Building upon its e-commerce features for businesses, Instagram recently took another step into the digital finance space by rolling out a native (or in-app) payments feature to some of its users. After registering a debit or credit card and creating a security PIN number, users can make payments to a limited number of vendors directly within the Instagram app without being redirected to an external website. Beyond making your impulse buys a much more seamless experience, this native payments functionality can help online retailers and others sell and market their products directly to consumers without needing to build their own website or manage a physical retail location.
Given the intense scrutiny of Facebook’s data protection and privacy policies in recent weeks, it remains to be seen whether large numbers of users and businesses will actually entrust their financial data to Instagram, as, after all, Instagram is owned by Facebook. Instagram’s new payments feature is backed by Facebook’s Terms of Service for payments. However, with the volume of traffic that the platform generates for businesses and the ever-increasing smartphone ownership worldwide, adding this functionality is perhaps an opportunity that’s too good for Instagram to miss. It’s reported that 60 percent of Instagram users learn about new products through the platform, and over 200 million people visit at least one business profile on Instagram daily.
While institutions in China have pioneered this approach of leveraging e-commerce, social media, and data for use in the financial sector, companies all around the world are exploring how data points from social media platforms can be leveraged to customize product offerings as well as expand access to credit to underserved segments.
For example, SCB Abacus, a wholly-owned subsidiary of Siam Commercial Bank, is an advanced data analytics firm in Thailand looking to capitalize on the success of e-commerce in the country (and the region) by incorporating social media data into the credit scoring models they use to underwrite loans to the online retailers who use e-commerce platforms to buy and sell.
The company is looking to establish data-sharing arrangements with e-commerce companies and other third-party data vendors to source e-commerce and social media data that will help SCB Abacus assess the performance of these online retail businesses. Variables such as business or social network size, for instance, would allow the firm to approximate its sales volume or consumer demand and offer an initial loan, after which SCB Abacus can collect more data directly through its mobile banking app and offer subsequent loans based on further refined credit risk information.
SCB Abacus acknowledges that capturing this alternative data (especially from Facebook, Instagram, and other social media platforms and messaging apps) is a challenge for the company. However, it has more than one option. For example, SCB could develop a Facebook app that gives them permission to access the profiles of people who opt-in, although Facebook’s regulations stipulate that this information cannot be used for credit scoring purposes. SCB staff are hopeful that they will soon be able to extend new lines of credit to small entrepreneurs and younger consumers without established credit histories across Thailand. This case example underscores some of the findings in our CFI report How Financial Institutions and Fintechs Are Partnering for Inclusion.
In a forthcoming brief, we’ll elaborate more on how mainstream financial institutions and fintechs are looking to harness the power of e-commerce and social media platform data to identify new customer segments and expand product offerings, and how the industry is using new data sources and tools to expand and deepen financial services and inclusion. The report is part of our two-year initiative Mainstreaming Financial Inclusion: Best Practices with the Institute of International Finance. E-commerce and social media data – especially when combined with traditional data types like transactional data and credit scores – may help FSPs develop more targeted products as well as underwrite those previously out of reach.
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