Current Challenges in Financial Services

The economic and financial pressures created by the current global pandemic have caused great uncertainty in established approaches to identifying the right customers and managing risk. Ironically, such episodic events are often not considered in risk models but have very large effects on such portfolios. Financial Service Providers must adapt to both avoid significant negative consequences and take advantage of available opportunities. The ability to evaluate, manage, and mitigate risk has rarely been more pressing.

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Dynamic organizations are adapting their risk perspectives to try and benefit from the current situation. For example, some Financial Service Providers are working towards increasing profitability by extending credit to new and existing customers to help them overcome temporary periods of hardship. This approach involves building new Customer Segmentation Models for customer acquisition and then revising models that predict the probability of loan default. Once these models are built various numerical optimizations methods are applied that aim to maximize revenue over the lifetime of a customer, subject to specific business and regulatory constraints. . The ability to use data-driven approaches to adapt in these unprecedented times will help define the future leaders in Financial Services.