With more services than ever collecting your data, it’s easy to start wondering why someone should import most of it. That is the reason. Because people are starting to have ideas like this.
In a new one blog post for the International Monetary Fund, four researchers presented their results to working paper which examines the current relationship between finance and technology, as well as its potential future. By looking at your glass ball, researchers see the possibility of using data from your browsing, search, and purchase history to create a more accurate mechanism for determining a person or company’s credit rating. They believe this approach could result in more lending to borrowers than traditional financial institutions could potentially deny.
In essence, the newspaper tries to struggle with the initial notion that the institutional banking system faces a serious threat from technology companies such as Google, Facebook and Apple. Researchers identify two key areas where this is true: technology companies have more access to soft information, and messaging platforms can replace the physical locations on which banks rely to meet with customers.
The concept of using your web history to report credit ratings is framed around the idea that lenders rely on printed data that can obscure a borrower’s dignity or make an unnecessary panorama in difficult times. Citing soft data points such as “the type of browser and hardware used to access the Internet, the history of online searches and purchases” that could be incorporated into a borrower’s assessment, the researchers believe that when a lender has a more intimate relationship with the potential customer’s history, perhaps they would be more willing to reduce them a bit.
“Banks tend to amortize credit conditions for their long-term customers during recessions,” the paper’s authors write. This is because they have a history and a relationship with the customer. Now, imagine the kind of intimate story Facebook could have with a borrower and suddenly its digital cash the initiative is starting to make more sense.
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But how would all this data be incorporated into credit ratings? Machine learning, of course. They are black boxes all the way down.
Researchers acknowledge that there will be privacy issues and policies related to the incorporation of such data programs into credit analysis. And they do little to explain how this might work in practice. The paper is not long, and his worth reading just to wrap your mind about some of the notions of the future of fintech technology and why it seems like everyone wants to get involved in the pay-per-view game.
As it is, to get very good soft data points would probably need companies like Facebook and Apple to set aside their standards when linking unencrypted information to individual accounts. How could they share information if other institutions were their own can of worms. And while researchers seem optimistic about the benefits technology companies have over banks, they cite business lending as a game that traditional institutions continue to dominate. “This may change, however, due to the rise of cloud computing, which may allow large technology companies to create B2B ecosystems that include large corporate companies,” they write.
Yes, the idea of every move you make online to incorporate your credit score is creepy. It may not even be possible in the near future. IMF researchers stress that “governments should carefully monitor and support the technological transition in finance. It’s important to adjust policies accordingly and stay ahead of the curve. ”When is the last time a government did any of this?