Is more information always better? Is it always fair to tap into all the insights available?
These are big, tough questions. But in the banking world, given the possibility of your Facebook page impacting your financial footing, they are ones we must ask.
So is it wrong for banking and lending institutions to analyze your social media profiles before giving you a loan? Companies such as Lending Club, a peer-to-peer lender, have been using Facebook, Twitter and other social media outlets in addition to checking normal credit scores and employment history as part of their risk assessment for over two years now. Movenbank, which opened its first branch in New York City in April, openly promotes using your social network influence as a way to account for your credibility beyond just the numbers with a financial personality test CRED™. Is this where banking and lending trends are headed? If that’s the case, should they read into all that data and insight?
So how could you grade someone’s Facebook or Twitter activity? Well, a company called RapLeaf out of San Francisco does just that, following the behavior of an estimated 480 million people. However, Joel Jewitt, Vice President of business development at Rapleaf, said the information his company provides its clients is not used for making credit decisions. Another company that you might remember from one of our previous blogs, Klout, could also be used to gauge your influence and status for this new trend of lending companies. Although a Klout score has nothing to do with banking or credit rating, they claim to have been approached by the who’s who of banking.
Does that mean companies like Klout or Rapleaf will be determining factors in how banks and lenders asses your risk and borrowing power? It’s safe to say that traditional financial institutions will not risk violating the Fair Credit Reporting Act. And both companies have taken some heat in the way their businesses operate: Klout was accused of automatically creating profiles of minors who did not sign up for them. Rapleaf received criticism for passing private information that violated Facebook’s term of service agreement. Both companies went on to address their issues, but I can’t help thinking how unreliable any company could be when it comes to rating social media behavior or influence. How could you quantify that influence where money and loans are concerned?
While companies such as Lending Club or Movenbank are showing up on the marketplace more often, it won’t change the banking and financial industry just yet. Lenddo, which boasts “the first credit scoring service that uses your online social network to assess credit”, is only available in the Philippines and Columbia at the moment. Despite all its publicity, Lending Club only offers a max loan of $35,000, and since registering with SEC it has moved away from being a social network service and has assessed higher risk with about 90% denial of loans. Movenbank, despite having a branch, is only available by invitation in private alpha.
There’s a benefit to having companies that consider other things than credit reports to assess your risk when banking and loans are concerned. We have all heard about or known someone who was financially sound, who may have been laid off during tough times or been a victim of identity theft or some other circumstance that may have stained their credit score. These companies may offer them an alternative to banks just looking for customers with a credit score above 700.
But what if you don’t use social media or you are not as active as the next guy on Facebook or Twitter? Can that really hurt your borrowing power in the years to come? Whether it is a fair way to assess risk or not, I think it’s pretty clear that there is a wealth of data on just about everyone in the digital age. Does too much information about a person “muddy the waters” more or paint a clearer picture? Some employers are asking for social media accounts before hiring a candidate, while others are already monitoring current employees’ habits and behavior on their Facebook and Twitter accounts. Does all that insight really tell you what kind of person you are or how responsible you may be? With social media possibly affecting your interest rates in the future, can social network information help more than it can hurt? Is the study of social behavior really too much information to be useful?