ABA Banking Journal - November/December 2016 - 27


With margins squeezed and the best credits picked, banks are turning to
PRESCRIPTIVE ANALYTICS to help them find every opportunity.
balance and whether she has extra credit capacity. These
questions were fed into the model, along with internal and
external data like credit bureau reports. As King describes
it at a conference in Washington earlier this year, the
combination of custom keys and internal and external data
yields the best customer-level decisions.
The result, King says: account authorizations rose
50 percent over two years while delinquencies stayed
the same. The portfolio saw balances rise 7.76 percent
while incremental utilization on the average account rose
by 35 percent. "This means [the growth] was valuable,"
King says. "We were getting a good rate of return on those
decisions."

grow its loan portfolio by 9 percent without hiring additional
collections staff.
Meanwhile, the data on how collections treatments perform
gets constantly fed back into the system, resulting in
improvements over time. "The leading edge around using
big data, analytics and cognitive capability is to continually
evaluate 'how am I doing' in real time and suggest rule
changes," Maxwell comments.
"Working with delinquent customers to keep them in their
cars while working out payment options has helped Toyota
avoid millions of dollars in losses," says Bander. "It's a win
for our customers, and a win for Toyota."

Operational efficiency meets customer benefit

Filling gaps to improve compliance

Through its Henderson, Nev.-based industrial loan company,
Toyota Financial Services helps four million Americans buy
and pay for their cars via retail lending, leasing and dealer
financing. The company saw a default rate of 1.27 percent
in its 2016 fiscal year and actively tries to keep that number
low, recognizing the uniquely challenging effects of losing a
car on a person's livelihood and family.

Prescriptive analytics can help close small gaps in regulatory
compliance-such as those formed because of siloes within
the bank. Gurz gives an example of an institution that was
reimbursing customers over a credit card fee inappropriate
under Regulation E but that failed to remediate similar fees
on the demand deposit account linked to the card.

So Toyota embarked on a major effort to understand and
adapt its collections practices using data. As Jim Bander,
national manager for decision science at Toyota Financial
Services, says: "You buy what you can collect. By being
more effective in collections, we can go lower in the
credit profile."
Toyota partnered with FICO to develop a data optimization
solution that would incorporate predictive models of
repayment, default and loss and choose one optimal
scenario for different customers. The strategy brought
together credit bureau data with Toyota's internal
data, especially how different "collections treatments"
had worked.
Toyota now classifies each account according to its optimal
collections treatment, generating a decision tree for each
account nightly that goes into the collector's queue for
the following morning. With customized, data-driven,
prescribed treatments, the program in its first year helped
1,600 borrowers avoid repossession, while protecting
10,000 from reaching a stage of delinquency that would
ding their credit. Meanwhile, the program helped Toyota

Another area where banks are using powerful analytics
for compliance is the Basel III liquidity rules, under which
banks need to be able to predict where and when it will
get access to the funds counting as liquid assets. Most of
the problem is that many core banking systems don't keep
a timestamp, which makes it hard to do intraday liquidity
reporting, says Maxwell. "By using big data, we're able to
help banks put that together."
Moving toward prescriptive analytics is a challenge for any
institution. While newer decision software options allow
non-specialist bank employees to construct models, use
of advanced analytics still requires a grounding in complex
subject matter. Selecting, preparing, refining and revisiting
data and the outcomes are big, tough projects
that call for team efforts cutting across
the organization.
But for banks that brave the process, the result
can be greater efficiencies, stronger product
performance and better compliance. Just let
the data speak for themselves.
EVAN SPARKS is editor-in-chief of the ABA Banking Journal.
aba.com/BankingJournal | ABA BANKING JOURNAL

27


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Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2016

Chairman’s View
Upfront
Picture This
Banking’s ‘Amazon Moment’
Special Report on Innovation and Technology
Building an ‘Internet of Value’
Do You Do What the Data Tell You?
Innovation in the Bank
Core Exercises
Cover Story Pillar of Her Community
Maintaining a Commitment to Ag Customers
Who You Gonna Call?
Anti-Money Laundering
Power Up Profile
Compliance ‘When Can I Call My Customer?’
Risk Management
ABA Compliance Center Inbox
From the States
Corporate Social Responsibility
Index of Advertisers
ABA Banking Journal - November/December 2016 - bellyband1
ABA Banking Journal - November/December 2016 - bellyband2
ABA Banking Journal - November/December 2016 - cover1
ABA Banking Journal - November/December 2016 - cover2
ABA Banking Journal - November/December 2016 - 3
ABA Banking Journal - November/December 2016 - 4
ABA Banking Journal - November/December 2016 - 5
ABA Banking Journal - November/December 2016 - 6
ABA Banking Journal - November/December 2016 - 7
ABA Banking Journal - November/December 2016 - Chairman’s View
ABA Banking Journal - November/December 2016 - 9
ABA Banking Journal - November/December 2016 - 10
ABA Banking Journal - November/December 2016 - Upfront
ABA Banking Journal - November/December 2016 - 12
ABA Banking Journal - November/December 2016 - 13
ABA Banking Journal - November/December 2016 - 14
ABA Banking Journal - November/December 2016 - 15
ABA Banking Journal - November/December 2016 - Picture This
ABA Banking Journal - November/December 2016 - 17
ABA Banking Journal - November/December 2016 - 18
ABA Banking Journal - November/December 2016 - 19
ABA Banking Journal - November/December 2016 - Special Report on Innovation and Technology
ABA Banking Journal - November/December 2016 - 21
ABA Banking Journal - November/December 2016 - 22
ABA Banking Journal - November/December 2016 - Building an ‘Internet of Value’
ABA Banking Journal - November/December 2016 - 24
ABA Banking Journal - November/December 2016 - 25
ABA Banking Journal - November/December 2016 - Do You Do What the Data Tell You?
ABA Banking Journal - November/December 2016 - 27
ABA Banking Journal - November/December 2016 - insert1
ABA Banking Journal - November/December 2016 - insert2
ABA Banking Journal - November/December 2016 - Innovation in the Bank
ABA Banking Journal - November/December 2016 - 29
ABA Banking Journal - November/December 2016 - 30
ABA Banking Journal - November/December 2016 - Core Exercises
ABA Banking Journal - November/December 2016 - Cover Story Pillar of Her Community
ABA Banking Journal - November/December 2016 - 33
ABA Banking Journal - November/December 2016 - 34
ABA Banking Journal - November/December 2016 - 35
ABA Banking Journal - November/December 2016 - 36
ABA Banking Journal - November/December 2016 - 37
ABA Banking Journal - November/December 2016 - Maintaining a Commitment to Ag Customers
ABA Banking Journal - November/December 2016 - 39
ABA Banking Journal - November/December 2016 - 40
ABA Banking Journal - November/December 2016 - Who You Gonna Call?
ABA Banking Journal - November/December 2016 - 42
ABA Banking Journal - November/December 2016 - 43
ABA Banking Journal - November/December 2016 - Anti-Money Laundering
ABA Banking Journal - November/December 2016 - 45
ABA Banking Journal - November/December 2016 - 46
ABA Banking Journal - November/December 2016 - Power Up Profile
ABA Banking Journal - November/December 2016 - 48
ABA Banking Journal - November/December 2016 - Compliance ‘When Can I Call My Customer?’
ABA Banking Journal - November/December 2016 - 50
ABA Banking Journal - November/December 2016 - Risk Management
ABA Banking Journal - November/December 2016 - ABA Compliance Center Inbox
ABA Banking Journal - November/December 2016 - 53
ABA Banking Journal - November/December 2016 - 54
ABA Banking Journal - November/December 2016 - From the States
ABA Banking Journal - November/December 2016 - 56
ABA Banking Journal - November/December 2016 - Corporate Social Responsibility
ABA Banking Journal - November/December 2016 - Index of Advertisers
ABA Banking Journal - November/December 2016 - cover3
ABA Banking Journal - November/December 2016 - cover4
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