Should we use Search History for credit scores? The IMF says yes

The illustration for your credit score should be based on your web history, says the IMF

Photo: Philippe Huguen (Getty Images)

With more services than ever collecting your data, it’s easy to start wondering why someone should care about most of them. Because. Because people are starting to have ideas like this.

In a new one blog post for the International Monetary Fund, four researchers presented their findings in a working paper which examines the current relationship between finance and technology, as well as its future potential. Looking at the crystal ball, researchers see the possibility of using data from browsing, search and purchase history to create a more accurate mechanism for determining the credit rating of an individual or a company. They believe that this approach could lead to higher lending for borrowers that could be denied by traditional financial institutions.

In essence, the newspaper is trying to fight the nascent notion that the institutional banking system is facing a serious threat from technology companies such as Google, Facebook and Apple. Researchers identify two key areas where this is true: technology companies have greater access to software information, and messaging platforms can take the place of the physical locations on which banks rely to meet with customers.

The concept of using your web history to inform credit ratings is based on the notion that lenders rely on rigid data that could hide the value of a borrower or make an image useless in difficult times. Citing software data 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 valuation, researchers believe that when a lender has a more intimate relationship with the potential customer’s history. , they may be more willing to reduce them.

“Banks tend to amortize credit conditions for their long-term customers during recessions,” the authors write. This is because they have a history and a relationship with the client. Now imagine what kind of intimate history Facebook could have with a borrower all of a sudden digital cash the initiative is starting to make more sense.

But what about all this data embedded in credit ratings? Machine learning, of course. There are black boxes to the end.

Researchers acknowledge that there will be issues of privacy and policies related to the incorporation of this type of soft data in credit analysis. And I’m doing little to explain how this might work in practice. The paper is not long, and it is worth reading just to wrap your mind around some notions about the future of fintech and why it seems like everyone wants to participate in the payout game.

Indeed, obtaining very fine-grained soft-data points would probably require companies such as Facebook and Apple to lower their standards for linking unencrypted information to individual accounts. How he could share information if other institutions had his own box of worms. And while researchers sound optimistic about the benefits that technology companies have over banks, they cite intercompany lending as a game that traditional institutions still dominate. “This may change, however, due to the growth of cloud computing, which could allow large technology companies to create B2B ecosystems that include large corporate customers,” they write.

Yes, the idea of ​​every move you make by fueling your credit score online is terrifying. It may not be possible in the near future. IMF researchers stress that “governments should closely monitor and support the technological transition in finance. It is important to adjust policies accordingly and stay ahead of the curve. “When was the last time a government did that?