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Creditworthiness Evaluation Through Facebook: A No-Go

7th April 2016

The Big Data hype related to usage of social media data in online lending has started already a while ago. Affected by tough regulation, online lenders and credit-data providers have started hazing at opportunities that social media platforms could provide, plus it was also thought that embracing social media in businesses would fit in with millennials’ expectations. Due to increasing usage of social platforms, such as Facebook, a big chunk of online lenders expected to beat banks using better and more ‘lifelike’ information, such as Facebook insights on one’s  friends, specific hobbies or recent activities. But the enthusiasm has faded.

The enthusiasm related to social media data usage in lending faded simply due to limited amount of information available. Facebook has actually discussed a possibility to cooperate with online lenders around two years ago and some people even claim that a patent connected with the idea was secured. Such patent is thought to allow lenders to assess creditworthiness based on the credit ratings of people in borrower’s network, i.e. if an individual is applying for a loan, the system would automatically evaluate creditworthiness of its connections as well. If the average credit rating of the applicant’s circles is at least a minimum credit score, the lender proceeds with loan application, otherwise, the application would be rejected. However, Facebook has not implemented the ideas outlaid in the patent and it’s being questioned whether such action has been taken due to potential legal obstacles that Facebook may face, since by selling information to online lenders, Facebook could fall under the purview of the Fair Credit Reporting Act. It’s actually quite likely that Facebook never makes use of this patent; big corporations secure patents for their ideas all the time though it does not imply that such ideas always get implemented. Also, the actual prospect of a lawsuit would definitely make implementing the ideas in the patent difficult.

Contrary to the initial patent ideas, since May 2015, Facebook has actually limited the amount of information that third-party services could access from one’s Facebook profile. Some companies who have tried to put Facebook data in use even claim that social circle or past activities haven’t proved to be very valuable in credit scoring. Also, predominant usage of social media data could put less tech-savvy populations aside, as they simply would not have access to social media platforms and therefore could not be assessed. For all these reasons, online lenders, who had hopes to pull online data from Facebook, had to come up with alternative ways to evaluate risk based on other sources of information, leaving Facebook data behind.

The enthusiasm has faded, and a seemingly impressive amount of promised data points is not as impressive and valuable, as it may have seemed.

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