Banks need data to make lending decisions.
The most important question in banking is, “How do I know who will pay me back?”
At first, all lending was “character loans”—the lending officer had to make a judgment about how creditworthy a borrower was by judging his firm handshake and eye contact. Then, as financial brokers like Dun & Bradstreet entered the picture in the mid 19th century, lending became performance-based; it was based on paying bills on time.
And while the business has gotten more sophisticated with credit ratings and big databases, the principle has remained the same—past performance indicates future performance.
But as the culture continues to change, a new factor is starting to become relevant—what you post on social media. And while this is just happening around the edges of the lending industry (for now), it shows how pervasive the change in our culture has become.
Today, the practice is limited to people with “troubled credit histories or no bank accounts.” LendUp is backed by Google Ventures, which clearly believes in the value of behavioral data. Applicants opt in to having LendUp look at their social media presences in order to get a better picture of the applicant. Applications are often as simple as confirming whether the address on a consumer’s loan application is the same as on their LinkedIn page, but it’s easy to see where it can go.
Alex Sion, president of the New York-based Moven said, “The data we have on customers via social networks says more about them than their FICO.” Even for business loans, companies like Kabbage track how a business responds to its customers on social media.
As the great Don Draper once said, “People tell you who they are, but we ignore it because we want them to be who we want them to be.” Put another way, you are what social media says you are.
As the pace of business increases and traditional sources of value get competed away, the most valuable asset a business can have is an accurate picture of customer’s behavior. That’s why Google bought Nest—it’s not about putting ads on your thermostat, it’s about understanding each customer on a deep granular level. You can always find some way to monetize that.
Back in my teenage days, people used to joke about something going down on “your permanent record.” That was always considered a joke, as no one believed that junior high disciplinary records would leave the building.
Today, when every idiot teen brags about their exploits on Twitter, it’s not a joke anymore. Cops use Twitter to monitor and prevent gang violence. We all have a permanent record now. The National Security Agency (NSA) has it, but increasingly, so does anyone with a search engine.
You can’t sit out the social media era. If you don’t maintain control over your brand in social media, you could get a very nasty surprise later.
Image credit: CC by Jason Howie