Credit application fraud management solution in OTP Bank

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1 Credit application fraud management solution in OTP Bank Banking Fraud Roundtable 4th June 2015, Athens Attila Balaton OTP Bank - Hungary Fraud and Approval System Analysis Department

2 Summary Introduction of OTP Group Business need and anti fraud project scope System design and current application Usage of Visual Analytics

3 OTP Group is the biggest independent banking group in Central Eastern Europe OTP Group is offering universal banking services to more than 13 million customers in 9 countries via 1400 branches and more than 4000 ATMs. OTP Bank Russia (2008) Russia In 2013 the OTP Group achieved 146 billion HUF (~0,5 billion EUR) corrected consolidated profit after tax. The profitability, liquidity and the capital adequacy of the Group is still outstanding in international comparison. OTP Banka Slovensko (2002) Slov akia OTP Bank Hungary OTP banka Hrvatska (2005) Croatia OTP banka Serbija (2007) Serbia OTP Bank Romania (2004) Romania JSC OTP Bank (2006) Ukraine CKB (2006) Montenegro DSK Bank (2003) Bulgaria

4 OTP Group highlights OTP is a dominant banking player in Hungary, founded in 1949 (privatization in 1995 introduced to Budapest Stock Exchange). Currently the bank is characterized by dispersed ownership of mostly private and institutional (financial) investors. OTP Bank has completed several successful acquisitions in the past years, becoming a key player in the region. Besides Hungary, OTP Bank currently operates in 8 countries of the region. Around employees in the region, more than billion HUF (around 33 billion EUR, 1/3 of Hungarian GDP) total assets. Consolidated net loan-to-deposit ratio is 89,0%, NPL coverage is 84,4% and consolidated core Tier 1 capital ratio is 16,0% at the end of Despite the intense competition OTP Bank market position is stable in several segments, as well as in terms of profitability and stability belongs to the European frontline.

5 Anti-fraud project scope Business needs Credit risk relevant fraud detection solution system, which is integrated to application system and approval process. Decrease significantly credit risk fraud losses and better early vintages in OTP Group. Implement for all retail products and easily extending to subsidiaries. Special know-how and new technics have to be acquired, which is supported by analytics and statistics. Initial high level break-even calculation: Early Vintage - Fraud Indicator (%) Approximately 150 billion HUF (0,5 billion EUR) retail new annually, Assuming 0,8-1,0% fraud rate and performing fraud prevention system with 30-50% expected hit rate, Approximately 400 million HUF (around 1-1,3 million EUR) prevented high risk fraudulent cases. Unsecured Mortgage

6 2013 status quo and selected vendor Fraud KRI became part of business team s target. Decision on establishment of dedicated centralized fraud investigators team which would work on high risk customers. Fraud prevention system would generate alerts via automated way. SAS selected as provider: High-tech solution (like advanced network analysis) Positive experience with previous projects in OTP Existing and working SAS operational risk solution OTP Group is working under AMA Full Hungarian team is supporting the project with international experts Already used SAStools and applications. 6

7 SAS Fraud Solution Logical system architecture 7

8 SAS Fraud solution 1. Data integration: powerful, user configurable and comprehensive data integration component to draw in data from all relevant sources and also provide a component for name and address resolution and verification. 2. Alert generation: advanced profiling engine that applies business rules, anomaly detection algorithms, predictive models, and social network analytics on the to raise alerts on entities for fraud. 3. Social Network Analysis: build links between entities and uncover the hidden relationships that exist within a customer s data. 4. Alert Management & BI Reporting 5. Case Management: provides a systematic means for facilitating the investigation and capturing and displaying all information to an investigation. 6. Intelligent fraud repository: when fraud referral/case completed, the results are stored within the Intelligent Fraud Repository as known outcomes and the models are using them for improving their performance and efficiency. 7. Alert administration: possibility to access the business rules, models, and network analytics. 8 It

9 SAS solution Hybrid analytical approach Using a hybrid approach for fraud detection - For each element different SAS software would be used, to fulfill data management, business intelligence and network analysis technologies. - Used SAS Software: Dataflux, Data Integration Studio, Enterprise Miner, Enterprise Guide, Visual Analytics 9

10 Investigator opening screen

11 Investigator screens: Scenarios 11 out of the 100 accounts connected to the customer s employer have arrears or sold. The customer requested 2 loans in the past seven days. There are different start_date_at_employer and maritial_statusin these applications.

12 Investigator screens: Social network Different colors for different relations between entities and applications. Yellow: Home address Orange: Work address (Black: unknown relation, data is not available) Possibility of growing the network by clicking on (+) sign

13 Reports for system operation

14 Reports for BPMS

15 Visualisation of statistics

16 Reports for scenarios