Linking Entity Resolution and Risk

Abstract

A major emerging problem among consumer finance institutions is that customers that are not well recognized might be riskier than customers that are fully recognized. Fortunately, financial institutions count with external vendors databases that indicate the level of recognition of their customers. However, this information is normally presented as features with partial scores that must be aggregated into an overall matching accuracy score. This score indicates how similar a record is to a master database that contains the best available public information about a specific customer. In addition, information management and risk management departments of financial institutions may have very different models. Hence, it is necessary to connect the customer recognition information with risk models. This paper studies this problem in two parts: (1) generation of a matching accuracy score to quantify the status of entity resolution between consumer records of a major financial company and an external database, and (2) evaluation of the relationship between the matching accuracy score and several risk segments. As a final result, an overall matching accuracy score is obtained for every customer using the most current account information and a learning algorithm. The matching accuracy score is an indicator of the level of customer recognition. This matching accuracy score is correlated with the FICO score (FICO is a risk score generated by the company Fair Isaac & Co. The maximum value of FICO is 850. In this paper, values above 720 are considered Superprime, between 661–719 are Prime, 600–660 are Near Prime, and less than 600 or not available are Subprime).