Are You Leaving a Digital Trail for FinTech Lenders to Follow?

We’ve written about China’s “credit rating” policy, which takes information from many public (and private) datasets, like your smartphone, social media, online shopping, search engine queries, payment schedules, and much more. The country’s government uses this information to create a creditworthiness profile of each citizen. If a citizen is found to be leaving the country with debt, China may block the person’s travel plans by canceling airline tickets or alerting police of the situation.

You’ll probably agree that this isn’t an ideal scenario. But it’s not far off from what some data scientists in the U.S. are proposing.

A New Way to Borrow?

As FinTech develops, more and more data is created, but not much of it is being used. FinTech lending is a new concept that uses data to make better decisions about creditworthiness and customer behavior. The data informs interest rates, loan amounts, default terms, and more.

Finance professors from the U.S. and Germany agree with this product idea; a team reviewed 270,000 records for purchases and loans at a European online furniture seller. The study, dubbed “On the Rise of FinTechs: Credit Scoring Using Digital Footprints“, concluded that using 12 data points together can create a better picture of creditworthiness than using just FICO credit scores.

Their findings, while interesting, were pretty broad and generalizing of customers. For example, T-Mobile customers are less risky to loan money to than Gmail users, which isn’t really a direct or fair comparison. iPhone customers pay their bills on time more often than Android users; that finding is also weak because Android phones greatly outnumber iPhones — you can even pick up pre-paid Android phones from Walmart these days.

Obvious Conclusions and Unknown Consequences

Another quirky finding was that people who browse online retail sites on a desktop in the morning are more likely to pay than those shopping on mobile phones after midnight. This comes as no surprise, since most people still don’t feel comfortable placing an order on their phone; most consumers will switch to their desktop or laptop when it comes time to actually complete a purchase.

And consumers who use email addresses with their real names are more likely to pay on time than those with randomized email addresses. Go figure?

Many of the above findings are obvious to most consumers. But this analysis points to a bigger issue: where did these researchers find this information? It’s very detailed, and it reeks of privacy violations; “email addresses with real names versus randomized email addresses” — how did the researchers filter this data without running their eyes over it? And were all of them granted explicit permission by those who shopped at the online retail website?

A Lack of Law and Order

Is this an easy way for banks and lenders to see at a quick glance who is “rich” and who is relatively poorer? Outside of lenders, who else would have access to this data? Gabriel Weinberg founded the trackless search engine DuckDuckGo. He says, “The algorithms are often not complicated. But they can still be inherently biased. And every time there are unintended consequences.”

Often, under the promise of a faster loan application timeline, applicants will grant access to their Mint.com data or similar. This type of bribery can be abused quickly and discreetly. “We don’t make it mandatory, but … We were surprised with the customer opt-in rate. It’s more than half,” says Paul O’Donnell, who is the chief credit officer at Marlette Funding. Gurvinder Ahluwalia, an ex-IBM executive who runs Dallas-based Digital Twin Labs, says, “Innovation is never a clean process.”

It’s nearly impossible to know what consequences will result from this tracking and subsequent analysis that can be subjectively held against us at random times. As FinTech firms continue to innovate without any sort of concrete laws put in place, they may get away with much more than they should.

Do you feel that your financial information is secure? And if not, what can be done to regulate the wild, wild west of the FinTech world?