Credit application fraud management solution in OTP Bank

Attila Balaton

OTP Bank - Hungary

Fraud and Approval System Analysis Department

Banking Fraud Roundtable

4th June 2015, Athens

Summary

• Introduction of OTP Group

• Business need and anti fraud project scope

• System design and current application

• Usage of Visual Analytics

OTP Group is the biggest independent banking

group in Central Eastern Europe

OTP Bank Russia (2008) Russia

JSC OTP Bank (2006) Ukraine

OTP Bank Romania(2004) Romania

DSK Bank (2003) Bulgaria

CKB(2006) Montenegro

OTP banka Serbija(2007) Serbia

OTP banka Hrvatska(2005) Croatia

OTP Banka Slovensko(2002) Slov akia

OTP Bank

Hungary

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 Group is offering universal banking services to more than 13 million customers in

9 countries via 1400 branches and more than 4000 ATMs.

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 43.000 employees in the region, more than 10.000 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 2013.

• 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.

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 andstatistics.

Early Vintage - Fraud Indicator (%)Unsecured

Mortgage

• Initial high level break-even calculation:

• Approximately 150 billion HUF (0,5billion EUR) retail new annually,

• Assuming 0,8-1,0% fraud rate and

performing fraud prevention systemwith 30-50% expected hit rate,

• Approximately 400 million HUF(around 1-1,3 million EUR) prevented

high risk fraudulent cases.

2013 status quo and selected vendor

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• 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 SAS tools and applications.

SAS Fraud Solution – Logical system architecture

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SAS Fraud solution

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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 addressresolution and verification.

2. Alert generation: advanced profiling engine that applies business rules, anomaly detectionalgorithms, 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 thatexist within a customer’s data.

4. Alert Management & BI Reporting

5. Case Management: provides a systematic means for facilitating the investigation and capturingand displaying all information to an investigation.

6. Intelligent fraud repository: when fraud referral/case completed, the results are stored within theIntelligent 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. Itprovides the ability to generate and test the validity of new fraud business rules and analytical

SAS solution – Hybrid analytical approach

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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

Investigator opening screen

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_status in these applications.

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

Reports for system operation

Reports for BPMS

Visualisation of statistics

Reports for scenarios