Magazine article American Banker

Hybrid Software: Beyond Neural Networks

Magazine article American Banker

Hybrid Software: Beyond Neural Networks

Article excerpt

Decision-making aids called neural networks are no longer considered leading-edge technology - not with the enhancements of these systems that bankers have begun finding uses for.

These newer hybrid systems bundle together a number of so-called artificial intelligence programming techniques, including neural networks, statistical pattern recognition, genetic algorithms, fractal analysis, and fuzzy logic.

One company specializing in hybrid products, Neuristics Inc., has made sales to several mass-market retailers, led by Sears, Roebuck and Co., as well as to a unit of NationsBank Corp.

Three of the top 10 credit card issuers are in serious discussions with Neuristics, and three others have shown at least mild interest, said Douglas McCrea, president of the Columbia, Md., technology company.

The card industry has been an early and active user of neural networks, which process vast, complex streams of data and, like people, learn to discern patterns and inconsistencies that can, for example, indicate a potential fraud.

But Mr. McCrea said users have learned that neural networks are not infallible or universally applicable. His company set out to find ways to improve on the performance of neural systems and related technologies by putting them together, so that their combined strengths overcome the limitations of each.

Overcoming the Limitations

"One general theory that's held out is that neural networks should solve all problems," said Casey Klimasauskas of NeuralWare, a Pittsburgh company also offering hybrids.

"Neural networks have limitations," said Mr. McCrea. "We're designing optimal models. Our technology works best when there's a big, complex problem, so we only go after big, complex companies."

Neuristics was formed a year ago by a team of technical scientists from Johns Hopkins University with a group of technologically aware marketing executives. They were able to hit the ground running with the contract from Sears, signed even before Neuristics had finished incorporating.

Since then, Pepsico Inc.'s Taco Bell subsidiary and NationsBank of Maryland signed on. Neuristics has offered hybrid forecasting products in three areas: site selection, direct marketing, and financial forecasting.

Taco Bell uses a site selection model to choose new locations, and Sears uses a direct marketing application.

The NationsBank subsidiary, formerly Maryland National Bank of Baltimore, uses the financial forecasting model to help sell loans, predict risk, and assist in credit line approvals for one of the bank's affinity marketing relationships.

The technology has been credited with a $10 million profit boost for Taco Bell, although the real effect could be many times greater, said Mr. McCrea. He added that both Sears and NationsBank of Maryland conservatively estimate a 30% increase in consumer responses. …

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