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Unlocking Potential: Empowering Mid-Sized Lenders to Compete with Big Banks

May 10, 2024 | Originally published on Bankers Lab

At FICO World 2024, we sat down with Jose Tagunicar from Stratyfy to to dish about the latest challenges and opportunities in the lending industry.

The Problem:

BankersLab: Why do lenders typically come to Stratyfy? 

Jose: We focus on lenders under 100 billion AUM – small to mid-sized companies. They have a simple problem statement: “We need to grow responsibly and we know we need advanced analytics, however, we don’t know where to start.”  Bigger banks are taking their customers. Facing these competitive challenges, they know that analytics are a powerful tool. 

The good news is that they are already using analytics, but don’t KNOW they are. These lenders already employ judgmental decisions, a FICO Score and/or the Vantage score. They take these for granted without realizing the analytic opportunities of the combination of those tools and their existing data.   

Stratyfy saw that problem, and built the Probabilistic Rules Engine (aka ‘PRE’). The engine doesn’t need a lot of data – it combines human insight and machine learning for a powerful, data-driven solution.

The Solution

BankersLab: Tell us more about the solution. Can you give some success examples? Can you elaborate on how ‘success’ was measured? 

Jose:  We’ve initially focused on the account origination decision. Big banks use decision trees which typically become very ‘tall’ and complex.  With PRE, you can think of it as a set of shorter “shrubs”. 

We hone in on a smaller set of variables which are the biggest drivers, which enables explainability. This also empowers the human to review, understand and control the tree-driven decision. 

Our typical user is a business analyst, rather than a data scientist. Therefore, we must provide a solution which is easily understood.

The Technique

BankersLab: Let’s talk about strategy. It’s not just about a score cut-off. It’s about seeing the whole picture of the customer, and then tuning the financial offer to their situation.   

Jose: We have been working with a large database, which allows us to compare strategies. We built two prequalification strategies – one in a traditional manner, and one using PRE. We used the same variables in each. PRE identified a stunning 70% more qualified applicants.

The Challenges

BankersLab: That is certainly an impressive result. Where are the challenges and the friction, in terms of more lenders adopting PRE? 

Jose: Our first challenge is to explain. Lenders are afraid of anything AI or ML. There is a perception that it is a button that you press, or some sort of mysterious black box.

We point out to lenders that you are already using ML, and we meet them where they are. Excel is ML. The FICO score is ML.  

Our second challenge is posed by system and implementation issues. We depend on incumbent core banking and LOS systems, which can create some friction. Luckily, Stratyfy has partnerships with these LOS and CORE systems so we can work through implementation.   

The third challenge is ensuring lenders can maintain, and even improve their relationship with the customer or member. The mid and smaller tier thrive on customer service. They fear losing control of the one-on-one customer relationships, as we move to automated and digital solutions. You face a double-edged sword of providing that convenience of self-service to a customer, while also demonstrating empathy along the way.

What’s Next?

BankersLab: As you continue to expand your install base, what’s next? 

Jose: We are helping our clients look for growth. For example, the Gen Z population is a good place to look  for growth. It’s important to remember that if the top of the funnel isn’t expanding, all the analytics in the world won’t help you. 

In addition to looking for growth, we also look to continue to improve the financial offer and the ‘stickiness’ of the borrower. There are several moving parts here, such as experimenting with the exposure or limit decision, while keeping an eye on customer satisfaction. Next, we need to be concerned about attrition, the ‘silent killer’ of many portfolios. As smaller players optimize their offerings, they can protect their customers from the big banks. All of these elements will help expand cross-product holdings of each borrower. 

Stratyfy’s presence at FICOWorld 2024 highlighted their commitment to empowering small to mid-sized lenders with advanced analytics tools. Their Probabilistic Rules Engine (PRE) represents a significant advancement in making complex data-driven decisions more accessible and understandable, particularly for non-data specialists. By enhancing lenders’ abilities to grow responsibly while maintaining strong customer relationships, Stratyfy is not only addressing current challenges but also paving the way for future innovations in the lending industry. As they continue to expand their influence and refine their offerings, Stratyfy remains a pivotal player in ensuring that smaller financial institutions can protect and grow their market share in the face of larger competitors.