One of fintech’s greatest assets in its advance into traditional banking territory is its ability to access previously inaccessible markets. According to a recent report, close to ten percent of the American population have no credit report and, therefore, no access to credit. In the developing world, this population segment is significantly larger, especially in rural areas. Now a number of start-ups have begun harnessing the power of big data to build credit scores for those unscorable by FICO.
Harnessing Big Data
Different companies are tackling the problem using varying data sources, including social network data and smartphone usage data.
Lenddo, launched in 2011, is now available in over 20 countries and builds a credit score for applicants by accessing their “social media activity, browsing history, geolocation and other smartphone data.” They promise security of user data, with one-time access at the time of scoring. Lenddo reports that their tested algorithms analyze 12,000 variables to build a score in just three minutes.
FriendlyScore, based in Poland, uses the Facebook API exclusively to score users. According to their site: “who you’re friends with, what you’re interested in, and other habits online can help contribute to a better credit score.”
Looking to the future, ZestFinance is developing an algorithm for scoring individuals based on their browsing history. Their intended market is China, a country with high internet usage but a low level of credit card usage.
Not everyone is excited about the prospect of mining social data for credit-worthiness, however. As this article by LTP points out, old data and misinterpretations could become a major impediment to individuals who would otherwise present a low risk of default.
Opening this market represents vastly increased opportunities, not just for fintech companies and banks offering credit, but also to an entire class of unbanked individuals worldwide. Bringing these individuals into markets previously closed to them could offer a boost to the economies of developing countries in the coming decade.
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