Think Big, Start Small, and Act Quickly with Applied Intelligence

Jim Marous (00:11):

Hello, and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, Owner and CEO of the Digital Banking Report, and co-publisher of The Financial Brand.

Jim Marous (00:20):

To wow customers across the entire financial journey, you must know them, understand them, and be able to proactively anticipate and deliver solutions. This requires taking an event-driven approach to offer contextual engagement and experiences.

Jim Marous (00:37):

Today, banks and credit unions are ditching siloed, departmental frameworks, and instead, are connecting people, processes, and technology across the entire organization with a collaborative approach that puts insights into action for the customer's benefit.

Jim Marous (00:54):

I'm excited to have Darryl Knopp, Senior Director, Portfolio Marketing at FICO on the Banking Transformed Podcast. Darryl discusses the current state of personalization and banking and how organizations can use applied intelligent systems to improve experiences, engagement, and loyalty.

Jim Marous (01:13):

Connecting with customers on a personalized level is no longer a luxury, it's a necessity. Customers understand what is possible with data, analytics, and modern technology. The challenge is delivering the experiences that customers expect.

Jim Marous (01:30):

As FICO mentions in their new eBook entitled, Accelerating Customer Decisions with Applied Intelligence, having an enterprise-wide view of your customer provides a lay of the land for financial institutions. Applied intelligence, though, helps to show you where to go in that vast landscape.

Jim Marous (01:48):

So, Darryl, let's start at the beginning. Let's talk a little bit about what FICO is actually doing in the area of implied intelligence, but also about your role at FICO.

Darryl Knopp (02:01):

Sure. I'll do the latter first and the former last. So, Darryl Knopp, I run portfolio marketing at FICO, and you can call it product marketing, portfolio marketing, but effectively, my team is responsible for kind of content generation, the words that you would read on our site materials that we would utilize for sales purposes, sales training internally.

Darryl Knopp (02:26):

So, basically making sure that our salespeople know how to sell our product and how to talk about our product, and that our customers understand what it is that we actually do. My role at FICO is not that. I have a team of experts in marketing and I get to look very good on their coattails.

Darryl Knopp (02:43):

My job, my background, I've spent 25x to maybe more than that, doing risk management for banks all over the place. And so, I'm really bringing voice to the customer into the conversation. So, that's really my job. And in this particular case, I also get to be the talking head or the face, the gray-haired wise and old banker.

Darryl Knopp (03:06):

So, where FICO comes into this is we've got a long history in data and analytics, and we're quite proud of that. We've been around since 1956, and most people know FICO for the FICO score, the FICO family of scores. But we also have been in the software business and the in the AI business for a long time. And specifically, really in ... if you look at our FICO tool.

Darryl Knopp (03:28):

So, we have a fraud set of tools. We've got a long history in application fraud and in account management or credit card fraud, as well as we got a long history in account management. So, we have a couple of kind of legacy products there that're still being used today. And I don't mean to use the word legacy in a negative way.

Darryl Knopp (03:44):

But really now, we're removing (and this is the long introduction that should be a little bit shorter) into platform, really. We're taking all that great IP that we've got in analytics and in scoring and in the application fraud and in application processing and in account management, and in fraud management.

Darryl Knopp (03:59):

We're taking all that and saying, okay, well the industry's really moving away from having single applications to do all these challenging things because it requires a lot of management. When we looked across these tools, there's a common set of things. You take data, you generate insights from that data, you take action on that data, and then we observe the outcomes, and then you kind of loop through and you learn from it.

Darryl Knopp (04:25):

Well, the reality is that whether I'm talking about marketing at the very beginning, pre-approvals, what have you, or if I go through the lifecycle of originations, nurture, and manage, I'm now getting into collections, getting into recovery — all of those things have some very common ways in which we make decisions and apply analytics to.

Darryl Knopp (04:43):

And so, really what FICO platform is, it's this kind of modern architecture of capabilities that are used to do all those types of, I'll usually call them use cases, but all these types of actions and decisions that you make with data on customers.

Jim Marous (05:00):

It's interesting, I started in banking before you did. I started more than 40 years ago. And we talked about personalization back then, but obviously, a lot has changed between the data that's available and the technology that's available to process and deploy this data.

Darryl Knopp (05:16):

So, what major trends are you seeing right now that are affecting banks in the financial services landscape, and how are the banking customers expectations changing? And what has changed the most in the last couple years?

Darryl Knopp (05:30):

I'm talking about a few things, and I think we've seen or we've pivoted (and I guess COVID was an accelerator here) — but we were really on this trajectory where the digital bank was becoming the center of financial services. And if it wasn't that before COVID, it is now.

Darryl Knopp (05:49):

So, when I think about the primary banking channel, it's the digital bank and it's the digital bank probably for some massive percent of people.

Darryl Knopp (06:01):

In fact, even the older generation that might have engaged with branches, because that's how we grew up, engaging with branches — I think even they've become very comfortable in doing the bulk of their transactions via the digital channel. And so, that trend means a lot of things.

Darryl Knopp (06:19):

It means we've grown the number of people using it which means that that channel has to be much better. And regardless of the generation that you might be in, we're all using a bunch of the tools on our phones. The phone technology's gotten fabulous. It's become a platform in and of itself to deliver these experiences.

Darryl Knopp (06:40):

Well, now we're getting compared to ... maybe 10 years ago we weren't, but now we're getting compared to the experiences you're having on Amazon, you're having on Apple, you're having in whichever kind of apps that you use, that's the comparator. And those experiences are quite good.

Darryl Knopp (06:56):

I'm a heavy user of Amazon. We use Whole Foods, and we order through Amazon. All of it comes. If I have to delay this call today a little bit, it's probably because I'm getting a package, or my dogs will go crazy. And so, that's the biggest thing.

Darryl Knopp (07:11):

We used to compare in the industry, and you'd compare yourself, and I was working for Canada Trust and that was the first bank I kind of worked with in Canada. If we were comparing ourselves doing competitive analysis, we'd go up to TD Bank, we'd go up to Bank of Montreal, CIBC, Royal Bank, et cetera, and we'd see how we'd compare.

Darryl Knopp (07:28):

Well, that's not good enough anymore. In fact, you've really got to think about who to compare yourselves to. So, really those customer experiences, the market change and who we're comparing ourselves to and what that means is that we know that Amazon ... and they're pretty good at it. Although the one example I will use on personalization, that's not perfect.

Darryl Knopp (07:47):

If I buy six pairs of golf socks, you don't need to show me ads for golf socks for the next month. Just because I had that behavior, I probably don't need six more pairs of golf socks. But the point is, is that they're really digging into kind of the purchases that I'm making, trying to understand what I'm interested in.

Darryl Knopp (08:04):

We need to be doing the same in banking. And so, that's a real trend that we're seeing, banks are getting there. I think that what we did during COVID was quite interesting, which was really, we started to really focus in on, well, I'm missing that greeting that I get in the branch. And so, little things like "Good morning, Darryl!" (I'm being excited by it, putting an exclamation mark on it).

Darryl Knopp (08:24):

That's the easiest form of personalization, and that's not hyper-personalization we talk about, but we really started, we've really embedded this concept of who my competitors are and kind of how to think about how I personalize those experiences. So, those are kind of the two big things that I would talk about.

Jim Marous (08:40):

And that's huge. And as you mentioned, it's really something that's even amplified more because of COVID, because we got sheltered in and we started realizing that, geez, when I watch a show on Netflix, Netflix then says, since you watched this, you may want that.

Jim Marous (08:54):

I tell the story in the podcast quite often that last year when I was down in Florida, I got into watching shows about lagoons and pools, people building pools and lagoons, and all of a sudden, all I'm getting are different types of shows about building a pool. And I had no interest in building a pool, it’s just interesting to me.

Jim Marous (09:11):

But what's interesting, because people noticed that my activities were spurring on other recommendations that made my journey easier.

Jim Marous (09:23):

So, we know already that the financial institutions have done a really pretty decent job in the risk and fraud areas at personalizing the ability to look at personalized risk scores and personalized fraud scores and being able to really look and say they can understand each individual from a negative perspective.

Jim Marous (09:42):

Why are we falling so short of customer expectations in the positive way? As you mentioned, the hyper-personalization way with regard to services and products and recommendations.

Darryl Knopp (09:56):

I think it's likely because we had branches and we had people with smiles on their faces that could greet people and do these positive things. And so, I think with a deep background in risk management as probably the only actuary running a marketing department that I'm aware of, we historically, the risk management pieces of this were things that we did behind the scenes, the things we did in the back rooms, either underwriting teams in automated ways using tools like I mentioned already, Falcon.

Darryl Knopp (10:24):

We're talking about billions of transactions a day that flow through that you have to react to and you're trying to protect. I think that the real investment being made now and today, we're still doing those investments. Fraud hasn't gone away, new credit and risk hasn't gone away, but we're really taking the way in which we've done those things, the learnings that we've got from those things and bringing to bear on kind of this next best experience, this next best product, next best offer, engaging with the customer in a positive way.

Darryl Knopp (10:56):

And there's a lot of reasons for that. I think some of it is that if we take all the data that's available in the world right now, something like 90% of it was made in the last two years. And there's all kinds of metrics around that, but the data's piling up, and we're getting much better at bringing that data to bear.

Darryl Knopp (11:16):

Meaning, I can get access to it now. When I started in banking, it was all about account risk, account level risk. And now, when we're really talking about customers, we're talking about customer level, we're talking about understanding the customer at that level.

Darryl Knopp (11:29):

And we talked about lifetime value forever, but we've never done a good job of really understanding it. Well, now that we have this data, now that we've been storing this data for a long time on customers, we can actually get to that and understand it.

Darryl Knopp (11:46):

And so, for Darryl's case, if I was applying for a mortgage — giving me mortgage offers, or hey, better yet, since you've already got a mortgage application with your leading is, well, what might I need next?

Darryl Knopp (11:58):

Because really when we talk about personalization and we talk about it from a banker perspective, I don't do things unless either I'm going to deepen a relationship, I'm going to create more loyalty, or I'm going to make more money.

Darryl Knopp (12:12):

And those things have to all come together for the business model to work. It's not greed, it's more about making sure the business model works. Well, when we think about financial wellness, well, that's a big thing. We think about financial education, we think about deepening the relationship, we think about making more money — all of these things have to have data, drive insights from them.

Darryl Knopp (12:30):

And I think the big trigger from an industry perspective and how we got here is we have all that data. We're now getting modern platforms where I can do these things at scale. And the other thing that the techies want to hear as well is you got to do it at a low latency because you got to be able to react very, very quickly to do some of these real-time things that need to get done.

Jim Marous (12:52):

So, on that point of the platforms, one of the biggest challenges right now financial institutions of all sizes are challenged by, how do I get my arms around this? But many financial institutions now are realizing the power of the collaboration with third-party providers such as FICO.

Jim Marous (13:08):

Now, how does FICO help financial institutions close this expectations gap? How does your platform remove friction and increase speed of decisioning?

Darryl Knopp (13:19):

We could spend days on that one, but I'll try to hit a couple of high points. I mean, really, FICO platform is ... and platforms in general. A platform for decisioning in general has to do a number of things. It has to be able to bring data into it across various services.

Darryl Knopp (13:37):

And so, some of those are going to be external: bureaus, other third-party data providers. You might need to bring in a tool that does ID verification, all kinds of things. So, you have to be able to bring in the data and services and you have to be able to manipulate them in ways that allow you to save time, build things up.

Darryl Knopp (13:56):

If I want to know the average balance in Darryl's account over the last seven days, I don't have to wait for the real time. I'm going to use that data in a real set. I should have that calculating behind the scenes so that whenever I need it, I need it. And so, really kind of pulling in your data and all of the processes. Platform, then you need to be able to generate insights.

Darryl Knopp (14:15):

Although you can arguably do that offline, but there's some real-time ... build them offline and then they get deployed for real time or right time. And then you need to have that ability to — and again, I think you build it and then you're operationalizing it. So, whether they're decision services or whether they're models that run in real time, you need to be able to do that.

Darryl Knopp (14:34):

And then when you get into it, well, what kind of actions am I going to take from it? And then how do I track, how do I manage, how do I simulate those so that I can actually understand the impact? And then how do I test AB test champion challenger, is a term that we use at FICO?

Darryl Knopp (14:46):

And then how do I validate and govern all of these processes? And so, from a platform perspective, the beauty of a platform well-constructed (and I do think FICO's platform is very well-constructed) is that you have to have all these capabilities in one place. And I think if I was to give one sales pitch on our platform, is that the best thing that we do is operationalize.

Darryl Knopp (15:10):

We have all these great tools and capabilities and data and grabbing data, generating insights from it, that's our legacy. We've got a great set of tools for that. But fundamentally, I think our key differentiators really operate solmization, and then this great learning loop that you get.

Darryl Knopp (15:27):

Sometimes you can do that learning loop offline and on some platforms you do. But really to me, the platform really, it's all about getting all those people in the same place. That's where you're generating collaboration. So, I've got my data science people working in the same architecture, that I've got my risk management people working, that I've got my product people because they're caring about what's coming through the door.

Darryl Knopp (15:46):

And then I've got the risk people and the product people tracking it at the back end. Are they getting the results that they'd expect? And I've got that across all different products, because now, I have to think at the customer level because that's really, when you think about the digital channel, that's the other thing that the digital channel is really forced.

Darryl Knopp (16:03):

It's very difficult in a digital channel to think only about a product. And so, collaboration across product, kind of at that consumer bank level, at the customer level is a big thing.

Jim Marous (16:17):

You know, it's interesting, one of the biggest hurdles I think with a lot of these third-party collaborations is getting a new partner bought into a financial institution. We're all overwhelmed with what goes on to the next day. But a benefit I think that FICO has, and I'm just talking from a layman's perspective, is that you already have relationships with a great percentage of financial institutions.

Jim Marous (16:38):

So, bringing in a new platform to do something different than just the fraud and risk area, really has got to be simplified a little bit. Makes it so the implementation can be a little bit easier. The relationships are already there, the trust is already there, which is really a big deal when you're working with third-party providers to provide a solution for your customer base.

Jim Marous (16:58):

I would imagine that really helps you work with your existing clients to bring in new ideas and new solutions. Correct?

Darryl Knopp (17:07):

Maybe. I think we're victims of our own success. I think the bulk of people know FICO for FICO score and it is a great set of products for those that watch the FHA or listen to the FHA announcements, well, there's FICO score 10T, it's a great opportunity. It's a fantastic score. We've got other scores in there. And I'm wearing an ultra-FICO hoodie right now.

Darryl Knopp (17:27):

And so, I think you're quite right. People have a trust, they have an understanding and certainly folks that are using Falcon or TRIAD, which are kind of our two big legacy software products that are industry-leading, that are market-leading products, internationally, not just here in the U.S., I think it does bring a level of trust.

Darryl Knopp (17:45):

And so, I do think it's there. I think the challenge that I have, and I spend most of my day focused on software, if not all of the day focused on software — the challenge we have is educate people on kind of what we're doing and why it's important. And these platform moves are challenging, they're big, because you're taking on something like account management.

Darryl Knopp (18:05):

And if we wanted to talk Falcon for example, you're taking on something that's heavily embedded often at a processor. So, you're really kind of having to look at kind of all these challenges. And because it is a much broader tool than something's that single built for purpose like account management software like fraud software, they impact a lot of other things.

Darryl Knopp (18:29):

So, I think where we see wins to jump kind of ahead a little, where we see wins from a FICO platform, so I'm assuming we have the trust, they understand our brand, so we get in there — where we have wins, it's really when people start to understand that I'm not just going to solve my origination challenge.

Darryl Knopp (18:43):

I'm going to have the opportunity to solve my origination challenge, and then next year when my customer management tool comes up for renewal, I'm going to put my customer management activities on there, my collections on there.

Darryl Knopp (18:53):

That's where you start to really get it. And I think the shops that we talk to, the enterprises where we have multiple implementations or multiple use cases on our platform, IT loves us because we've just made their job easier. Instead of managing 25 different applications, they're lowering the number down. All the third-party data that you have to go on and get, well, you can control that through FICO platform.

Darryl Knopp (19:21):

And so, you're really using fewer tools and we've almost created this role that's between business and technology, like this business technologist. Now, when I go to make changes to strategy, implement new scorecards of other things, IT doesn't need to be involved. IT's managing the overall infrastructure and ensuring that we're working together.

Darryl Knopp (19:40):

But that to me, is kind of what I would say is a massive way in which we leverage that brand and get into kind of having success with the FICO platform.

Jim Marous (19:53):

It's interesting because all these things you're discussing provide amazing insights for people internal to the financial institution. What we see a lot of times is the challenge moving from great insights to great deployment, the actually doing things with what you have.

Jim Marous (20:11):

One of the key areas is looking at personalization, looking at how you can personalize my experience. You mentioned a little bit about saying the "Hey Darryl" or "Morning Darryl," as opposed to more hyper-personalization. What's the difference between what you'll say is personalization, hyper-personalization, and why does it matter?

Darryl Knopp (20:33):

So, the one I mentioned too, and I'll throw a plug out to them because I think they've got one of the best onboarding experiences. Lemonade, and Lemonade is an app or is a company that actually does online insurance, home insurance, and pet insurance and other things.

Darryl Knopp (20:48):

And it's a very simple process. I mean it's personalization, I wouldn't call it hyper-personalization. I think hyper-personalization is actually like I kind of previously mentioned a little bit, is really kind of figuring out where Darryl is, it's marketing to the one. What's the next thing that Darryl needs based upon what I know about Darryl.

Darryl Knopp (21:13):

And in my case, I bank with Chase, this is my primary bank. It's not a plug for Chase, although I do think they have one of the best apps out there. But it's given that I have all of this rich data, it's deploying that to understand and offer me different things, understand experiences.

Darryl Knopp (21:29):

If I'm running up my two credit cards to Chase up, do they offer me a loan or do they reach out to me that my score is going down or going up and rewarding me for such things? And so, the importance of hyper-personalization really for banks is really to enhance the trust, make the experiences easier.

Darryl Knopp (21:49):

If I'm applying for a second product, don't ask me for my name and address. Maybe ask me to confirm them, but ask me for something you already know kind of makes me feel like you don't know me.

Jim Marous (22:04):

Lowers the trust. Because you go, "Geez, if you don't know who I am right now ..." Yeah, exactly.

Darryl Knopp (22:11):

And I mean, that's the risk management person in me too. It's like, "Well, why are you asking me that? Like you already know that." And little things like that will drive the average person crazy. You don't see that in other places.

Darryl Knopp (22:19):

I think on that one point, if you want to say, "Hey, we're going to send a card to you, just, hey, confirm again that this is your mailing address," I think things like that are fine.

Darryl Knopp (22:28):

I think more importantly and one of the things — I'm leaned up against this idea of having this customer experience really enhancing ... banks are heavily focused on ... trust is a big theme. It has been for a long time, but I think banks are now getting into measuring trust and understanding trust a bit more. Doing much more than just an NPS or a like a "How you feel about me score?" They're actually doing much more leaning in on it.

Darryl Knopp (22:53):

And so, looking at ways in which I can give trust, and one of the ways is that the process doesn't have to be the shortest process for a particular opportunity or sale. It needs to be the most intuitive and it needs to be the most comfortable. And so, sometimes, and again, I'll use the Lemonade pet insurance example that I've used them in the past when I've talked about this.

Darryl Knopp (23:14):

It's they did chat to ask me questions and they asked my dog's name. Dog's name, that's my dog's breed, like Harper's a good boy. And like this little process that, yeah, it probably took longer than it would've took if they just presented me with a form and I had banged away. Because they really only need that dog's age, any medical issues, the type of breed, and then they can estimate kind of the cost associated with that. As an actuary, I can appreciate that.

Darryl Knopp (23:38):

The reality is they had this process that took a little bit longer but was more tongue in cheek and more interesting and more engaging. And that's not hyper-personalization. That's just building a process that people kind of enjoy going through. And then hyper-personalization would be doing that for millions of people, asking the right questions of them on the products that they want at the right time.

Darryl Knopp (24:02):

And again, I said products, but it's really making sure that Darryl's having the right experience. And because it might be, "Hey, Darryl, you made two transactions at the same place within an hour for the same price. Did you do both of these?" That's a transaction fraud or potentially, just a double charging, somebody's made an error." Well, highlighting that, that builds trust.

Darryl Knopp (24:25):

And by the way, that saves money if it's actually an error or a potential issue from a merchant perspective. So, all kinds of fun things that can be done in the space, it's so important. And the things that are called hyper-personalization or personalization or hyper-personalization at scale however, we want to kind of say this as an industry, we already do some of these really well.

Darryl Knopp (24:43):

I think you use the fraud example, the credit card fraud example, that's one done really well. It's a narrow application, but it's incredibly personalized and has to be done at speed to literally billions of transactions a day. And so, I think that that's a fascinating one.

Jim Marous (25:00):

Well, it's interesting too because in the eBook that FICO did, we talk about not only personalization, hyper-personalization, but moving from experience to engagement, which you've already discussed it with Lemonade, where you have some interaction back and forth, and it makes it so that it's more comfortable, it builds loyalty and more importantly, I think it makes it so there's more reasons to have discussions.

Darryl Knopp (25:23):

As you said, we're all comparing it to that one-to-one personal experience we had in the branch where we went in maybe every week on the same day, same time, everything like this — we need to keep that because in the digital world, it can be let go of too quickly and there's a whole lot of firms out there willing to take our place.

Darryl Knopp (25:42):

So, you also talk in your eBook about think big, start small, act quickly. Can you explain a little bit about the benefit of those elements with regard to implementing, let's say, an intelligence platform?

Darryl Knopp (25:58):

So, let's talk about think big. What I mean by really think big is have a plan. Have a have a customer level, bank level strategy for personalization. That's the think big. Like put your plan together. What would you do if you weren't restricted, and where do you want to get to?

Darryl Knopp (26:17):

Yeah, there's going to be costs and systems and all kinds of things that you might have to do to get there. But put that plan together and think big. Think where you need to get to, what are your competitors doing? What are the people outside of your competitors generating the expectations around experiences. That's the think big, build that strategy.

Darryl Knopp (26:34):

Act small is, okay, well given all the restrictions I have, I don't have this great platform today, but maybe I've got some legacy software that I can modify experiences, and I can do the little things that aren't quite hyper-personalization, but make sure you got all the personalization stuff right.

Darryl Knopp (26:50):

Like if Darryl's going into the app and it's morning, say "Good morning, Darryl," put a little excitement around it, put an exclamation mark on it, like engage with me a little bit. You're replacing, in some cases, a branch process where somebody was greeting me, somebody knows my dog's names, or if you have kids, he knows your kids' names, you're really replacing some of that.

Darryl Knopp (27:12):

So, you got to find a way to engage with that. You also have to figure out if people want that. Some people might not want that. So, it's like, okay, well they don't, they want to get right to something. Try to find out who those folks are that want to work quickly versus have an engagement. I think you'd probably start with the longer process or the more engaging process.

Darryl Knopp (27:30):

Act quickly then to have an ability to make these changes. And so, as you start to figure out what your big picture is and you start to make some of these minor changes to actually have things get a bit more personalized given your current constraints, then start to figure out kind of how do I get a platform and how do I get a tool set in here so that I can actually achieve all of these things on this scale in there.

Darryl Knopp (27:53):

And then that's where platforms really shine because platforms to me, should provide you three things. They should be able to go fast, so they can scale. If I've got a billion transactions coming through or all kinds of data I got to process, models I got to run, they need to be able to do those things quickly, then they need to be agile, which means I can make changes and apply those changes very quickly.

Darryl Knopp (28:14):

And then they need to be resilient. To me, resiliency is created through learning. So, I can make these changes, I can simulate and have expectations — did I get them? Nope, and then learn. That to me, is kind of where I would kind of say personalization and platform, where the real challenges are and where the real opportunities are.

Jim Marous (28:35):

So, when we look at the platform and the data and the insights and the processing, the speed, all the things you're talking about, how important is it today for financial institutions to democratize the data insights that are created across the entire organization?

Jim Marous (28:53):

In the past, in both of our banking legacies, it used to be that the data area held the data, the fraud area held all the data with fraud, and marketing held their marketing data. How important is it now for the insights that are generated from a platform such as FICO's to actually be democratized so that every person in the organization that can have any possibility of being in contact with a customer has access to these tools?

Darryl Knopp (29:19):

Yeah, I mean, it's a great question. I love the term "democratization" by the way. We probably don't use it enough, but it actually is a good way to think about the data, certainly for an enterprise. And so, I mentioned previously kind of the legacy way that the banks are organized, are kind of by product. And so, I was head of product risk for a credit card — I really just focused on credit card, and often those systems didn't talk.

Darryl Knopp (29:42):

I didn't know what was in their savings account. I didn't know that they had a mortgage. I didn't know they had a car loan with us. I had to focus in on kind of this one tool set, this one set of data. And if I wanted even to get access to that other data, it was either difficult or they wouldn't give me access to it.

Darryl Knopp (29:57):

Really, where we've moved, and you'll hear terms like 360 degree view of the customer. That's one that I like. Although, it's probably overdone a little bit right now. But really, with modern data warehouses, data lakes (choose your term for it), bringing all that information to bear actually makes us much smarter.

Darryl Knopp (30:18):

We're not flogging customers for four different products at the same time because we've got four different areas that have different metrics that they have to do. You have to fundamentally figure out kind of what this client needs and take them on that needs journey. You can't do that if you can't get access to the data or you can get access to it, but it's not in a timely way.

Darryl Knopp (30:40):

And so, a modern platform and certainly our platform, really allows you to kind of get at the data in the place that it's at, bring it in, get it into a format or get into a style for it, build profiles, build rules that can be deployed.

Darryl Knopp (30:55):

And then one of the other benefits of kind of being able to do that across the various parts of the institution and you just focus on the consumer bank for example, is when I create an analytic such as a simple analytic, a capacity to pay, well, then everyone involved, whether it be credit card, loans, mortgages, uses the same calculation. There's this reusability.

Darryl Knopp (31:18):

And then you've got this low-code, no-code environment where you can compose, the business technology can compose, drag and drop quite often; what that decision flow should be, what the rules should be, and where that model should be applied. And so, now, you're getting these great ease of which you're implementing things, and all of the people are working in that same place.

Darryl Knopp (31:40):

So, collaboration gets a lot easier. If I've got data scientists in there, I've got the technologists in there, I've got the governance people in there, the people that look at how the models are performing who has the ability to see things — you still have to have kind of some amount of ability to, does that group need access to that data?

Darryl Knopp (31:58):

The fraud groups are very, very sensitive around kind of what those models would look like, who gets to see those; credit risk are the same, especially if some of the data that you're using for scoring is from outside, because if there is an ability to manipulate data, for example.

Darryl Knopp (32:16):

In the old days we would have this challenge, we would have something like how long have you worked at your current business? Your current job? Well, we didn't necessarily verify that, but we would ask the question. Well, if people know that question's there, they can figure out that maybe I should say 10 years and not one year.

Darryl Knopp (32:31):

Most modern models don't have data that can be manipulated that way. But you have to kind of think about some of these things and kind of who can see what, is it appropriate? But as long as people have access to the right information, really building this 360 degree review of the customer and then figuring out kind of what journey does this person want to go on, needs to go on, where are they at in their financial life?

Darryl Knopp (32:54):

A lot of major life events you have to think through from a banking perspective; home purchase, savings for university for kids, things like that. Where are they? Have they got retirement savings? And really kind of understanding it so that you truly have a good picture of your customer.

Darryl Knopp (33:12):

Where I think the industry would love to get to is that we had AI, a personal financial manager that was AI, the industry would love to kind of get to that stage where I know everything about this customer. This is the journey that they likely want to go on.

Darryl Knopp (33:28):

And I can provide them with advice in an automated way and an intelligent way as well as still giving them access to experts, individuals, whether that be through video, through branch, or through other channels. So, I think we're getting closer. We're not there yet, we're getting closer.

Jim Marous (33:42):

So, when we're looking at this whole personalization and trying to make it so that more employees have more access to the customer data, but more importantly, that customers know you have access and are using this data, how important is transaction data today to build near real-time engagement?

Darryl Knopp (34:02):

Great question. I'll look at it from a couple of sides. So, transaction data, we’ve used transaction data for quite a while in credit card fraud. And so, I won't spend a lot of time on that one. That would make sense if I build Darryl's behavior. Darryl's behavior is Amazon and the golf course and restaurants. I live in Napa, so it's all restaurants, wine, golf courses, and stuff. And then all of a sudden, I'm going to make a purchase that's outside of that behavior, then that's a higher risk transaction you can action on.

Darryl Knopp (34:28):

I think where we've really seen transaction data come to bear is to supplement kind of credit risk understanding. And the big difference between where we were, let's say, three decades ago, two decades ago, was when we started to really move towards just using credit bureaus to do credit analysis because we got away from all of these difficult things.

Darryl Knopp (34:54):

It was difficult to kind of get access to transaction data, transactions in my daily checking account, for example, if I was in the credit card group, challenging from an IT perspective, challenging from a modeling perspective, all kinds of issues there.

Darryl Knopp (35:05):

And then if Darryl's transaction account was actually not at Chase, it was actually at Bank of America, well, I couldn't get access to that data. I could get statements, maybe I could look at it. So, we really, as an industry, certainly from a risk perspective, got away from cash flow analysis.

Darryl Knopp (35:19):

But if you think of the 5 Cs or the 4 Cs, depending on which kind of credit school that you were behind, you would look at things like that when you were doing a manual review and you would make sure that you understand what the ins and outs of cash flow was.

Darryl Knopp (35:33):

Well, transaction data now being able to either link it and in the U.S., Plaid, Finicity, Yodlee for example, bringing in that transaction in and really understanding it. Or in the case of that account is with you, you can bring that data in from the other side because now, you've got your data structured in such a way and your analytics done that I can bring in that data and information, operationally incredibly valuable.

Darryl Knopp (35:56):

So, I mentioned earlier I can verify income because I can observe it. It's literally going in there. Now, that's net income. Well, I can gross that up, it's pretty easy to figure that stuff out. I can verify rent, I can do a better job of understanding kind of where you're spending your money. And then from a fraud perspective, I can also look at the behavior. Does it look like a real person?

Darryl Knopp (36:17):

And if they're new to bank, that's a big challenge, a big opportunity to improve it. Just asking for the bank account to be linked is a great fraud preventive tool by the way. And that one, that one's changed dramatically.

Darryl Knopp (36:30):

10 years ago, there was a lot of friction associated with that, I think with the growth in the FinTech industry, people growing up, kind of doing some of this and just banks having a bit more trust in regards to how they're using that data.

Darryl Knopp (36:41):

And then the third one on that spectrum is improved credit risk and it's significant. Ultra-FICO, which is the quarters if I'm wearing today, it's the traditional FICO score supplemented with transaction data and profile data that the customer has. And really what it does is — and I'll put my actuarial hat back on.

Darryl Knopp (37:03):

Really what it helps us understand is it can help us lower the volatility of the current estimate. I've now got more data points, I'm bringing more data into it. It also allows us to score more people. So, if you're a traditional bank in the U.S., you're using a FICO score somewhere, you can actually get more people scored. So, it's more inclusive for thin clients.

Darryl Knopp (37:22):

And then again, I'm talking about transacting for thin clients on a bureau three trades or less. Or if I can supplement with more data, I'm going to get a better estimate. Now, that's the ultra-FICO pitch. But the reality is, is it works the same way. If I can bring in this other transaction data, even if I'm not using ultra-FICO score, I can improve credit risk, I can enhance credit risk assessment, I can understand affordability better.

Darryl Knopp (37:45):

I can impact fraud and I can do a better job of operationalizing and verification of income and capacity to pay and rent. And rent is a real challenge in the U.S. if you're trying to do online lending because it's very difficult to verify.

Darryl Knopp (38:02):

And if you are on some of those databases, it's actually quite expensive to bring in. When I can go ahead and immediately just, "Oh, there it is. It's on the last day of every month or on the first day of every month." It's actually really easy to spot on the transaction.

Darryl Knopp (38:15):

So, there's all this great power that comes from it. It's worthwhile to put a plug in for open banking. Now, open banking isn't a thing in the U.S., it's becoming a thing in Canada. And it's a thing in Europe, in the UK, and Australia. And so, now, that's a regulation, but because it's being regulated, they might as well be taking use of it.

Darryl Knopp (38:36):

I don't think most countries right now ... I think the institutions are meeting the requirements but aren't taking the opportunities that this data really presents. The U.S. in this regard is actually well-advanced because we've really had bank aggregation for it got to be 15 years. I know I've been using it for the last decade.

Darryl Knopp (38:52):

And so, because it wasn't regulated, not everyone was super comfortable with it. We've really gotten as an industry pretty comfortable with it. I think that whether or not we see regulation or not, I have all kinds of thoughts of whether it be a good or bad thing, whether it would stifle innovation or not.

Darryl Knopp (39:10):

But I do think that the uses of that data, using it for good, using it for fraud prevention, better assessment, better analysis, and it does a great job of helping us truly understand and now, get deeper into personalization.

Darryl Knopp (39:23):

I think it'd be a shame not to use that data in better understanding of the customer for opportunities. Not just lowering credit risk, not just lowering opportunities for fraud, but actually helping them understand potentially savings rates.

Darryl Knopp (39:38):

Tiny little example and then I'll pause there. Again, I mentioned I bank with Chase, they will show me things like average spend on groceries and why are they asking me that question? Because in my account, they're observing that I'm spending more than the average person. And so, they're highlighting a little lesson for Darryl that maybe you should look at your spend in groceries because the average household's only spending this.

Darryl Knopp (40:02):

Those are little learnings. They're not selling me anything. They're giving me a little advice from a financial wellness perspective that I should think about.

Jim Marous (40:10):

So, with power comes challenges sometimes. What's the biggest challenge you're seeing in the financial services industry right now, moving beyond the way they've used FICO in the past, to the way they can use FICO going forward.

Darryl Knopp (40:23):

So, with great power, comes great responsibility, I love the Spiderman line. I mean, the challenge is we're not there as an industry, A, on platform deployment. We're still not really there on cloud deployment. There's still a lot of challenges. Privacy and data security is paramount. The industry is doing an okay job there, I think.

Darryl Knopp (40:46):

I think there's lots of room for improvement certainly here in the U.S. and other places. But here in the U.S. is often where I end up being quite focused.

Darryl Knopp (40:57):

I think the opportunity for institutions is to continue to leverage the power of the brand, continue to focus in on trust. When we think about hyper-personalization, we think about platforms. We've made a lot of significant investments as an industry.

Darryl Knopp (41:18):

I think that from a platform perspective, some of the challenges are (and this is kind of a growth of where platforms are) actually these are very large initiatives and they're very expensive initiatives. It's not just us, and we certainly work with all the groups that we can to make sure that the pricing is right, that we've got the right people in deployments and other things like that.

Darryl Knopp (41:41):

But these are big, big initiatives and I think that in some cases, it makes it difficult for the medium or the smaller size institutions to really to dig in. And so, I think that as an industry, that's one of the areas I'd like to see us focus on. We're hyper-focused on getting our costs down of course, and that means that we can get our prices and open up more — so who we get to.

Darryl Knopp (42:05):

We, at FICO, and I think many in the industry like to see this. We want to get to a point where we've actually got a marketplace, where you could literally go out, kind of sign up, so to speak. Start to map your data into the process, map your tools and there'd be some PS potentially necessary there. But actually that you could actually go out into the marketplace, choose the things that you wanted to do and just begin to do them.

Darryl Knopp (42:25):

And then if you want to do another use case, just tick the box for the capability that you don't already have deployed and start to deploy it. There's a lot of institutions trying to get there. Now, what FICO does on FICO platform and our competitors, very complex.

Darryl Knopp (42:40):

And so, it's not like the marketplace that your app, iPhone, your iPhone has in their apps, but we'd like to see it get to a point where third parties can literally build solutions on FICO platform that could be ... that they could potentially sell on there.

Darryl Knopp (42:58):

So, just like selling an app on iPhone, but we're aways from that, that is on our trajectory. It makes sense for us because if we can get it to that place, it really opens up some of those smaller institutions to opportunities to actually deploy platform. Great benefits for them in the sense that we get that to the right place, costs for them can come down because it's the same challenges that they have.

Darryl Knopp (43:27):

They have the same use cases. Their numbers, meaning the number of customers that they have are just smaller. And there's a little democratization to that. Like if we can literally get it to that place, then a lot of folks — we at FICO and others can be a lot more successful in getting our products used and in the right places.

Darryl Knopp (43:46):

And so, the customers across, whether you deal with a small credit union or whether you deal with the likes of Chase, Bank of America, Wells Fargo, et cetera — that all institutions can get access to some of these great tools and capabilities.

Jim Marous (44:00):

Darryll, thank you so much for being on the show today. It's interesting because as I wrap up, I think about what institutions should do next, and it gets back to the three terms that the FICO eBook said, which is think big, start small, and act quickly.

Jim Marous (44:14):

I don't think better words have ever been spoken on a lot of different fronts, but certainly, when it comes to platforming your data, your insights, and your ability to personalize solutions. So, thank you so much for being on the show.

Darryl Knopp (44:27):

Thanks, Jim. Thank you very much.

Jim Marous (44:29):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's interview, please give our show a five-star rating on your favorite podcast app.

Jim Marous (44:40):

Also, be sure to catch my recent articles on the financial brand and the research we're doing for the Digital Banking Report.

Jim Marous (44:46):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage; audio engineer, Sean Rule-Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous.

Jim Marous (44:59):

Until next time, remember, customers expect you to know what they need before they know it themselves.