The New York Observer‘s Betabeat blog reported that banks and other financial entities are looking into ways to fill out potential borrowers’ risk profiles with data from social networks such as Facebook and Twitter, although entrepreneurs told Betabeat mainstream adoption is likely three to five years away.
However, it may be closer than that. A startup that operates in the Philippines, Lenddo, asked the Observer for its Facebook, Gmail, Twitter, Yahoo, and Windows Live Accounts, and the company — which bills itself as “the first credit scoring service that uses your online social network to assess credit” — said that although the newspaper scored a respectable 470, it was not eligible for a loan because it did not present at least three connections with scores of 400 or better.
Chief Executive Officer Jeff Stewart told Betabeat:
We think that in the age of the Internet, you should be able to establish your reputation and your identity through your social graph, through your on- and offline community, and use that to get access to financial products and information.
Our backgrounds are in machine learning and pattern recognition. It’s some serious math. There’s no reason there shouldn’t be thousands of engineers working to assess creditworthiness.
Brett King, founder of online-only bank Movenbank, told Betabeat banks are looking for more up-to-date information than credit scores, saying:
Credit score is a lagging indicator. At best, your credit score is about 60 days behind. What we’re trying to do is look for things that reflect the likelihood of a future default, rather than what’s happened in the past.
I’m sure that insurers now are looking at Facebook profiles and saying, “You’ve said you’re not a smoker? Well how come in three of these 10 photos where you’re out with friends, you’re smoking?”
Loan approval is only one use of social network information, however. Financial institutions are also eyeing using their findings for marketing purposes. Ken Lin, chief executive officer of credit-scoring startup Credit Karma, told Betabeat:
There is this concept of “birds of a feather flock together.” If you are a profitable customer for a bank, it suggests that a lot of your friends are going to be the same credit profile. So they’ll look through the social network and see if they can identify your friends online, and then maybe they send more marketing to them. That definitely exists today.
Readers: Do you think financial institutions should be able to access your information on Facebook and other social networks and factor it into their decision-making processes?
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