Alternative Credit Scoring

Alternative Credit Scoring
Mohan Jayaraman
MD Decision Analytics, Business Information
Experian Asia Pacific
Agenda
• Experian and the X-labs

• Industry evolution and the APac Context
• Alternate Credit Scoring - building blocks
• Implementations – Telco, Wallets & Open data
• Summary and considerations
2 © 2019 Experian. Private and confidential

Agenda


Experian – An introduction

Private & Confidential
Experian DataLabs
Research and development, innovation and incubation
~100 data scientists, technologists and industry experts focused on innovation
UK and EU
London, England –
Purpose Approach
Opened 2014
North America
San Diego, CA - ▪ Innovation with new data
Opened 2010
sources, advanced ▪ Hypothesis driven
analytics and new problem solving
technologies
▪ Direct client
▪ Emphasis on financial
services, retail, telecom engagement
and healthcare
▪ Tackling new, currently
▪ Safe and secure unsolved industry and
Asia Pacific environment to innovate client issues
South America Singapore – with Experian and partner
Joined 2018 data assets
São Paulo, Brazil -
Opened 2015
5
5 © 2019 Experian. Proprietary and confidential. Private and confidential
Experian DataLabs
Team composition

Experian DataLabs
Team competencies
Artificial Explainable Advanced New New data

Intelligence/ Artificial data science/ technologies source
Machine Intelligence non-linear / tech stack integration
Learning modeling and
architecture

Agenda


Consumer preferences are changing
Faster adoption cycles seem the rule – Digital natives are here to stay
Technology Adoption by Households in The United States Exponential

Consumer
100% 100%
preferences
increase in
RADIO
changing
innovations
80% 80%
SMARTPHONE
60% 60%
COLOR TV
COMPUTER SOCIAL MEDIA
40% 40%
Increase in
LANDLINE
…leadingrate
adoption to
increased tech
20% REFRIGERATION 20% for new
adoption rate
AUTO MICROWAVE innovations
1900 1920 1940 1960 1980 2000 2016

Aided by the growth in technology capability
“2.5 quintillion bytes of data created each day…” - IBM
Exponential
growth of
Exponential growth
of computing
computingpower
power
The IBM Model 350 disk file

a storage space of 5MB
from 1956
19.5 …and cloud
…and cloud
16.1 processing
processing capacity
Sandisk Ultra
micro SD storage 10.6
13.1
capacity
8.2
space of 128GB 6.0
from 2019

And Open data regulation is adding to the data explosion
Open data will profoundly impact our core markets
Consumer
Exponentialdata
management
growth of
amongst the top
computing
regulatory focus
power
areas

All of this is even more relevant in APac
Most markets in APac are moving with consumer preferences and leap frogging tech generations
…and cloud
…Alternate data in
processing
APac is actually
data…
capacity

Agenda


Multiple components needed to bring alt data models to life
Consumer consent and collaboration based models will be the de-facto standard in the new world
Clients need to be able to make faster, more reliable decisions and with deeper
insight than ever before
Analytics Platforms Collaborative

Data
techniques business models
New data in structured Advanced analytics and Many businesses are Clients who understand
and unstructured form machine learning increasing their how competitors are
needs to be constantly combined with a wide investment for machine using data can begin to
evaluated to keep range of accessible data learning and advances see where and why they
updating the can aid with problem analytics however many are taking the competitive
organizational view of solving as well as are still struggling to edge. This then allows
improving products, transform it into insight. them to respond
services and customer accordingly.
insight.
14 © 2019 Experian.
Traditional data usage models focused on ownership dying out..
Consumer consent and collaboration based models will be the de-facto standard in the new world
…and
Data cloud is
ownership
processing
getting
disaggregated
capacity
Generate
Aggregate AndExponential
Access to data
growth ofmore
is becoming
Access important than
computing
ownership
power
Analyze

The alternate data universe is growing
Telco data Travel data Payments data Ecommerce data
• Mobile usage • Travel pattern • Travel pattern • Spend pattern

• Data usage • Income proxy • Spends • Income proxy
• Contact information • Demographic profile • Income proxy • Demographic profile
• Top up • Customer segment • Demographic profile • Contact information
• Roaming information • Contact information • Customer segment • ID check
• GPS location • ID check • Contact information
• ID check • ID check
Non Bank PF/Tax payments Market place Insurance data Other utilities
• Payment behaviour • Spend pattern • Leda generation • Asset holdings • Income proxy
• Debt consolidation • Income proxy • Credit assessment • Premium payment • Monthly usage
• Asset holdings • Demographic profile • Id and verification behaviour • Contact information
• Contact information • Contact information • Contact information • ID check
• ID check • ID check • ID check

But not all data is born equal
The right data can provide life of upto 40%+ in Gini
Hard
House Rental
(Payments)
Utility
Ease of Availability
(Electric, Gas, Water,

Landline, Cable)
Medium
E-Commerce Telco
(purchases, returns,
(Prepaid & Postpaid) Predictive Power:
reviews, payments)
% Improvement in Gini for Thin File Cases
Low Up to 20%
Social Media
Data Medium 20% - 40%
(Facebook)
High 40% +
Easy
Mobile Device
Psychometric (Smartphone Digital
(Questionnaire) Footprint)
Low Medium High

Predictive Power

Use cases of Scoring are growing in the digital world
Multiple ways of viewing the consumer necessary given new revenue models
Credit
…andsegregation
cloud is
not the only problem
processing
to solve in the
capacity
current world
Private and confidential
Other use cases for alternate scoring
Consumer 360 profiles….
Telco Purchase /
Utilities Bill Invoice data
Information Geo Location
Debit card Data
usage
• Unified risk scoring for credit

• Income assessment
Bank
Transactions • Socio-economic Profiling
Customer Customer
Social Contact Profile
Fraud
Media
Travel
Data Information
• Identity verification
Data
• Fraud detection
• And many more use cases

Modelling with ML for lift
Machine Learning – Micro Segments
Apply Machine Learning F1 F2 F3 F4 F5 F6 F7 F8 F9 F10
F1
• ML scores have stronger predictive power, allowing F2
F3
for lower risk and/or higher acceptance F4
• ML scores allow to use non standard data sources which F5
can further raise predictive power F6
F7
F8
F9
F10
Traditional Data Application Form
(Bank) Similar colored cell indicates similar population bucket
Bank
Bureau Data Transactional
Data
ML Scores
Performance
SDKs Social Media
Bespoke
Model
E-commerce
Telco Data Data
Pre-defined data set
Types of Data
Modelling with ML for micro segmentation
Time of activity
Late night/ early morning
Statements
App Data Data
Type of phone used
Transaction
Day of Variables
Activity Derog
Weekend/ High Flyer Variables
weekday Mode of Cheque
Alternate Data Travel bounces
Utility
Using alternate
data to profile
customers, assess
income & lifestyle
Employment Profile
Salaried/ self employed Events
Financial Expertise
Banking Penetration Investment/ insurance
Number of different bank
products
ML to model variables to pick micro patterns
Calling Feature Engineering Machine Learning Models

Demographics
Behavior
Geo Deep Random

Data Usage Learning Forests
Location
Social Network Data Usage
High dimension Feature Space Neural

Networks
SMS Apps Usage 1500+ Transformed Features GBM
• Boost conversion with ML and pre-approved

Top-Ups VAS leads
• Optimized decision system

Network analysis based models
Social Network Change in Social Network

Overlap between social network in Month 1 as compared to Month 3
Change in size of social network
Influencers
Independent
Ecosystem
Month 1
Customer X Month 3
Customer X
Time
Low Risk
Ecosystem
Illustrative Image.
Source : Network World :

Using Sensitive information by finding data patterns
Customer Mobility
The mobility of a customer across weekdays / weekends

indicate the type of employment and vehicle ownership
Night Locations ->
Day Locations ->
Illustrative Image. Illustrative Image.

Platform capabilities needed to build, manage and deploy
Combining realtime and batch capabilities a requirement
Create Manage Deploy

1 2 3
(Experian Ascend) (PowerCurve) (client deployment)
Create Manage and test

Batch prescreen
Instant prescreen
Credit
attributes
Fraud
attributes
z
Prequalification
Strategy
Data sources design
interface
Underwriting
Strategy management
Attributes Scores
Account management
0011010101
1101001011
0011001100
Decision
Bureau data Other / Scores criteria Collections
partner data
Batch process
Real-time process
Continuous improvement 4

Platform for model creation…
Data across sources with multiple tools

Platform for model maintenance and deployment
Ability to manage and deploy multiple models across the lifecycle
Within Experian - PowerCurve® allows organisations

to manage and deploy models with ease

Key platform requirements
Unified Integrated
Decision execution
platform design studio
Monitoring
Data access Modular framework
and reporting

Agenda


Telco Scores
Consumer:
For individuals’ who do not
have bank account / financial
records, Telco data is useful in
predicting their risk level.
Experian:
Make use of Telco data and
machine learning to boost
predictive power and increase
acceptance for small and micro
loans.

How does Telco data scoring for cash loans work
Entry point to credit inclusion
Telecom Partner Bespoke Model Financial Partner
Data Usage
Demographics Roaming
Calling Geo
Adaptive Learning
Behavior Location Optimized decision system
Accept Reject
CRG 0
CRG 10
Pre-filtered Application
CRG 20 Leads Data
Apps Usage and Top-ups Social Network CRG 30
CRG 40
Goods Bads
CRG 50
CRG 60
SMS
CRG 70
CRG 80
CRG 90

Attributes collected from Operators for Risk Models
Illustrative list of variables
• Information of Activation of Sim card or Tenure of customer along side other details mentioned in the application form
Pre Paid/Post Paid
• Postpaid defaults, credit, churn and payment information. Availability of mobile wallets
• Data used, revenue generated from data, hourly usage of data, data related value added services
Data Usage • Additional details on applications used, websites browsed over day and night
• Mobility from CDR data, day and night presence, density of location
Geo-Location • Prominent location with attributes from census, publically available data
• Top-up information, type, size and frequency of top-up along side channel of top-up
Top Up History
• Channel of bill payment, invoiced amount, payment terms, and mode of payment – Bank, Credit, Wallet information
• Statistics on Call duration/count, calling phone numbers, towers, SMS sent and received
Calling/SMS Patterns
• Time Of Day calling, weekday/weekend, inactivity, calling consistency
• Demographics information recorded at the time of customer filing for sim-card

Demographics • Inferred demographic details

ML techniques to generate telco scores
Transformation of telco data to 1500+ feature space and application of ML to pick up micro patterns
Calling Machine Learning Models

Demographics
Behavior
Feature Engineering
Geo Deep Random
Data Usage Learning Forests
Location
Social Network Data Usage
Neural
Networks
SMS Apps Usage High dimension Feature Space GBM
1500+ Transformed Features
• Boost conversion with ML and pre-approved
Top-Ups VAS leads
• Optimized decision system

Some out of the box attribute creation
Interaction- Ratios Entropy Inter Call time gap/User Hibernation
SMS vs Voice User 1

Call Log 1
Weekday/Weekend Call Log 2

Day 1
Call Log 3
Call Log 4
Day vs Night
Call Log 1
• Geo-location (cell ID)
Office vs non-office • Communication
Call Log 2
• Time of Day entropy Day 2 Call Log 3
Call Log 1
Velocity Based Variables Call Log 2
Day 15
Call Log 3
Month 1 Month 2 Month 3 Call Log 4
Call revenue/Data usage decreasing

Calling behavior patterns correlates to risk
We transform the raw CDR (Call detail records) into behavioral patterns to correlate with risk
Inconsistencies in calling pattern such as the number and

duration of calls are positively related to risk
Time of day and weekday patterns indicative of patterns

associated with professional traits
Time
$ $ $
Top-Up’s size and frequency correlates well with risky behavior
Large gaps of activity reflects possible attrition of customer
High ghost-hour activity and randomness in calling / sms and data consumption are risky

Network Analysis
Depending on the network of the individual we track the change in trends over months
Social Network Change in Social Network

Overlap between social network in Month 1 as compared to Month 3
Change in size of social network
Influencers
Independent
Ecosystem
Month 1 Month 3
Customer X Customer X
Time
Low Risk
Ecosystem
Illustrative Image.
Source : Network World :
Private and confidential
Customer Journey
Lead Generation through Telco Scores
Application
Experian Environment Details Accept
Pre-filtered Demographic
Decision
risk segment Segment Reject
Financial Institution
Direct to Bank/FI
Selected for
a loan upto
$1000 please Mandatory
click the link Details
CRG 0 – bit.ly/ckja
CRG 10
CRG 20 Financial Institution

CRG 30
CRG 40
CRG 50
CRG 60
Preselected SMS Campaign Marketplace
Screening
CRG 70 segments the Eligibility Choice of
CRG 80
FI want to run Scores Financial
CRG 90 products
a campaign on
Marketplaces for financial products

Device Score
Consumer:
records, Mobile data is useful in
Experian:
Make use of Mobile data and
loans.

Device Score
Potential to credit profile more than 5BN consumers globally
Harnessing the power of Device Score enriches the credit decisioning process and provides reliable credit
‘ready-to-use’ Alternative Data scores to a wider base of applicants.
Device Score can assess the 1. Customer gives 2. Device data is captured, 3. Device data is stored, transformed
creditworthiness of applicants who are consent on the use of encrypted and sent to the and processed using sophisticated
unable to obtain credit via the use of Device Score. Experian Cloud. analytical models in Experian Cloud,
traditional data: generating a credit score.
• Taps into one of the richest sources of

alternative data to predict credit risk.
Monitoring
• Quick ROI as solution is scalable,
available globally and can be
Customer Customer’s
implemented within days.
Smartphone Experian Cloud
• Seamless customer experience through Decisioning
automation. No manual intervention.
5. Models are fine-tuned based on 4. Score of a customer is made
• Stringent processes to ensure maximum close monitoring of the performance available (via API or a query portal) to
customer privacy and data security. and feedbacks received. enrich the credit decisioning process.

Predictability of Device Scores
Use of ML over rich attributes from device prove to be extremely powerful to predict risk
Challenges Results
• Increase small ticket size lending for both thin file and thick file Thin File Segment Only Device Data
customers by:
+60%
• Improving the accuracy of lending decisions made at less risk. 48
• Maintain or lower NPLs and bad debt rates. 30

41.8 GINI
Before After
Approach
✓ Additional 60% improvement in ✓ Standalone predictive power of
• Alternate data (e.g., SMS data, demographic data) was used t:o GINI score for the thin file device data better than some
segment. bureau segments
• Enrich the data points available and;
• Improve the predictability of the existing models using machine Increase in overall lending volumes as credits are extended to more
learning frameworks. customers at a lower risk

Architecture for Scoring Device Data
Server less architecture on cloud allows to generate scores in realtime and handle scale
Encrypted data
AWS Lambda -
12 Compress and 13
Store for logging
Embedded Private subnet and reprocessing
MobileSDK
1 2 4
HTTPS 3 Real-Time
5 Store
mobile-data- structured data
Web App collector Processing S3 Private
to DB
Firewall Load (EC2 instances) Bucket
encrypted data
Balancer
Qualys Kinesis Stream 6 Trigger Scoring
Engine
store
Monitoring
Agent
Decision Engine
Save risk
score to
Internal Process Feature ML DB
Scorecard 11 Data Creation Scoring
7
Dashboard
Data Science API

API/ APIGEE
Client
Get Risk Score
9 REST API Business
10
Transform
Rules Database
API 8 Client Bank 1
Database
Data Enrichment via Client Bank 2
Signal Platform
Enriched
data
Users
Client
Environment
X Score
Alternate Credit Score for lending
Consumer:
records, Telco data is useful in
Experian:
Make use of Telco data and
loans.

Problem Statement
Bureau covers less than 20% of the population.

BUREAU
FINANCIAL
TELCO INSTITUTION
DEVICE 90% 80%+

Access to mobile Prepaid
services subscribers
MARKET PLACE
PAYMENT / 20-40% <5%

WALLET Access to banking
services
Access to
credit services
$
E-COMM
APAC non-mature market reality

OTHER DATA
SOURCES

Solution
X-Score enables credible information access to banks for credit decisioning
BUREAU
Address
Verification
FINANCIAL
TELCO INSTITUTION
Fraud/ID
X-Score Score
DEVICE ADVANCED
Credit Risk
ANALYTICS Score
MARKET PLACE
WITH Insurance
PAYMENT /
WALLET
MACHINE Score
$
LEARNING Profile
E-COMM Score
OTHER DATA Attribute

SOURCES Score

Score Pooling
Challenge in Ensemble methods Solution : Consensus Approach

Final Score to be dependant on :
➢ Data Sharing restrictions from clients where they only
➢ Goodness of Model – Accuracy , AUC, KS ,etc
share a score
➢ Level of Uncertainty – if probability is close to 0 or 1
➢ Distribute revenue across multiple partners fairly basis
then Uncertainty in prediction is low
prediction confidence and accuracy of model
1. Determining the Local uncertainty

2. Determining the Global uncertainty
3. Weight matrix Initialization – Transient state
4. Weight matrix – Steady state Weight vector can be directly calculated without multiple These parameters are final
5. Weight vector calculation iterations - it is equivalent to left eigen vector of initial weightage to combine
weight matrix “W”, corresponding to eigen vector “1” multiple scores to X-Score
6. Consensus driven X score
45 06/11/2019
© 2019 Experian. Private and confidential Presentation Title Private and confidential
Impact by combining alternate data scores (6% GINI Uplift on
existing Bureau Score)
Thick file - The Consensus X Score improve approvals by Thin File – (NTC and Payment Score) - The Consensus X
9%* (with same risk level) Score improve approvals by 17%* (with same risk level)
100% 100%
90% 90%
80% *Bad rate Cutoff – 1.6% 80%

*Bad rate Cutoff – 5.3%
% Cumm Bad /
%Cumm Pop
70%
70%
% Cumm Bad /
60%
%Cumm Pop
60%
50%
50%
40%
40%
30%
30% 30% GINI Uplift
6% GINI Uplift 20%
20%
10%
10%
0%
0% 1 2 3 4 5 6 7 8 9 10 11
60% 35%
1 2 3 4 5 6 7 8 9 10 11
43%
59% 50% Approvals DIS NTC X-Score
CS Approvals
Bureau X-Score
Decile - Score Low To High Decile - Score Low To High
46 06/11/2019
© 2019 Experian. Private and confidential Presentation Title Private and confidential
Recommended Usage of X-Score
For banks to use our model scores – we provide strategies for score cutoffs
Independent Score Dual Scoring Low-side Override/ Swap-In

(along with risk policies & procedures) (along with risk policies & procedures) (along with risk policies & procedures)
Experian X Score
Existing A-Score
Adjust the cut-off Identify and
Cut-off strategy by fine-tuning Cut-off accept good
the expert model potential
based on performance customers
and risk appetite below the cut-
• X Score can be used in conjunction with off score
existing scoring mechanism(s) to strengthen
the lending decisions across the customer • Use X Score to specifically focus on
• Experian X Score can be used along with base. customers who are below the cut-off line.
existing credit policies in making lending • Telco and device data contains powerful • Use case for reducing type II errors of
decisions. behavioural information that can improve the rejecting potentially good customers. Once
• Use case for assessing no hit & thin file predictiveness. accepted, these customers can be closely
customers who are ‘new to bureau’ with very • Use case for Telco and device data through monitored using more complete data
limited credit data. an existing partner to maximize coverage, collected.
even for thick file customers. • Existing predictive models can be improved.
Alternate Data Projects in APac
Proven capability in risk scoring various verticals in emerging markets like SEA and India
Device Scores Telco Scores Commerce Scores

Credit Risk
Grade
Machine
Learning NLP, GBM Random Forests, GBM Logistic Regression CRG 0
XG Boost Network Analysis XG Boost
Real-time Solution Geolocation Analytics CRG 10
CRG 20
SMS and App Usage Data : Behavior Data : Wallet Data: CRG 30
GINI 41 GINI 33 GINI 24
Performance CRG 40
Version2 SDK Data: Lifestyle Profile Data: Merchant POS Data:
Indicators
Expected GINI 30+ GINI 25 GINI 20
CRG 50
CRG 60
CRG 70
Live with clients - 60% Approval Data on boarded – Live in Q3 One client previously live and
Clients Rates 4+ Clients in Pipeline FY20 3+ Telco in Pipeline 30% approval rate CRG 80
On boarded 200M customers in Indonesia Live in India
Potential 300M customers in CRG 90
India
GINI – Measures the rank ordering or performance of a model to predict risk

Agenda


Decisioning lifecycle for a digitally enabled bank
Digital Acquisition Digital Engagement Digitally enabled

Accelerate time to decision & fulfil, mitigate Maximise cross and up-sell, Manage exposure, Collections Digital Fraud
application fraud; Product Bundling/Counter drive usage and reduce churn
Offers. Manage risk and assign the best terms Rehabilitate potential defaulters. Prioritise Prevention
and collect more
Customer experience starts here
Renewal Complex Device

Cross-sell
Limit Mgt. & Recognition
Up-sell Authorisations
Driving Usage +
Pricing and terms Rewards & Loyalty Full Transaction
On-boarding
Underwriting & Activation Retention Data
Value
+
Fraud Powerful Risk
Pre-approvals Collections
Identity Engine
Prospecting +
Cancellation
Industry Data
Charge-off
Customer Lifecyle
Decisions across the customer lifecycle

A better customer journey
Business impact can be tremendous
Customer Debt
Originations
Management Management
15% 10% 26%

Increase in sales through Increase in acceptance rate for Improvement in delinquency
improved accept rates cross-sell/up-sell rate
5% 10% 25%
Increase in efficiency with an
Reduction in bad debt through Increase in profitability through improved collections process
better exposure management risk-based pricing
80% 14%
Reduction in processing time Increase in profit with better
through automated decisions limit setting strategies

Thank You !

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• Experian and the X-labs

2 © 2019 Experian. Private and confidential

• Experian and the X-labs

3 © 2019 Experian. Private and confidential

4 © 2019 Experian. Private and confidential

~100 data scientists, technologists and industry experts focused on innovation

6 © 2019 Experian. Private and confidential

Artificial Explainable Advanced New New data

7 © 2019 Experian. Private and confidential

• Experian and the X-labs

8 © 2019 Experian. Private and confidential

Technology Adoption by Households in The United States Exponential

9 © 2019 Experian. Private and confidential

The IBM Model 350 disk file

10 © 2019 Experian. Private and confidential

11 © 2019 Experian. Private and confidential

12 © 2019 Experian. Private and confidential

• Experian and the X-labs

13 © 2019 Experian. Private and confidential

Analytics Platforms Collaborative

15 © 2019 Experian. Private and confidential

Telco data Travel data Payments data Ecommerce data

• Mobile usage • Travel pattern • Travel pattern • Spend pattern

16 © 2019 Experian. Private and confidential

(Electric, Gas, Water,

Low Medium High

17 © 2019 Experian. Private and confidential

• Unified risk scoring for credit

19 © 2019 Experian. Private and confidential

Pre-defined data set

Calling Feature Engineering Machine Learning Models

Geo Deep Random

Social Network Data Usage

High dimension Feature Space Neural

• Boost conversion with ML and pre-approved

22 © 2019 Experian. Private and confidential

Social Network Change in Social Network

23 © 2019 Experian. Private and confidential

The mobility of a customer across weekdays / weekends

Night Locations ->

Day Locations ->

Illustrative Image. Illustrative Image.

24 © 2019 Experian. Private and confidential

Create Manage Deploy

Create Manage and test

25 © 2019 Experian. Private and confidential

26 © 2019 Experian. Private and confidential

Within Experian - PowerCurve® allows organisations

27 © 2019 Experian. Private and confidential

28 © 2019 Experian. Private and confidential

• Experian and the X-labs

29 © 2019 Experian. Private and confidential

30 © 2019 Experian. Private and confidential

Telecom Partner Bespoke Model Financial Partner

31 © 2019 Experian. Private and confidential

• Demographics information recorded at the time of customer filing for sim-card

32 © 2019 Experian. Private and confidential

Calling Machine Learning Models

Social Network Data Usage

33 © 2019 Experian. Private and confidential

Interaction- Ratios Entropy Inter Call time gap/User Hibernation

SMS vs Voice User 1

Weekday/Weekend Call Log 2