Financing companies are now looking to social networks as part of their credit checking mechanisms with some lenders are even focusing on social networks to help finance underbanked clients.
Credit checks can be quite lengthy and cumbersome. Not everyone can get a loan approved. And for those who are successful, not everyone has a high enough credit score to get good interest rates. Apart from banks and big financing institutions, however, micro-lenders are now finding innovative means to deal with prospective clients, many of whom are considered to be “under-banked”. This includes harnessing the power of social media in running credit checks and ensuring timely payment.
Lending companies are now reportedly mining Twitter and Facebook data to verify a borrower’s identity and to check credit-worthiness. This includes verifying income or job information (something that can be done through LinkedIn, for instance). This can also include verifying a loan applicant’s activities — someone who engages in risky behavior, could, perhaps be declined.
In particular, this is a feature highlighted by smaller lending companies, such as startups in Asia, Africa and South America. Manila-based Lenddo comes to mind, for example. The startup computes a user’s credit score based on the quality and size of one’s network on Facebook, Twitter, Yahoo and Gmail. Reach a certain score, and one can be eligible for a variety of “life-changing” loans. However, fail to pay on schedule, and the startup will send gentle (or not) reminders to pay throughout your social network.
The same goes for San Franisco-based LendUp, which uses a mix of traditional credit checks and social media checks when evaluating loan applications. Backed by Google Ventures, the startup expects to lend to about 300,000 clients this year. Co-founder and CEO Sasha Orloff says, however, that quality of one’s network can be more important than the raw number of friends. “Do you have 4,000 friends but none are that close, or do you have 30 people but they’re very close? There are ways to measure how engaged and how strong your community ties are.”
Other startups like Movenbank — which prides itself as being a truly electronic banking service — likewise use social networking data to evaluate clients’ credit-worthiness. This comes with other factors like what kind of device the user is accessing — a premium or flagship phone might get a user a better score than a cheap, entry-level device.
There are privacy concerns, of course, when financial institutions are already tracing social media behavior and using these to evaluate clients. Still, services like Moven, LendUp and Lenddo, among others, would be useful for people who may not necessarily have high credit scores in the traditional metrics (like FICO), but do have an active social media presence.