The Future of Creditworthiness

> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

It is an exciting time at the nexus of technology and financial services. For assessing creditworthiness, for example, there are now tools available that move beyond traditional methods. Financial service providers are able to identify high potential, low risk entrepreneurs through Entrepreneurial Finance Lab’s (EFL) psychometric testing, which assesses a borrower’s character, abilities, and attitude. DemystData uses the big data available about potential customers to help financial service providers evaluate and validate their loan applications. Along with these two groups, there are many more entering this space, harnessing technologies and data types once separate from financial services to better understand potential clients.

In recent news, banks in Russia are now using GPS to assess borrowers’ credit ratings. Yet-to-be-disclosed banks in Russia have signed an agreement with AlterGeo, the “Foursquare of Russia,” to build a “picture” of users through their location services. At this time it remains unclear what specific information will be collected and how it will be assessed.

I confess to being an enthusiastic proponent of using technology to help financial service providers find new avenues for expanding inclusion opportunities. Yet this news out of Russia gave me pause. Anton Baranchuk, CEO at AlterGeo, says their platform “allows our partners to learn more of their potential borrowers’ honesty and reliability in order to reduce risks when working with online credit loans.” Using locational data and activity to assess a potential borrower’s honesty and reliability seems like a stretch – as well as a very slippery slope to me – and one that would involve more, not fewer biases.

I write this blog post out of Boston, Massachusetts and find it very hard to understand exactly what that location says about my honesty and reliability. If I were in a poor neighborhood, would that make me more or less honest and reliable than someone in a wealthy neighborhood? If I “checked in” to more dive bars than upscale coffee shops, does that tell you everything you need to know about my creditworthiness?

Luckily this news is out of Russia and so far away from me. Users in Russia willingly download AlterGeo, which begs a core big data client protection question – how much do you really know about the apps you download, the information they collect about you, and who they share that data with? Do you just quickly accept the licensing and user agreement like I do? As for AlterGeo, we’ll stay tuned for more details to surface.

Image credit: Eric Fischer

Have you read?

Is Bigger [Data] Better?

Screening for a Job; Screening for a Loan – Same or Different?

The Financial Inclusion 2020 Global Forum: A Letter to Microfinance Institutions