Lecture Notes - 3

B.C.A. 5th Semester – Odd Semester 2021

Introduction to Data Science and Big Data - BCA PE523

Topics
1. Fraud and Big Data
2. Risk and Big Data
3. Credit Risk Management

1
 Fraud and Big Data
 Fraud is intentional deception made for personal gain or to damage
another individual.

 Even though fraud detection is improving, the rate of incidents is rising.

 This means banks need more proactive approaches to prevent fraud.

 While bank card issuers investments in fraud detection and resolution has
resulted in an influx of customer-facing tools and falling average detection
times among credit card fraud victims,
the rising incidence rate indicates that credit card issuers should prioritize
preventing fraud.

 Despite warnings that social networks are a great resource for fraudsters,
consumers are still sharing a significant amount of personal information
frequently used to authenticate a consumer’s identity.

2
 Fraud and Big Data
 In order to prevent the fraud, credit card transactions are monitored and
checked in near real time.

 If the fraud checking system identify pattern of inconsistencies and

suspicious activity, the transaction is identified for review and escalation.

 Due to the nature of data streams and processing required, Big Data
technologies provide an optimal technology solution based on the following
three Vs:

1. High volume Years of customer records and transactions (150 billion+

records per year)

2. High velocity Dynamic transactions and social media information

3. High variety Social media plus other unstructured data such as customer
emails, call center conversations, as well as transactional structured data

3
 Risk and Big Data
 Many of the world’s top analytics professionals work in risk
management.

 It would be an understatement to say that risk management is data-

driven—without advanced data analytics, modern risk management
would simply not exist.

 The two most common types of risk management are

credit risk management and market risk management.

 Credit risk analytics focus on past credit behaviors to predict the

likelihood that a borrower will default on any type of debt by failing to
make payments which they obligated to do.

 Market risk analytics focus on understanding the likelihood that the

value of a portfolio will decrease due to the change in stock prices,
interest rates, foreign exchange rates, and commodity prices.
4
 Credit Risk Management
 Credit risk management is a critical function that spans a diversity of
businesses across a wide range of industries.

 Traditionally, credit risk management was rooted in the philosophy of

minimizing losses.

 However, over time, credit risk professionals and business leaders came
to understand that there are acceptable levels of risk that can boost
profitability beyond what would normally have been achieved by simply
focusing on avoiding write-offs.

 The shift to the more profitable credit risk management approach has
been aided in large part to an ever-expanding availability of data, tools,
and advanced analytics.
5
Credit Risk Framework