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Using analytics tools as risk management assets

May 13, 2014 Walt Wojciechowski

Using analytics tools as risk management assets

For credit unions, short term lenders, banks and other financial institutions, electronic processing has presented a whole new way of conducting business. Obtaining massive troves of credit data is no longer as challenging as it was during the days when checks were manually processed at a teller's window. Although digital transactions have made it easier to scrutinize customer credit, they have also made it easier for criminals to commit fraud.

The risks involved

Credit Union Times contributor Jim Ballagh noted that checks can now be captured and cleared from numerous points of interaction, from kiosks and ATM machines to merchant locations and mobile phones. As financial institutions emerge from the residual effects of the Great Recession, they're finding new ways to gain a competitive edge over other market participants. A key strategy used by banks and credit unions to gain and retain customers involves risk mitigation.

At the same time, these businesses want to provide people with the "click-and-go" experience of modern banking. It's not uncommon for individuals to view their consumer credit data on their phones or take pictures of physical checks to electronically deposit them into a checking account. Therefore, it's imperative that companies overseeing transactions conduct security and risk assessment tasks in real-time.

Ballagh advised financial institutions to leverage analytics tools that can provide bankers and like-minded professionals with an accurate view of human behavior. For example, data scrutiny applications can be used to chart the monetary activities of a particular customer and identify irregularities that may signify fraud has been committed. In other words, if a specific transaction seems out of character, then it's in the best interests of the company sanctioning the process to contact all parties involved.

Properly utilizing analytics
As with numerous other enterprises that have utilized data scrutiny programs, it's imperative that organizations conducting commercial credit reports figure out how to treat the conclusions assembled by the technology. Waters Technology reported that credit default swaps, collateralized loan obligations and mortgage-backed securities have undergone structural change, both on a technological and legal level. In light of this transformation, it's imperative that risk assessment professionals know how to play by the new rules.

Mark Abbot, head of quantitative risk management at Guardian Life, indirectly oversees approximately $42.1 billion in assets. He informed the source that pricing and collecting a firm-wide view of every last holding, customer and exposure requires an understanding of how each relationship is structured. While analytics can certainly help a firm succeed in such an endeavor, it's important to remember that a human perspective is just as necessary.

"Technology can be your friend or your enemy ... all the analytics in the world still won't tell you the whole truth about risks embedded in your portfolio," said Abbot, as quoted by Waters Technology. "You still need a lot of judgment to aim your focus, but what technology does is bring information forward in a timely fashion, especially as there will be potential fragility over the net couple years in some of these markets."

While analytics can provide businesses with the speed necessary to assess consumer credit and risk, it's ultimately up to human assets to figure out how to put such insight into action.