Fuzzy Finance

Everything in life is not black or white. This was the basic premise that had helped Jim Gray make a fortune. His brainchild, Fuzzy Finance, catered to the grey market of the consumer credit industry - peddling credit cards to overlooked yet credit-worthy consumers. When Jim had moved to Tampa (FL) as a struggling entrepreneur from Jamaica, he was refused a credit card because he had no credit history. Six years later, he ended up making history in the credit industry, opening up a hitherto untapped market segment of sub-prime borrowers. FRisk, a product of Jim's grey cells, was an incredibly accurate mathematical model that evaluated credit and bankruptcy risks of consumers with poor or no credit history. Worthy applicants were then issued Inspire Visa cards, which charged additional fees and higher interest rates - a reasonable deal for someone who could never get a card elsewhere. Fuzzy Finance raced to a million accounts in the first year and added six million in the next two years before going public. The first year was all rosy, with stock prices hitting the roof during an extended bull-run.

But the bubble had to burst. The dotcom crash and resultant economic downturn at the end of the millennium hit consumers hard. Receivables touched rock bottom, and the company's gain-on-sale accounting policy meant that Fuzzy Finance had underperformed at the bourses. Wall Street was unforgiving - market capitalization eroded by 85% in a single day as Fuzzy Finance went from darling to demon overnight.

With his company in the investor doghouse, Jim initiated a major cost-reduction strategy to stay afloat. The idea was simple - Fuzzy Finance would focus on its core competencies while outsourcing non-core activities like customer call center operations to an offshore vendor. Reversing recent trends and weathering a sluggish economy, Fuzzy Finance began posting modest growth quarter after quarter. But the real turnaround was yet to come. Jim had always believed that technology played a key role in any business. The IT department was impressive in its support to the business process outsourcing initiative, further strengthening his convictions. But even he did not foresee the transformational impact that technology would have on his business. What started off as a knee-jerk tactic to preserve the bottomline by cutting costs was destined to rewrite the entire topline of his company's income statement.

Jim had already decided to stick to what he knew best - appraising risk. All non-core business processes were outsourced to best of breed service providers. Then came the masterstroke - the FECO (Fuzzy Evaluation Credit Opportunity) rating. Fuzzy Finance was uniquely positioned to accurately ascertain credit-worthiness of any individual. Jim wanted to take his business to the next level, providing credit appraisal as a service to any other business that might need it. It was a huge opportunity - Banking & Financial Services companies were the most obvious potential customers, but there was another larger pool - that of companies in other industries who knew nothing about credit but had enormous incidental exposure to credit risk as a part of their business - mostly consumer product and service providers. These companies would now be able to rely on the FECO rating to set credit limits for each consumer and limit their bad debts and losses. It was a paradigm shift for Fuzzy Finance - from being a B2C marketer of credit cards, it would now graduate to the B2B space. And at the forefront of this new avenue for revenue was technology, making all this possible.

The FRisk application was primarily designed for internal use and augmenting an internal application to support B2B interaction and client business processes was always going to be a daunting task. Jim's team cautioned that retrofitting the existing infrastructure to support their new business model would indeed be a sub-optimal solution. Hence Jim decided to commission a green-field technology architecture that would solve his business challenge effectively and efficiently. Their need was inherently complex, involving their own enterprise systems and databases, credit bureaus, customers across multiple industries and LOBs and other data providers. Equally demanding was the flexibility and agility that customers needed for their business processes.

Jim's IT team decided that a service-based approach would serve them best since it would simplify interaction and provide the customer with the freedom to create, modify and enhance their credit appraisal process according to their business needs. Customers could pick data from multiple sources - their own database, Fuzzy Finance's data store, raw data from the credit bureau or a third party information provider. They could then choose from a set of pre-defined appraisal parameters or add new ones. Once the data and parameters had been decided, they would finally pick from the 3D FECO ratings to generate - Delay, Default & Delinquency. The smart functionality of FRisk would be made available as a set of services which would give out the requisite ratings in a chosen format. Customers also had the option of adding business functionality to the process, for e.g., aligning credit limits to FECO ratings selected.

Needless to say, FECO was a hit with customers. For Jim, it was a success story on all counts. Revenues touched dizzying heights with the new business model contributing over 75% of its topline growth. The company also managed to successfully mitigate its own credit risks - Fortune 500 clients are certainly safer than "fairly-risky" consumers. What's more - FRisk was more accurate than ever and improving all the time, with access to up-to-date credit and default data from customers spanning multiple industries in addition to its own databases.

So much for not having a credit history.