In 2017, 81 percent of U.S. Americans have a social media profile, representing a five percent growth compared to the previous year.
Pick your poison. Facebook. Instagram. Twitter. Snapchat. LinkedIn. The list goes on, and it is clear social media is used by all. Grandma and grandpa are hooked, and tweens are begging for accounts.
Factor in the amount of data being generated by our social media obsession – one report claims Americans are using 2,675,700 GB of Internet data per minute – and it makes some lenders wonder if social media insights can be used to assess credit risk.
Can banks, credit unions and online lenders look at social media profiles when making a loan decision and garner intel to help them make a credit decision? After all, in some circles, people believe a person’s character is just as important as their income and assets when making a lending decision.
Certainly, some businesses are seeing value in collecting social media insights for marketing purposes. An individual’s interests, likes and click-throughs reveal a lot about their lifestyle and potential brand linkages.
But credit decisions are different. In fact, there are two key concerns when considering social media data as it pertains to financial decisions.
- There is that little rule called the Equal Credit Opportunity Act, which states credit must be extended to all creditworthy applicants regardless of race, religion, gender, marital status, age and other personal characteristics. A quick scan of any Facebook profile can reveal these things, and more. Credit applications do not ask for these specific details for this very reason.
- Social media data can also be manipulated. One can “like” financial articles, participate in educational quizzes and represent themselves as if they are financially responsible. Social media can be gamed. On the flip side, a consumer can’t manipulate their payment history.
There is no question that data is essential for all aspects of the financial services industry, but when it comes to making credit decisions on a consumer, FCRA data trumps everything. In the consumer’s best interest, it is essential that credit data be both displayable and disputable. The right data must be used.
For lenders, their primary goal is to assess a consumer’s stability, ability and willingness to pay. Today, social media can’t address those needs. It’s not to say that social media data can’t be used in the future, but financial institutions are still grappling with how it can be predictive of credit behavior over time.
In the meantime, other sources of data are being evaluated. Everything from including on-time utility and rental payments, insights on smaller dollar loans and various credit attributes can help to provide a more holistic view of today’s credit consumer.
There is no question social media data will continue to grow exponentially. But in the world of credit decisioning, the “like” button cannot be given quite yet.