Approximately 77 percent of the U.S. population are smartphone users, according to the latest estimates. What purpose each of these smartphones serves varies from person to person, of course, but a vast majority of American consumers enjoy the benefits of practical apps like mobile banking solutions, as well as entertainment apps and social media services. All of that information on each smartphone is siloed into repositories of metadata.
"Smartphone metadata can reveal a great deal - perhaps too much - about individual consumers."
In 2017, most people are aware of this metadata collection. But just because they know it's happening doesn't mean they like it, or will consent to it when alternatives to the method are available surrounding particular services. In the credit arena, some alternative lenders and fintech firms are using mobile device metadata to determine the creditworthiness of borrowers who have little in the way of traditional credit, according to a recent report by Privacy International.
While the tools used in this situation may be attractive to lenders due to their capacity for near-unlimited data mining, they may also discourage customers who would otherwise patronize these financial institutions in a heartbeat.
The uncertain value of metadata usage
Mobile device data that ends up included in metadata ranges from GPS coordinates of users' live locations and detailed analysis of how much they walk in a day to text messages, receipts from purchases made via smartphone and even regular keystroke patterns. As explained by The Wall Street Journal, this information can reveal "thousands of subtle patterns of behavior that correlate with repayment or default."
Indeed, some of the data described above will indicate the spending habits and externally expressed character of a person, which may have some bearing on their general financial well-being. But assuming that these details indicate a potential borrower's entire character, or even a majority of it, is a considerable leap, one that lenders can't afford to make in a highly competitive marketplace.
The WSJ noted that several Silicon Valley-based startups stand out as the biggest proponents of using smartphone data to play a major part in credit decisioning. These include Branch, InVenture, Saida, Lenddo and others. Many do the lion's share of their business in developing countries with rapidly expanding smartphone ownership, such as Kenya, Nigeria, South Africa and Bangladesh. Large segments of those nations' populations have never possessed access to meaningful credit in any traditional sense, thus explaining the appeal of these fintech lenders.
Using alternative credit data instead
Certain types of metadata collection are illegal in the U.S., as recently shown in the context of the National Security Agency's metadata-based surveillance program, as pointed out by the Guardian. Other types, meanwhile, are permissible.
But given the hoops a lender might have to jump through to use such information, it's fair to wonder why going to the trouble would be worth it - especially when Microbilt's PRBC credit decisioning solution is readily available. The information used in alternative credit assessments that Microbilt helps conduct is either publicly available or obtained with consumers' knowledge and consent, allowing lenders to make judgments of creditworthiness that are fair to borrowers and also take lenders' situations into account.