How mobile and social data are changing the face of credit scoring
Posted by John Garde
February 04, 2016
In emerging or developing markets where formal credit history collection infrastructure or credit bureaus are lacking, the majority of people without reference data would struggle to achieve anything resembling an impressive credit score. As a large contingent of previously unbanked individuals join their respective middle classes in increasing numbers worldwide, lenders are finding creative ways of profiling and welcoming newcomers to the world of financial services.
Thanks to the prevalent usage of mobile phones and social networks in these regions, fresh – albeit non-conventional - sources of consumer data are available in abundance for financial concerns to tap in to, and some companies aren’t waiting to get left behind in the race to be the first to shake hands with this new customer.
Digital Footprints in the Social Landscape
As we leave our digital footprints across the social media landscape, we are creating valuable alternative data for credit lenders to analyse and use to help determine creditworthiness. The number of friends you have on Facebook, how engaged you are with your community and how much they engage with you by liking or commenting on your posts are taken into consideration when underwriting a loan. Even whether you are logging in to a social media platform by a smartphone or by a PC at an Internet café provide lenders with clues on an applicant’s affordability.
By analysing social connections along with individual online behaviour, a clearer picture about the persona behind the online identity emerges and certain inferences around their credit worthiness can be made.
Thanks to data generated by social media behaviour, credit lenders now have the ability to make more informed decisions and offer credit to borrowers who otherwise may have been denied a loan or may have been regarded as high-risk and been granted a loan with high-interest payment terms.
For some mobile network operators, the use of airtime purchase data as an indicator of affordability is even leading them to enter the micro-loans space to increase customer loyalty, drive mobile money usage and increase revenue.
For consumers, approvals based on what they can afford protect them from irresponsible lending while enjoying seamless access to credit. This bodes well for lenders as customers will typically return to them for additional lending if the need occurs.
More secure and responsible lending thanks to more data
As data continues to traverse our “always on” world, the aforementioned methods will surely be fine-tuned to gather the right type of metrics that result in reduced risk for all stakeholders. But this doesn't mean that traditional credit scoring methods will go the way of the dinosaur. Instead, they will simply be complemented by a bevy of new datasets that aid in more accurate, comprehensive and profitable risk analyses. And with a new generation of consumers expecting fast, personal and secure credit, the risk might just be in ignoring these new avenues.
John Garde has accumulated over twenty five years’ experience across all fields of retail and commercial banking in the South African banking industry with particular focus on the credit and operational risk domain. He has extensive retail, commercial and high net worth credit assessment and secured lending experience as well as the implementation of compliance and governance standards relating to Sarbanes-Oxley and the National Credit Act. John was also instrumental in influencing and articulating credit policy and strategy in many of these roles.