraphrased lament from Coleridge’s Rime of the Ancient Mariner may loosely reflect the predicament facing many communications companies today: afloat on vast sea of customer information, yet, lacking resources or expertise, unable to draw from it much new or actionable intelligence. Not that data mining is ever a small or insignificant task. It isn’t. Even when resources are plentiful, obstacles can loom large—especially across numerous lines of business, where risk can multiply exponentially. Siloed data, disparate customer records and other challenges also make the work difficult, as do: The dynamic nature of consumer information Inconsistent data quality and match logic throughout the enterprise The inability to reliably link active and inactive accounts failing to identify existing customer relationships at the point of application The missing link Experian has seen many communications companies overcome these issues through database linking—that is, connecting, integrating and packaging customer information from several sources into a more cohesive and accessible structure. Linking reduces risk by identifying overlap of consumers with multiple accounts across several lines of business. It also reveals duplicate records, as well as active accounts that may be current in one line of business, but delinquent or inactive in another. The benefits The broader perspective gained through database linking can drive new efficiencies and profitability in many vital areas of your business, from fraud prevention to skip tracing and collections. Should the need arise, newly linked information can also be used to locate elusive customers or former employees for legal purposes. What you can do right now Even if resources are currently limited you can still begin discovery—the process of identifying precisely what data you have, where it resides within the enterprise, how it’s being used, and by whom. This information, perhaps combined with guidance from an experienced external service, can provide a solid foundation from which to begin leveraging (and if indicated, supplementing) existing customer data. We know communications clients who have identified millions of dollars in uncollected bad debt that was linked directly to current, active customers, using a couple of “next generation” data tools. Like the old Mariner, your in-house data has a big story to tell. Question is, are you equipped to hear it? If you like this topic, click here to read the post entitled “Leveraging Internal Data to Create a Holistic View of Your Customers.

Application risk management processes for deposits has remained relatively unchanged for decades. Typically, it involves credit bureau data and a secondary check of “debit bureau” data. A “debit bureau” typically gathers information regarding known fraud and compiles a fraud database of perpetrators. Every applicant who passes the credit risk strategies is checked against this database. The challenge is that this process can be very expensive. Among a new class of fraud best practices is the idea of applying fraud models/fraud analytics as a filter upstream from the debit bureau’s fraud database. This practice enables deposit institutions to still identify known fraud and minimize fraud losses on those applicants that carry the highest risk. At the same time, costs are reduced by removing low risk accounts from the debit bureau check.    In addition to reducing costs, these revised acquisition strategies help reduce fraud referral rates while ensuring that application fraud does not increase. As deposit institutions look for ways to significantly reduce costs without suffering additional application fraud, look for the continued emergence of fraud analytics among 2011’s fraud best practices.

As a global leader in providing credit-decisioning information, analytical tools and marketing services to organizations and consumers, Experian is no stranger to telecommunications or to TRMA. In fact, the current TRMA home page reflects this connection, listing Experian as TRMA’s 2009 Best In Class Affiliate Award recipient and leader atop the Fall, 2010 Affiliate scorecard. Finding treasure in Vegas More importantly, however, the page reminds visitors that TRMA’s primary goal is “reducing fraud and uncollectibles in the telecom industry.” Toward that end, they’ve put together a dynamic, information-rich conference for February 22-23 entitled “Sailing towards Treasured Results.” This year, several Experian executives – including myself – will have the privilege of contributing knowledge and expertise to the proceedings. Get connected before, during and after TRMA In these days before the event, I’ll virtually introduce you to each of Experian’s TRMA speakers and give you the opportunity to learn more about them and their topics. During the conference, as time permits, some will be tweeting and blogging their thoughts, opinions and observations. They’ll analyze and unpack conference developments, and share their analysis with our followers and readers. Stop wondering, start following We expect a lot of actionable information from TRMA. So if you aren’t following us on Twitter (@experiancredit) or checking this site regularly, before, during or after the event would be the ideal time to start. You’ll gain a lot of insights from people who really understand telecom’s unique credit challenges and opportunities. And if you're attending TRMA, I certainly hope to see you there.

By: Kari Michel In January, Experian announced the inclusion of positive rental data from its RentBureau division into the traditional credit file. This is great news for an estimated 50 million underbanked consumers - everyone from college students and recent graduates to immigrants - to build credit with continuous on-time rental payments. With approximately 1/3 of Americans renting, lenders who are using VantageScore will benefit from the inclusion of RentBureau data into the score calculation.  VantageScore from Experian is able to both enhance its predictive ability for those that can already be scored as well as provide scores for those that previously could not be scored. With the inclusion of RentBureau data, 34% of thin file consumers increased their score from an ‘F’ (VantageScore 501 – 599) to a ‘D’ (VantageScore 600 – 699). For those consumers that did not have a prior credit history, 70% of them were able to be scored after the inclusion of RentBureau data into the credit repository.  As a result, fewer consumers will get a “no hit” returned to lenders during a credit inquiry. Lenders will now have a comprehensive understanding of a consumer’s total monthly obligations to assist with offering credit to emerging consumers.

I love a good analogy, and living in Southern California, lately I’ve been thinking a lot about earthquakes, and how lenders might want to start thinking like seismologists when considering the risk levels in their portfolios. Currently, scientists that study earthquakes review mountains of data around fault movement, tidal forces, even animal behavior, all in an attempt to find a concrete predictor of ‘the big one’. Small tremors are inputs, but the focus is on predicting and preparing for the large shock and impact of large earthquakes. Credit risk modeling, conversely, seems to focus on predicting the tremors, (risk scores that predict the risk of individual default) and less so the large-shock risk to the portfolio. So what are lenders doing to forecast ‘the big one’?  Lenders are building sophisticated models that contemplate the likelihood of the big event – developing risk models and econometric models that look at loan repayment, house prices, unemployment rates – all in an attempt to be ahead of the credit version of ‘the big one’.  This type of model and perspective is at a nascent stage for many lenders, but like the issues facing the people of Southern California, preparing for the big-one is an essential part of every lender’s planning in today’s economy.

Exciting research leveraging Experian’s fraud analytics and credit risk modeling are now enabling deposit institutions to understand the impacts of first party fraud and identity theft on their portfolios. Historically, deposit institutions have not considered application fraud to be a major concern and legislation regarding overdraft fees and the opt-in provision for overdraft services will reduce a deposit customer’s ability to spend the bank’s money; however, a determined thief can still: kite checks to commit first party fraud perpetrate an account takeover/identity theft   The result is that deposit institutions will continue to face losses that can be prevented using fraud best practices. The challenge for the institution is knowing whether it is facing first party fraud or identity theft. Increasingly, deposit institutions are turning to Experian to analyze customers that create losses early in the account life cycle in order to make the right modifications to their acquisitions strategies.  Using a combination of fraud analytics built to target specific types of fraud trends, deposit institutions can get a clear picture of the type of behavior that is generating their losses. This type of analysis is quickly climbing the list of fraud best-practices. Armed with the right diagnosis, deposit institutions can respond by prioritizing the right set of fraud alerts.    

By: Kristan Frend Imagine you’re on the #1 ranked relay swim team at the World Championships and you’re leading off. You finish your leg of the race with the team in first place. As your third teammate approaches the wall, your team is in first by a full body length. You’re on pace to set a new world record. Yet the anchor of your team is nowhere to be found, ultimately resulting in your team being disqualified.   If only your fourth teammate would have made it to the blocks in time…. When you take a step back and look at your fraud risk management solutions, do you ever feel like you have all of the tools and processes available yet feel like the anchor is missing? Perhaps it’s time to reexamine your internal resources. You may have an assembly of sophisticated and robust online fraud detection tools from vendors, but you may be missing a critical piece if you’re not also effectively leveraging internal data. Through our work with clients, we’re found that it is not uncommon for organizations to manage the customer relationship through different departments or silos within the organization.   All too often there is less than optimal coordination between these functional areas in taking advantage of their own internal negative data to combat application fraud. Additionally some organizations may have negative internal data but do not incorporate the check within their verification or risk based authentication tool, creating multiple steps and operational inefficiencies. One of the ways to overcome some of these issues is by incorporating internal negative data within an automated front-end check.  Once loss data is loaded into a historical database, the next time that name, phone, address, driver’s license or SSN reappears on a new application, the data element is immediately identified as one associated with a previous loss. The negative data is securely stored for only your organization’s use and is not shared with users outside of your organization.

Let’s face it – not all knowledge based authentication (KBA) is created equal. I, too, have read horror stories of consumers forced to answer questions about a deceased relative or ex-spouse, or KBA sessions that went on far too long for anyone’s benefit. I have to attribute this to vendor inexperience and a lack of consulting with clients. An experienced vendor will use a fraud best practice such as a fraud analytics model to determine that some consumers do not even need questions and then a “Progressive Question” feature, which uses consumer performance on an initial question set to determine if it is necessary for the consumer to answer additional questions. This way, the true consumer completes the process quickly, improving the customer experience. The product of choice should also use a question mix that balances three factors: ·         how easily the true consumer can answer the question; ·         the fraud separation of the question (effectively the measured delta over time between how well true consumers answer the question vs. how well fraudsters do); ·         how many consumers overall the question can be generated.  A list of hundreds of possible questions doesn’t mean much if the questions can only be generated for one quarter of one percent of the population, as is the case for something like airplane ownership or pilot’s license. Ultimately, out of wallet questions should be generated for a large part of the population, easily answered by the true consumer but difficult for a fraudster; and not offensive or what a consumer would consider “creepy” (such as their child’s birthday or name). Well designed questions will be personal but not intrusive and mindful of personal relationships that may have changed.  The purpose of a knowledge based authentication session is risk management and/or consumer authentication for fraud prevention and compliance purposes – not to cause the loss of business because the fraud tool crossed the line in the mind of your customer.

As our newly elected officials begin to evaluate opportunities to drive economic growth in 2011, it seems to me that the role of lenders in motivating consumer activity will continue to be high on the list of both priorities and actions that will effectively move the needle of economic expansion. From where I sit, there are a number of consumer segments that each hold the potential to make a significant impact in this economy. For instance, renters with spotless credit, but have not been able or confident enough to purchase a home, could move into the real estate market, spurring growth and housing activity. Another group, and one I am specifically interested in discussing, are the so called ‘fallen angels’ - borrowers who previously had pristine track records, but have recently performed poorly enough to fall from the top tiers of consumer risk segments. I think the interesting quality of ‘fallen angels’ is not that they don’t possess the motivation needed to push economic growth, but rather the supply and opportunity for them to act does not exist. Lenders, through the use of risk scores and scoring models, have not yet determined how to easily identify the ‘fallen angel’ amongst the pool of higher-risk borrowers whose score tiers they now inhabit. This is a problem that can be solved though – through the use of credit attributes and analytic solutions, lenders can uncover these up-side segments within pools of potential borrowers – and many lenders are employing these assets today in their efforts to drive growth. I believe that as tools to identify and lend to untapped segments such as the ‘fallen angels’ develop, these consumers will inevitably turn out to be key contributors to any form of economic recovery.  

More prospects equal more profits, right? Not necessarily. But surprisingly, companies in every industry (including cable and telecom) routinely burn acquisition dollars as if it is. The reality is that only more qualified prospects can lead to more profitable campaigns, making acquisitions a clear case of quality besting quantity. But why? No substitute for quality Engaging unqualified prospects is an unprofitable exercise requiring time and resources that are better spent on those who are ready, willing and able to buy from you. Benefits of an effective acquisition strategy include greater: Resource efficiency—less time, money and energy wasted on no-payback prospects Brand loyalty and higher lifetime value—by accurately matching consumers to products they relate to and desire Profitability and less bad debt—this one is probably obvious Fishing where the (best) fish are So how should a profit-minded telecom or cable company identify highly qualified prospects and invite them into the fold? Using a credit-score threshold, where anyone possessing the target score receives an offer, is one method. The benefit is simplicity. One disadvantage is unnecessary risk, as credit score is just one factor reflecting an individual’s creditworthiness. Another possibility is analyzing your best customers’ profiles or most profitable underwriting policies and integrating profit-building criteria into your campaign. This takes a little more effort but the payback potential is higher. Tapping into available sources Many companies find public records a rich source of decisioning data. Others have discovered that adding consumer-credit information to their acquisition formula not only improves prospect quality, it also reduces on-boarding costs. Derogatory payment information, revolving debt levels or unacceptable debt-to-income ratios will all surface in the process, informing and improving your credit management decisions. (Note: using credit data to assess risk requires you to make a firm offer of credit, according to FCRA guidelines.) You’ll do a lot of prospecting in 2011, so remember: when it comes to acquiring new customers, more isn’t better. Better is better. And using reliable, high-quality data is one way to ensure the impact and return of every marketing dollar.

Experian Decision Analytics has recorded increased demand from the marketplace for service integrations with interactive voice response (IVR), a phone technology that allows for automated detection of both voice and touch–tones. In the past quarter, there has been a more than 70 percent increase in IVR interest and it continues to grow. Why is there a demand for knowledge based authentication through IVR? Besides consumer acceptance of out of wallet questions, there is a dramatic increase in the need for remote authentication and fraud analytics that are accurate, not a burden to the consumer, cost–effective for organizations and part of an overall risk based authentication approach. Consumers stay connected in a number of ways — phone, online, mobile and short message service (SMS) — and are demanding the means to remain safe without compromising convenience. Knowledge based authentication through IVR provides this safety. Organizations must consider all the tools at their disposal to keep consumer data protected while preserving and promoting a positive customer experience. Given the interactive nature of knowledge based authentication, it is quite adaptable to various customer access channels, such as IVR, and it enables full automation of both inbound and outbound authentication calls. We know from both our own experience and from working with clients that consumers are more connected, more mobile and more networked than ever before - and fraud trends demonstrate this increases risk. As consumers continue to expand online profiles and fraud artists continue to seek out victims, successful fraud prevention will become paramount to financial survival. Leveraging products already in use by combining the technology capitalizes on an existing investment and is good business.

Many compliance regulations such the Red Flags Rule, USA Patriot Act, and ESIGN require specific identity elements to be verified and specific high risk conditions to be detected. However, there is still much variance in how individual institutions reconcile referrals generated from the detection of high risk conditions and/or the absence of identity element verification. With this in mind, risk-based authentication, (defined in this context as the “holistic assessment of a consumer and transaction with the end goal of applying the right authentication and decisioning treatment at the right time") offers institutions a viable strategy for balancing the following competing forces and pressures:   Compliance – the need to ensure each transaction is approved only when compliance requirements are met;   Approval rates – the need to meet business goals in the booking of new accounts and the facilitation of existing account transactions;     Risk mitigation – the need to minimize fraud exposure at the account and transaction level. A flexibly-designed risk-based authentication strategy incorporates a robust breadth of data assets, detailed results, granular information, targeted analytics and automated decisioning. This allows an institution to strike a harmonious balance (or at least something close to that) between the needs to remain compliant, while approving the vast majority of applications or customer transactions and, oh yeah, minimizing fraud and credit risk exposure and credit risk modeling. Sole reliance on binary assessment of the presence or absence of high risk conditions and identity element verifications will, more often than not, create an operational process that is overburdened by manual referral queues. There is also an unnecessary proportion of viable consumers unable to be serviced by your business. Use of analytically sound risk assessments and objective and consistent decisioning strategies will provide opportunities to calibrate your process to meet today’s pressures and adjust to tomorrow’s as well.

By: Staci Baker There has been a lot of talk in the news about the Dodd-Frank Act lately. According to the Dodd-Frank Resource Center of the American Financial Services Association (AFSA), “The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which passed on July 21, 2010, is unprecedented in magnitude, and will impact every sector of the financial services industry.”  The aim of the Act is to put measures in place that address the issues that led to the financial crisis. This is done by setting up new regulatory bodies, and limiting the dealings of banks and other financial institutions. For the purpose of this blog, I will focus on describing the new regulatory agencies.  The Bureau of Consumer Financial Protection (CFPB), is an independent watchdog housed within the Federal Reserve. The CFPB has the authority to “regulate consumer financial products and services in compliance with federal law.”[ii] They are responsible for the accuracy of information, hidden fees and deceptive practices for consumers from within the following industries – mortgage, credit cards and other financial products. The Financial Stability Oversight Council is “charged with identifying threats to the financial stability of the United States, promoting market discipline, and responding to emerging risks to the stability of the United States financial system.”ii Through the Treasury, this council will create a new Office of Financial Research, which will be responsible for collecting and analyzing data to identify and monitor emerging risks to the economy, and publish the findings in periodic reports.  These new regulatory agencies are critical to US business processes, as they will more closely monitor business practices, create new tighter legislation, and report findings to the public. The legislation that is created will decrease risk levels posed by large, complex companies, as well as address discrepancy that has been raised throughout the financial crisis.     What are your views of the Dodd-Frank Act? Do you believe this is the legislation needed to stem future financial crisis? If not, what would help you and your business?