Predictive Analytics

and the Risk Function

Frank Fiorille

Sr Director of Risk Management

Paychex

Using Your Data as a Crystal Ball

Paychex Payroll - HR - Retirement - Insurance

Market Cap: $21 Billion

More than 600,000 clients

One out of every 12 private

sector employees in the United

States is paid by Paychex

$3 Billion Annual Revenue in

FY16

Risk Management @ Paychex

Credit

Preventing returns of over

$320 billion of Risk exposure

last year on over 27 million

ACH transactions.

Collections

Minimizing actual annual

write-offs of under $2.5

million, less than 1% of

exposure.

Financial Services

AR Write-Offs less than one

tenth of a percent of sales

Compliance

Navigating the complex

regulatory environment

Operating Risk

94% Penalty Abatement

Data Science & Predictive

Analytics

Over 30 predictive algorithms

in circulation

P

Big Data: What does it mean? Every day, the world creates 2.5

quintillion bytes of data.(18 zeros)

That’s 100 quadrillion new phone

numbers. (17 zeros)

There are 7.125 billion people on

Earth.

That means, every day, we add the

equivalent of 14,035,088 new

earths worth of phone numbers!!

2 trillion bytes represent clients employees’ wage data.(12 zeros)

Data Governance

A strong data governance

infrastructure creates long-term,

sustainable value through

improved data quality.

The creation of Data Definitions,

Owners, Stewards and Controls.

Commitment to Data

Governance as a means, not an

ends.

Data

Governance

TECHNOLOGY

How does Risk Utilize Big Data?

Big Data

E.T.L.

Analytics

Descriptive Predictive Prescriptive

Risk Big Data Users

Communication

Paychex/

Business

ExpertiseStatistics

Expertise

Database &

ETL

Development

& Management

Data

Scientist

@

Paychex

Uncovering Signals

Discovering and

investigating data points

and trends within your

data that are

representative or

predictive of larger

patterns.

Signal Example

9

Investigating variability in

application load durations.

Initially performed clustering

to form data defined

segments.

Comparing clusters

uncovered an unexpected

variable driving high load

times in one of the clusters.

10

Risk

Portfolio

Scores past due invoices based on probability of turning 60 days past due.

AR 60 Days Past Due

CollectionsModel identifies which accounts are most likely to liquidate within 90 days.

Portfolio Credit ModelIdentifies clients likely to return within the next 3 months, for ‘controllable’ reasons.

Strategy

Portfolio

Sales Territory & MappingPredicts number of units and the inherent opportunity per zip code

Employee RetentionModels for assistance in employee retention with Human Resources

Prospect ModelingPrioritize NSS call queues by likelihood for booking an appointment.

Identifies current clients and CPAs most likely to produce a referral lead.

Client & CPA Referral

Client SegmentationIdentifies target client profiles for strategic targeting.

Predictive Model Ecosystem

Sales

Portfolio

Retirement Upsell Identifies Core clients mostlikely to purchase 401(k).

Agency UpsellModels to predict likely to purchase Health and Benefits or Workers Comp.

Time & AttendanceCore cross-sell model for most likely to purchase time and attendance solutions.

HR Solutions UpsellCore upsell model predicting clients best suited for ASO or PEO.

Determine which product a new Core client is most likely to purchase next.

Next Best Offer

Product Road MapModeling of clients at first load to define their strategic growth of products.

Retirement ConversionModeling to determine client likelihood to convert to a Paychex 401(k) plan.

Operations

Portfolio

Models predict retention, revenue and price sensitivity.

Core Retention Models

Major Market RetentionMMS client retention model targeting controllable losses.

ASO RetentionPredicts which ASO clients are likely to churn.

401(k) retention model for controllable losses for use in discount decisions.

401(K) Retention

ASO Discount SensitivityPredicts which ASO clients sensitivity to changes in discounting.

Sure Payroll RetentionSure Payroll churn model for potential use in business model fit .

Risk Algorithms

11

SalesUpsell and Cross-Sell

Targets

Sales models are used to set

goals, define targeted strategies

and help business units deliver.

Service

Assists Operations

generate referral leads by

suggesting the clients ready

for new products.

Marketing

Monthly campaigns for

high scoring HR

Solutions, Insurance and

401(k) clients.

Salesforce.com

Model scores for retention and upsell,

client referrals, 401(k), co-

employment & Time and Attendance

are available to our reps in the field. .

Direct Sales

Calls monthly lists

generated by predictive

model scores.

1212

Payroll

DiscountingDiscount decisions are

made using model

scores to increase

retention.

Client RetentionThe Client Retention

Team works clients most

likely to leave, proactively

retaining at risk clients.

Support the field with

Retention, Price

Sensitivity and

Revenue predictions

on clients.

The ModelsRetention models for

Core, MMS, 401(k) and

ASO and Price

Sensitivity models for

Core and ASO

OperationsRetention & Discounting

Discount Decision Engine

Predictive algorithms measuring price elasticity

and retention probabilities prescribe

recommendations for systematic client discount

reductions.

Established

Client

Discount

New Client

Discount

14

Strategy & Risk ManagementProtecting and Planning

05

Retention

Equipping Senior

Leadership with

predictive

intelligence to

improve employee turnover.

Mapping

Helping Sales tap

into developing

markets and

identifying

opportunities for sales growth.

Referrals

Providing Sales with

the ability to focus on

clients and CPA’s

more likely to refer new business.

Collections

The bottom 50% of MARCO scores

are referred to an agency.

Credit

Knowing the probability of a return helps

Portfolio Management mitigate Risk.

Billing

MARIA filters out likely payers to make

invoice collections more efficient.

Modeling Credit Risk

Building algorithms that

analyze credit risk on a

transactional level in real

time.

Leverage models to focus

risk efforts on the highest

cost areas, improving

operational efficiency

while creating value.

Collections Algorithms

As 68,000 receivables roll past due annually, our model filters out

clients that are likely to pay without intervention, allowing our

collections team to optimize staffing and workload.

Product Recommendation Algorithms

Equipping Marketing and

Online Advertising with

the means to produce

smarter, targeted

strategies.

Using client product

purchases in conjunction

with job and wage data,

can we better understand

how a small business

grows?

Other Industry Recommendation Engines

Deployments that Optimize Value

Forecasting

“The Good News on Small-Business Hiring Trends…

Data released this week by both Intuit and Paychex |

IHS show a strong hiring trend for small businesses.”

- Fox Small Business Center

“In Washington state, small businesses are adding jobs faster

than any other state in the country, according to a report from

Paychex and IHS. It's also the state where minimum wage, at

$9.32 per hour, is the highest.” - CNN Money

“San Francisco's small businesses are growing faster

than those of any other big city or the nation as a

whole, according to new data from payroll-processor

Paychex and research firm IHS.”

-The Huffington Post - Business

Making Paychex an integral part of the

discussion on the economic situation!

Paychex | IHS Small Business

Jobs Index

National TrendTrends with BLS

Regional

Performance

Positive Press

Establishing yourself as

an information leader

creates opportunities.

Building our data

expertise has led to

consultations with the

Washington Post, Wall

Street Journal, Inc. and

more.

Any questions?

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