Organizations: School of Management and Economics, The Chinese University of Hong Kong, Shenzhen (CUHK-Shenzhen), China · School of Management, Fudan University, Shanghai, China · Lerner College of Business and Economics, University of Delaware, Newark, Delaware
Credit risk prediction is a critical problem in the consumer credit industry. Traditionally, financial institutions construct credit risk prediction models using borrowers' demographic, financial, and credit history data, collectively referred to as traditional data. Recent studies have demonstrated that alternative data, such as borrowers' mobile phone communication data, enable lenders to acquire fuller and more accurate profiles of borrowers' creditworthiness, thereby improving credit risk prediction performance. Nevertheless, alternative data are held by external entities independent of financial institutions. Directly sharing alternative data with financial institutions infringe on consumer privacy, yet existing credit risk prediction studies largely overlook this issue. To address this gap, we define a new problem, namely privacy-preserving credit risk prediction with alternative data, which simultaneously considers three practical constraints: the privacy-preserving constraint that protects consumer privacy, the model-confidentiality constraint that learns and stores the model centrally at the financial institution, and the lossless constraint that maintains the performance of the learned model. To solve this problem, we develop PrivacyCredit, a novel privacy-preserving machine learning method. We then theoretically demonstrate the privacy-preserving, model-confidential, and lossless properties of PrivacyCredit. Through extensive experiments using a real-world credit dataset linked with alternative data, we demonstrate the predictive value of securely incorporating alternative data into credit risk prediction and show that PrivacyCredit achieves the same predictive performance as the model learned from the insecure plaintext combination of traditional and alternative data. We further evaluate its model-confidentiality property and computational efficiency.
Credit risk default prediction remains a cornerstone of risk management in the financial industry. The task involves estimating the likelihood that a borrower will fail to meet debt obligations, an objective critical for lending decisions, portfolio optimization, and regulatory compliance. Traditional machine learning models such as logistic regression and tree-based ensembles are widely adopted for their interpretability and strong empirical performance. However, modern credit datasets are high-dimensional, heterogeneous, and noisy, increasing overfitting risk in monolithic models and reducing robustness under distributional shift. We introduce STRIKE (Stacking via Targeted Representations of Isolated Knowledge Extractors), a feature-group-aware stacking framework for structured tabular credit risk data. Rather than training a single monolithic model on the complete dataset, STRIKE partitions the feature space into semantically coherent groups and trains independent learners within each group. This decomposition is motivated by an additive perspective on risk modeling, where distinct feature sources contribute complementary evidence that can be combined through a structured aggregation. The resulting group-specific predictions are integrated through a meta-learner that aggregates signals while maintaining robustness and modularity. We evaluate STRIKE on three real-world datasets spanning corporate bankruptcy and consumer lending scenarios. Across all settings, STRIKE consistently outperforms strong tree-based baselines and conventional stacking approaches in terms of AUC-ROC. Ablation studies confirm that performance gains stem from meaningful feature decomposition rather than increased model complexity. Our findings demonstrate that STRIKE is a stable, scalable, and interpretable framework for credit risk default prediction tasks.
Swattik Maiti, Ritik Pratap Singh, Fardina Fathmiul Alam
Cardiovascular disease risk prediction models often rely on data from a single institution or centrally pooled datasets. Extending these models across institutions could be limited by privacy regulations and constraints on sharing patient-level data. Federated learning enables collaborative model development without transferring sensitive patient data, but its application in healthcare remains challenging because datasets often differ in size, population characteristics, and outcome definitions. In this study, we present a federated deep learning approach for privacy-preserving cardiovascular disease risk prediction that integrates two population-based cohorts with different characteristics: Lifelines, including 148,230 participants meeting the study inclusion criteria with self-reported outcomes, and the Rotterdam Study, including a smaller cohort of 10,155 participants with digitally linked clinical outcomes. Model performance was primarily evaluated on the Rotterdam Study because of its complete follow-up. Deep survival models trained using federated learning achieved higher predictive performance than models trained locally without federation. For the Rotterdam Study, the C-statistic increased from 0.728 (95% CI: 0.717-0.739) to 0.739 (95% CI: 0.728-0.749). For Lifelines, the C-statistic increased from 0.783 (95% CI: 0.775-0.791) to 0.787 (95% CI: 0.780-0.792). These findings suggest that federated deep learning across heterogeneous cohorts can improve cardiovascular disease risk prediction while preserving the privacy of individual-level patient data.
Predictive models play a pivotal role in credit risk management, guiding critical decisions through accurate estimation of default probabilities and losses. Extensive research has introduced new modeling techniques, complemented by large-scale benchmarking studies consolidating the state-of-the-art. Today, quasi-standards such as gradient-boosting models paired with SHAP explainers have emerged, yet continuous improvement of risk models remains a top priority. Concurrently, rapid advancements in AI, most notably large language models, have disrupted predictive modeling paradigms. Foundation models, pretrained on extensive datasets from diverse domains, have demonstrated remarkable performance by leveraging prior knowledge. While prevalent in natural language processing and computer vision, foundation models for tabular data have only recently emerged. We conjecture that pretraining on out-of-domain data is particularly beneficial in small-data settings, such as SME lending or specialized corporate portfolios, and may help address longstanding challenges including low default portfolios and class imbalance. This paper benchmarks recently proposed tabular foundation models against a broad set of competitors, including established and advanced machine learning techniques, across two core tasks: PD and LGD modeling. Our evaluation encompasses various datasets, performance indicators, and experimental conditions. We find that tabular foundation models generally perform best across datasets and tasks. Moreover, they offer significant improvement in predictive performance as dataset size shrinks. These results are remarkable given that the models are tested out-of-the-box, without hyperparameter tuning, ensuring ease of use and mitigating computational costs.
Bart Baesens, Andreas Goethals, Stefan Lessmann +10