SMS, social media may reveal credit strength
Companies are looking to tap into alternative sources of financial data, but concerns around quality remain
Let’s say, you want to take a loan from a formal financial institution. To begin with, commercial banks and non-banking financial companies (NBFCs) will check your credit worthiness by pulling out your credit report and score from either one or more credit bureaus—Credit Information Bureau (India) Ltd, Equifax Credit Information Services Pvt. Ltd, Experian Credit Information Co. of India Pvt. Ltd, and Crif Highmark Credit Information Services Pvt. Ltd—in India. These bureaus give you a credit score if you have taken credit before. But, say, you do not have regular income, proper documentation to show income flow, have never taken a loan and don’t have a formal saving channel. You could be self-employed or may be working on a freelance basis. In such a situation, getting a loan from a commercial bank may be difficult. Since lack of credit information leads to little or no access to loans, many depend on informal channels. In 2014, in India, more than 400 million people borrowed money, but fewer than one in seven were approved for a formal loan, according to a report by Omidyar Network, an international philanthropic investment firm, named Big Data, Small Credit—The Digital Revolution and Its Impact on Emerging Market Consumers.
Though some credit bureaus give a credit report and a score even if there is no credit history available, the judgement made on parameters such as location or job description may not be enough. To tackle the issue of lack of credit history and unavailability of data on income, which means lack of predictability of repayment capacity, credit bureaus, financial institutions and financial technology companies are considering tapping into non-traditional data sources to build a credit report. They will make use of individuals’ personal information and any data available publicly to measure their credit worthiness. For instance, a person’s SMSs, emails, online transaction and social media behaviour will be analysed to understand her creditworthiness.
Mint Money takes a look at the scope of using your personal information to get credit.
There are already tools and apps available in the market that can collect your personal financial data such as transaction details and bank balance either from your smartphone or the Internet or both. According to the report mentioned earlier, over 650 million adults in India—four of every five—already have a mobile phone; most of these will be smartphones by 2020. More than 240 million Indians have access to Internet and social media.
“With more smartphone users, the scope to collect data will also increase,” said Amrish Rau, managing director, Citrus Payment Solutions Pvt. Ltd. So, every time you make a phone call, send a text message, browse the Internet, engage social media networks, or even top up a prepaid card, your digital footprint increases. This can be analysed to understand financial behaviour—surplus income, spending pattern, investment statistics and much more. The main purpose of this non-traditional data analysis is to understand an individual’s creditworthiness.
Currently, there are three sectors looking at tapping into non-traditional personal financial data. These are credit bureaus, financial institutions and fintech companies.
Credit bureaus see this information as an addition to the existing credit reports that they offer. “We have core, authentic data coming from financial institutions. But since credit penetration is low, it doesn’t cover everyone. So, additional data such as SMS-based analysis is welcome,” said Kalpana P. Pandey, chief executive officer and managing director, Crif HighMark. “Multiple tests are on and we will soon launch (credit) scores using additional data sources such as e-commerce spending, and payment of mobile phone and utility bills,” Pandey added.
Credit bureaus and financial institutions either create their own data analysis software or take the help of fintech companies that have algorithms to read a user’s SMSs and analyse them.
How it works
While other media may be used more than SMS to communicate, you still receive messages from various service providers such as telecom companies, banks and e-tailers. Companies will look at non-traditional data to assess consumer risk and determine the creditworthiness of previously “invisible” consumers, and consequently offer convenient, quicker, and often cheaper loans, said the report.
“The amount of data that is going to come in the next 4-5 years will leave a digital footprint that will help spark new trends in lending. (But) this will take time to launch as one needs to have enough consumer data,” said Sony Joy, chief executive officer, Chillr, a smartphone app that allows transfer of money to contacts in a phone book. Chillr is looking to track personal data to build credit scores and then provide small credit to its customers. “Through an algorithm, we will know you are not one of those users who go broke by the 15th or 20th of a month. We will also know your account balance. Based on this information, and other parameters such as spending pattern, we will give a credit score. With just that score or in combination with a formal credit score, we will be able to give you digital credit. For this, we are in talks with many banks and they are keen on it,” said Joy.
Companies are considering looking at users’ e-commerce spends. For instance, if you shop with an e-tailer every two months, you leave behind digital footprints that can be analysed in the same way as SMSs to understand your income level and spending patterns.
At present, companies can analyse your SMS data and track social media details through apps. But they can do this only when you give consent. As a customer, you have the right to decide whether you want to share your data or not. When you download an app that wants to track your personal information, it will seek your approval to access SMS details, photos and location. Only if you are comfortable disclosing these details should you download the app.
But is it legal for firms to access users’ financial data? “According to standard terminology, companies that access your data are supposed to keep the data with themselves. And if they mention that they will be selling your data to which you have given them your consent explicitly, then legally they are not doing any wrong. If firms sell data without your consent, it is a crime,” said Saket Modi, chief executive officer, Lucideus Tech Pvt. Ltd, a cyber security firm.
What to expect
The success of formats that use SMSs or data from social media platforms will depend on the accuracy of data sources and algorithms’ predictability. Industry experts and those who are looking into non-traditional data analysis unanimously believe that accuracy of data is a concern, but room for informal credit system remains. “Alternate credit systems can be built in and there is always a role for formal and informal companies. They will co-exist. However, I am apprehensive about building feeds from LinkedIn and Facebook (because of accuracy concerns),” said Mohan Jayaraman, managing director, Experian.
At present, all formats that aim to build alternative credit scores and histories are still in the experiment phase. If you are concerned about breach of privacy, do read the terms and conditions of use before downloading an app. But if you are comfortable and willing to sell your financial information to get cheaper loan or instant processing of loan, you will see an evolution in this space soon.