Case Study: Social Media Credit Scoring for Financial Inclusion
Introduction Financial inclusion, which refers to providing access to affordable and appropriate financial products and services to all individuals and businesses, is a critical development goal globally. However, over 1.4 billion people are unbanked or underbanked according to the World Bank. To reach these underserved individuals, lenders are leveraging alternative data sources like social media to determine creditworthiness. This case study explores how social media credit scoring helps the unbanked and underbanked to access credit and financial services.
Social Media Credit Scoring Overview:
Social media credit scoring is the use of social data to determine the creditworthiness of an individual applying for a loan or financial service. It checks social media activity, registered profiles, and even the reputation of specific social media networks to establish the kind of borrower one could be. Lenders may use social data as part of their affordability and underwriting algorithms to reduce risks. Social data is an alternative data source for credit scoring purposes and is used to decide whether individuals should access specific financial products and services.
Pros and Cons of Social Media Credit Scoring
Social media credit scoring has advantages and disadvantages. The followings are the benefits and drawbacks of this alternative data source:
- Real-time data: Lenders can gather social data in real-time, which is helpful when they need to approve loans fast.
- Good for unbanked or thin-file customers: Since most people around the world have some social media presence, social media credit scoring is beneficial to financial companies in emerging economies or countries, which have a large underbanked population.
- Strong signal to catch fraudsters: A complete absence of social signals is a strong indication of a fraudster, which increases the chance of them being a persona a fraudster made up to take out a loan and default.
- Limited information: Gathering data from social media can be hit and miss as social media platforms do not provide APIs for that data, making it difficult to gather all of it in real-time and at scale.
- Data privacy concerns: Some customers may not like it, and as social media platforms increase their data-privacy policies, it can be hard to gather information while remaining compliant with data protection rules.
- Concerns with accuracy: Many experts worry about the accuracy of social data when it comes to evaluating creditworthiness. Deciding whether to approve a loan or not solely based on someone’s social history could be foolhardy.
How to Use Social Media for Credit Scoring
Social media can be used for credit scoring by having software or humans gather data points from social platforms and study them to reach informed conclusions. These data points can be anything from someone’s job title on LinkedIn to how often they fly with Airbnb or whether they have any social media presence at all. A traditional credit scoring method will look at financial information such as proof of income statements, proof of payment of phone or utility bills, debt trail, and credit card usage.
Here are some examples of how social media data could play into the equation:
- No social media profiles at all registered: This is a strong indication that you could be dealing with a fraudster who plans to default on a loan.
- Data mismatch: Customer information in social profiles that does not match that of the credit application could be a red flag for fraudulent activity.
- Only registered on certain platforms: This could indicate that an individual is trying to hide their social media activities, which is another red flag for fraudulent activity.
SocialScore is a solution that aggregates hundreds of data points from various social media platforms and uses them in combination with other information to determine creditworthiness. It is a sophisticated solution that ensures the right social media credit scoring strategy will be applied to each individual case, based on the unique characteristics of the customer.
SocialScore solution works by analyzing a person’s social media presence and behavior and level of engagement. The solution also takes into consideration other data sources such as the customer’s digital information, income level, and employment status to develop a comprehensive view of the individual’s creditworthiness.
Once the data is collected and analyzed, the SocialScore algorithm generates a score that is used to determine the person’s creditworthiness. The score can be used to assess credit risk and help lenders make informed decisions about whether or not to approve an application for credit.
The SocialScore solution is particularly useful for those with little or no credit history, such as students and young professionals, as it can help them establish creditworthiness based on their social media behavior. In addition, the solution can help lenders mitigate risk by identifying potential red flags.
Overall, the SocialScore solution offers a new and innovative approach to credit scoring that leverages social media data to help lenders make better-informed decisions. By combining social media data with traditional credit data, the solution provides a more comprehensive view of the individual’s creditworthiness, making it easier for lenders to identify creditworthy borrowers and mitigate risk.
But in general, SocialScore still is a comprehensive marketing solution for businesses looking to target the right customers with the right message at the right time. It is designed to help businesses unlock valuable customer insights and pursue growth opportunities by leveraging data from various sources, including social media, job roles, personal interests, and more.