Co. Uses AI to Stay Ahead of Loan FraudTECH: Models Are Fast Learners, Keep Up With Data Originally published March 2, 2017 at 1:57 p.m., updated March 2, 2017 at 1:57 p.m.
San Diego Outstanding auto loans in the United States last year topped a record $1 trillion.
San Diego startup PointPredictive Inc. aims to help auto lenders keep more of the revenue they expect to earn from those loans by identifying potentially fraudulent applications before automobiles leave dealers’ lots.
The predictive analytics company, founded in 2014 by CEO Tim Grace, chief fraud strategist Frank McKenna and head of strategic alliances Joe Jackson, sorts through vast amounts of data from lenders to determine which applications have signs of fraud. Using machine learning techniques — a branch of artificial intelligence — the company’s models adapt over time as more data is gathered and analyzed.
Today, the company says it works with five of the top 10 and 17 of the top 30 U.S. auto lenders, as ranked by the number of applications they receive. The companies share historical data with PointPredictive, which uses the information to teach its software to recognize signs of potential misdoings by loan applicants or dealers.
“You hit one spot and they pop up somewhere else. If you cover one gap, they’re going to cheat a new way,” McKenna said. “That’s why they need models that can learn the new patterns.”
San Diego is a hotbed for predictive analytics talent thanks to the company to which PointPredictive traces its roots. Hecht-Nielsen Neurocomputer Corp., later HNC Software, was launched in 1986 by University of California, San Diego professor Robert Hecht-Nielsen.
HNC developed software that used neural networks — computer systems inspired by the human brain — to help spot fraudulent credit card transactions. Grace and McKenna were among its employees. Another HNC alum, Greg Gancarz, is PointPredictive’s head of analytics and scoring.
In 2002, HNC was snapped up by Fair Isaac Co. (the company behind FICO credit scores) for $810 million.
In 2004, Grace and McKenna teamed up to start predictive analytics firm BasePoint Analytics LLC, where they, with co-founder Jim Baker, used risk and pattern recognition technologies to target fraud and manage risk in the banking and mortgage industries. First American CoreLogic, a subsidiary of real estate services conglomerate First American Corp., acquired a minority interest in BasePoint in 2005 and acquired the firm in 2009. (First American Corp. and CoreLogic split the following year.)
Dissecting the Data
Like they did at BasePoint, Grace and McKenna’s team at PointPredictive builds models for companies looking to reduce instances of fraud based on historical data aggregated from firms that have agreed to be part of a collaborative consortium.
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