How would you feel about a bank or money lending company assessing your worthiness for a loan based on your social media presence? It feels a little unnerving doesn't it? Even further, how would you feel about a lender assessing your financial viability based not only on your social media presence, but on the accompanying data gleaned from your social graph - who you're connected to and what their credit scores are? That doesn't seem right, does it? But, theoretically, it may be an accurate indicator of your borrowing potential - and it's likely already happening, whether you like it or not.
The Fourth Embodiment
In news sure to raise the hackles of privacy advocates and social media critics alike, Facebook has been granted an updated patent on technology that can help lenders discriminate against certain borrowers based on the borrower's social network connections. The patent, originally developed by Friendster in 2010, is primarily focused on reducing spam by tracking the way users are connected across the network, but it can also be used to examine a person's credit worthiness. Here's the wording from the patent document:
"In a fourth embodiment of the invention, the service provider is a lender. When an individual applies for a loan, the lender examines the credit ratings of members of the individual's social network who are connected to the individual through authorized nodes. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected."
So, if your friends' credit scores are no good, you're a risk. No money for you.
That seems unfair, right? Just because your friends aren't good with their money that doesn't mean you are. Right?
It turns out, credit companies have been using indicators like this for some time - in a piece posted on CNN back in 2013, lending company Lenddo is highlighted for how it uses data from an individual's social graph to determine that applicant's financial viability.
"It turns out humans are really good at knowing who is trustworthy and reliable in their community." - Lenddo CEO Jeff Stewart
In this application, the details of your social graph form only one part of a larger data set that determines whether you'll get approved or not - including whether you spend time reading information about loans on the lender's website, and if you fill out the application form in all-caps (or with no-caps). Tiny details like this don't seem like they could possibly matter, but correlating figures, applied through the wonders of big data, highlight patterns and trends, and identify credit risks by scanning through billions of information pieces. The more data that's available, the more trends can be determined, and as such, it makes perfect sense for companies lending money to be making assessments based on intricate commonalities. Solid determining factors like this are not coincidental - and given enough data to go on, even the smallest detail could, potentially, make or break your application. But should it be that way?
Winners and Losers
On the surface of it, the problem with using a person's social graph as an indicator of future financial security has one egregious flaw - it significantly disadvantages poor people. More than that, it disadvantages poor people and likely makes it harder for them to get out of that loop, as the company they keep will anchor their credit rating, to some degree, no matter how successful they are individually. Such a system would also, theoretically, disadvantage people who don't have access to social media at all, as the data they need to support their claim simply doesn't exist, which again, disadvantages the poor (and the elderly to some extent). Such limitations then force more people to look to alternative lending systems, like payday loans, which have notoriously high interest rates and less than empathetic collection methods. Basically, if wider social circles are taken into account as context for financial assessment, it'll likely mean poorer communities will continue to get poorer, not an ideal outcome. But is it a better business model for lenders?
In reality, this approach is nothing new - in an interview with Wharton Business Radio to discuss his paper "Credit Scoring with Social Network Data", Yanhao Wei of the University of Pennsylvania School of Economics discussed how the trend of utilizing a person's social connections as an indicator is more of a throwback than a trend:
"In the old days when you needed a loan, [the bank] looked at who you knew. It tried to qualify you by talking to the people you knew. There's a story that when someone asked for a loan from a big-named banker back in the day, he said, "Well, I can't give you a loan, but just walk with me to the park and somebody else will."
It's the same idea. Who you know matters. Your social network matters. [The] concept that these companies are banking on - the idea that who you are with, the people who are in your social network, will have very similar traits and behaviors as you - is a very strong, very powerful idea here that they are taking advantage of. They're simply looking at the behavior of people around you, and by looking at that, they can guess [with accuracy] how you are likely to behave."
The only difference, in the modern, connected, era, is that that information is much easier to access. We've all, inadvertently, logged our relationships, behaviours, likes, interests, all saved, collated and stored on servers owned by social networks all around the world. In this sense, the use of such data for this purpose is logical - no lender wants to be giving money to someone who can't pay it back. While it may not be fair, in the overall scheme, that lack of fairness is quite possibly a representation of the stark reality in which we live, whether we like it or not.
You and Me and Everyone You Know
So the key takeaway here is this - don't make friends with people who don't pay back their debts.
But of course, you can't know that, it's not a question you can ask and it's not a representation of who a person is or how you relate to them - and either way, that's an illogical response to this new world of data utilization. The real takeaway is that your social media presence is important, but the amount of data points and correlating signals taken into account when making any assessment on a person's viability - financial or otherwise - is not limited to any one specific factor. Your friends and connections may form part of a wider assessment, as well may the device from which you send your tweets, as may well the address of the place you live. The thing to keep in mind is that it's only through the combination of many, many factors that accurate and indicative correlations can occur.
While a single data point might seem like an outrage - the idea that you might be assessed based on the amount of time you spend posting cat pictures to Imgur, for example - it's likely not going to be the case that one, single factor will make or break your application. In this sense, while it's important to consider how your online presence reflects you, it's equally important to understand that as social media and big data becomes more engrained into business practice, factors like these can also be used to your advantage, helping you find the best way forward to utilize those same knowledge paths to understand the behaviors and activities that will lead you to your ideal career and life outcomes.
While big data and data tracking can be used against you, such processes are going to have a transformative effect on how we live in years to come. Understanding this, and building knowledge around how it's used, may be key to maximizing your opportunities in a wider sense.
Main image via Twinsterphoto / Shutterstock