By Paul Thomas, Managing Director, Provenir
Start-ups and businesses investing to grow depend on affordable borrowing. The astute business that understands the factors that impact its credit risk score can maximise the probability of its loan application being approved. As previously explored, the application process for a small business can be an arduous one. Recent news, therefore that a Facebook patent could be used to help lenders determine credit risk based on an applicant’s social network activity is an interesting development.
It highlights the extent to which lending is changing. That, as lenders strive for faster turnaround of applications and greater automation, they may explore the use of new sources of data in their processes.
Social media can provide data that is highly relevant as a potential source in consumer loan applications, but there is also potential for it to be used in future as an input into loan risk assessments for small businesses. Currently, fledgling businesses can hit black spots in the processes, systems and procedures of banks. Their loan applications aren’t from individuals, yet as a start-ups, they lack a financial history to plead their case.
For new business owners just beginning to create a ‘credit footprint,’ social media channels could be a viable source of data. Not least because today’s tech-savvy business entrants engage with these channels readily, perhaps more than they do with other traditional ones.
It isn’t really surprising that ‘new’ data should enter risk decisioning processes. The established tools used for the assessment of creditworthiness have been heavily relied upon for a long time, but since they were put in place the world has changed. The digital age has added to the amount and type of data that is available and fundamentally altered the way it is shared. The information that credit and lending risk assessors need to make an informed decision may already be out there; it’s just a case of knowing which bits to tap into, and how.
Social media data has an interesting characteristic when considered in the context of a loan application – it’s less about credit history and financial position, and more about behaviour.
We can think back to when local branch bank managers assessed loan applications based on their knowledge of the applicant and what people were prepared to say about them. With social media data, behavioural indicators could again play a part but with a modern-day twist – behaviour can be turned into bits and bytes and be assessed by data analysts using algorithms. Smart technology can provide new and efficient ways to access the data, analyse it and generate insights to help lenders make faster, informed decisions.
In a competitive market, lenders are looking to gain an edge with appealing products and services and excellent customer service. To support these things they want to deliver rapid, accurate loan risk decisioning. It benefits borrower and lender alike. The use of ‘new’ data is one possibility along with a raft of back office improvements that include rooting out paper-based, manual processes. If together these improvements deliver a better overall experience for finance seekers, they could prove to be a win-win.
It should be said that risk decisioning as part of credit and lending processes isn’t the only use of the technology covered by the Facebook patent; it isn’t even the primary one. The main parameters of the technology deal with authentication and content filtering. Whether or not it will be used for loan assessments in the way it is suggested it could be, remains to be seen. Either way, the progression of data use and automated analytics to speed up risk decisioning in credit and lending will continue to develop.