The Value of Simplicity

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Duo Bank delivers the next generation of financial solutions through innovative in-store banking

The credit bureaus that consumers are most familiar with are experts at discerning and understanding the risks inherent in extending credit for a broad range of customers. These generic scores are aimed at the general population and are used to judge the credit worthiness of consumers using traditional banking, alternative funding sources (AFS), or a combination of both.

While these scores are ideal for assessing the risk profiles of consumers choosing traditional banking, they leave most people who turn to AFS out in the cold. By developing in-house, proprietary credit scores and creating accessible, value-driven financial products that are easy for borrowers to understand, Duo Bank is bringing those overlooked and profitable customers home.

Clarity and simplicity are at the root of Duo Bank’s imperative to create turnkey, customizable financial services that strengthen consumer loyalty and keep sales on the upswing. Duo Bank is privately held by an investor group that includes the affiliates of Stephen Smith, Centerbridge Partners, L.P., and the Ontario Teachers' Pension Plan Board.

The recent acquisition of Fairstone Financial, Canada’s largest near-prime lender, aligns with Duo Bank’s mission to extend credit to as many people as possible. With nearly 100 years of lending expertise, Fairstone serves consumers with credit scores ranging from fair to good, offering more affordable interest rates than other institutions.

As Duo Bank’s Chief Risk Officer, Vivek Kumar leads the charge in developing the risk management strategies for the products and services that power its mission. “In being value-driven and trying to give credit to as many people as we can, our objective has been to create products that are flexible and appeal to a broad customer base and create appropriate credit strategies to support that objective,” he told BOSS.

“We try to maximize risk-adjusted returns by being really sure of our downside risk by not going beyond whatever’s been set as a proper risk appetite for the organization we’re working with,” Vivek said. Part of that approach is creating the proprietary credit scoring systems to build reliable and nuanced customer profiles.

“We use our in-house modeling scores so that we can come up with the right cutoff and the right credit barometers to base our decisions on approving or declining any customer,” he said. “To truly understand the risk within the people that are applying, you can’t use a generic national score. That’s why we combine advanced analytics with all sorts of new information, including standard credit bureau attributes, for designing our proprietary scores.”

Whether designing credit programs that are straightforward and easy to use, protection programs that are reliable and affordable, or promotional financing to drive sales, card usage, and customer retention, Duo Bank leverages strong partnerships with industry leaders as well as state-of-the art technology to set itself apart from the competition.

Helping Canadians Focus on What Matters to Them

“Financial services are a requirement for every single household. That’s the prime place where Duo Bank operates. Duo Bank’s mission is to provide value-driven financial products that are clear and simple. As we continue to broaden the financial services we offer, our mission is to help Canadians focus on what matters to them.

“With a customer-focused mindset we challenged ourselves to think of ways to offer our products to as many customers as possible without changing the bank’s credit risk appetite. The risk team wanted to use advancements in statistical modeling software to build custom scoring models to better predict good and bad credit risk of our customer population,” he said.

Duo Bank’s risk team worked with multiple internal and external stakeholders to develop custom scoring models that would outperform generic industry models, leveraging advanced data elements such as time-series variables, and modeling techniques including AI and machine learning. The resulting risk scoring models were greatly improved over generic scores: Their default prediction methodology correctly predicted 73% of the default population in the bottom 10% of the scored population, versus 57% on the industry FICO model.

“By being able to more accurately predict customers that were likely to default, the bank increased its new account approvals over 5%, and raised credit limit increases by 10% increase in credit limit without increasing net loss rates or delinquency rates,” Vivek said.

Duo Bank is working with FICO to bring completely new algorithms and paradigms into their overall decision-making. He added, “These are fairly advanced techniques and we’re going to use them to build our optimization journey with the help of FICO.”

Another critical partnership exists with billing platform innovator TSYS, who are helping Duo Bank implement innovative “buy now, pay later” solutions in the marketplace.

“We aim to be innovative, efficient, and value-driven, and our core values power that,” Vivek said. Those central tenets include putting the customer first, bringing your best, being inclusive, thinking like an owner, and doing the right thing.

“Doing the right thing is very big. It’s a simple value, but in the world of credit doing the right thing becomes very important. Beyond that, one of the big values for us is to think like an owner. That’s what drives the innovation and efficiency through the organization,” he said. “And then, whatever your best might be, whatever your field might be, the objective is to bring the best that you have.”

Undeniably, Duo Bank deserves a world of credit for changing the financial lives of millions for the better.