Here is another reason to make sure your social media presence is in order: Some money lenders and other financial institutions are mining sites such as Facebook, LinkedIn, and Twitter to determine borrowers’ creditworthiness or to set interest rates on loans.
While most big banks have yet to go that route, several smaller and niche lenders are experimenting with the technique. It’s a trend in consumer lending that could create new competition, especially as traditional lenders adhere to stricter guidelines or refuse to offer microloans.
One such money lender is startup Neo, which gives loans based on income, not credit score. The company evaluates job and career information on LinkedIn and uses it to determine a borrower’s ability to repay a car loan.
Online bank Movenbank, which opened recently in the US, monitors messages on Facebook and Twitter and cuts interest rates for those who promote the bank to friends. The bank’s proprietary CRED system also rewards financial good behavior like setting up a savings account.
German startup Kreditech offers online scoring based on thousands of data points that can be found through social media, e-commerce activity, and mobile phone usage. The company doesn’t give the details of what exactly it looks for and where it is looking, but it claims that its new way of evaluating credit worthiness is less subjective than and not as limited as traditional credit scoring techniques.
Another overseas startup, Hong Kong-based Lenddo, takes social media mining a step farther. Lenddo awards loans to borrowers who ask Facebook friends or Twitter followers to vouch for their creditworthiness. The company is putting a new twist on the old-fashioned technique of giving loans based on community reputation.
There seem to be major problems with institutions using only social media to assess a borrower. Considering all of the fraud and identity hoaxes on social media, it is rather simple to fake a social media presence with padded job or status credentials. Just because it’s on your profile doesn’t mean it’s true. However, it is interesting to see how these small lenders are implanting social media into their business models. While some of these new tactics may not gain much traction, others could be a market disruptor as curious consumers venture beyond traditional banking in order to secure loans or feel more in control of their finances.