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Lenders using Facebook, Twitter to gather borrower information
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Facebook CEO Mark Zuckerberg talks about the social network site's new privacy settings in Palo Alto, Calif.
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While it has been standard practice for officers at the online Lending Club to verify a borrower's income and run a credit check before approving loans, these days they also check out any public information about an applicant on Internet social websites.
"If I go on Facebook or Twitter and see information that doesn't match, it could indicate something is wrong," said Rob Garcia, senior director of product strategy at Lending Club, a peer-to-peer lending network based in Redwood City, Calif.
Financial institutions have become more careful about whom they loan money to and some are finding creative ways to take advantage of the growing popularity of social networking websites and the wealth of personal data they provide.
Casual comments between friends, status updates and photos can be a great way to communicate, but that information is also being dissected and analyzed, according to insiders in the technology industry, to give financial organizations greater accuracy in creating a credit profile for potential borrowers in addition to their official credit history.
"What (financial institutions) have found is if your friends tend to be good credit risks, such as pay their bills on time, you are likely to be also," said Lorrie Cranor, a professor of computer science at Carnegie Mellon University specializing in privacy issues.
Jack Vonder Heide, a technology analyst who follows the banking and financial services sector, said the concept known as "social media monitoring" has emerged because the existing credit scoring system doesn't always work anymore.
"A credit score advises a bank on how well you have paid your bills in the past," said Mr. Vonder Heide, CEO of Technology Briefing Centers in Oak Brook, Ill. "But social media monitoring will tell a bank how likely you are to pay your bills in the future."
An example he uses is a couple where both are employed and the husband loses his job. He may put a post on his Facebook page saying, "I was fired today." That will impact the couple's ability to pay their bills, even though they might have a great credit score.
"The fact that one of them lost their job means a higher likelihood they will not be able to pay bills in the future," Mr. Vonder Heide said. "There are companies developing these algorithms to do these calculations. They will sell this data to banks and credit reporting agencies."
He said certain key words and phrases people post indicate trouble, such as: "I was fired" or "I'm looking for a new job."
"People post to Facebook assuming the information is only shared with friends, but in fact it is shared with a much larger audience," Mr. Vonder Heide said.
"There is no such thing as a free Facebook account," he said. "You don't pay to use it, but you give up privacy in exchange for using its service. The way Facebook makes its money is by selling its user's information."
With an estimated value of $10 billion and 400 million registered users, Facebook has been under increasing scrutiny for pushing the envelope on privacy. Company representatives did not respond to interview requests so it is difficult to know exactly how Facebook intends to use all the information on its site.
On Wednesday, Facebook responded to a backlash from users concerned about privacy by announcing a plan to simplifying its privacy controls and apply them retroactively.
One of the leading companies involved in crunching data pulled from Facebook and other networks, and providing it to corporate America is RapLeaf, a San Franciso-based research firm that follows the network behavior of an estimated 480 million people and claims to have "one of the largest people databases in the world."
Joel Jewitt, vice president of business development at Rapleaf, said the information his company provides its clients is not used for making credit decisions. He declined to comment further.
Mr. Garcia also was careful to point out that Lending Club uses the information it pulls off social media websites only to confirm people's identities and minimize fraud. If an application is denied due to the social media verification process, it's because of questions about the person's identity.
Lenders in general are cautious of denying loan applications based on what they discover on social media websites because they run the risk of violating the Fair Credit reporting Act.
Yet some privacy experts are convinced it's already happening.
"Financial institutions are starting to look at this information and are using it to make credit decisions," said Ms. Cranor, the CMU professor who also leads the New York-based Association for Computing Machinery's public policy council.
One case she was familiar with involved a woman who filed an insurance claim for depression and had it denied based on photos she posted on a social networking website of herself on vacation. The insurance company used the photos to make a case that she was not sick.
Although that case did not involve a credit decision, it was a decision directly tied to social media that impacts her financial status.
"There are a lot of things we say to our friends and if someone else reads it and they don't have the right context, it could be misinterpreted," Ms. Cranor said.
As a company that helps people loan and borrow money from each other, Lending Club has come to rely on social networks as a way of finding out who someone really is, Mr. Garcia said.
"What I find fascinating is social media and social networks make you a more honest person," he said. "When people post what they feel, what they think and what they are doing, you can usually trust that information.
"This is information their friends are seeing and it's publicly available."
Some of the websites Lending Club officers refer to during the loan process are Twitter, Classmates.com, Facebook, Match.com and Friendster.com.
Smaller lenders with portfolios manageable enough to look at each loan individually may be in a better position at this point to use Internet information to supplement their loan decision.
The stakes are higher for big lenders with thousands if not millions of customers and an approval process that is mostly automated.
But the technology involved in processing information on social media is bound to become more sophisticated, industry experts say.
Trackur is a social media monitoring tool used by corporations to keep track of what people are saying about their products across the Web and to gain information about customers. Companies can use it to monitor their brand, their competitors and even their own employees.
Andy Beal, owner of the company based in Raleigh, N.C., said in the past six to 12 months there has been a proliferation of companies using the service to match online profiles with real world identities.
"Lenders are looking for information on potential borrowers. Collection agencies and lawyers are looking to track down the whereabouts of individuals," Mr. Beal said, adding that he also is seeing hiring managers use social networks to conduct reference checks.
"Companies are starting to realize we do live in a social network age. If you share information on a social network, you should assume someone will harvest that information for their benefit.
"The credit industry itself will be transformed by social networks. This will be an additional tool the credit industry will use to determine your creditworthiness," Mr. Beal said.
Larry Weintraub, CEO and founder of Fanscape in Los Angeles, said technology companies are building analytic tools to scrape information from social networks such as Facebook and Twitter. Even if they are being tailored for the financial industry, they can be applied to other industries.
"If you are in this world of digital marketing, you are aware of it," Mr. Weintraub said. "You know the capabilities of capturing people's data from an economic or financial aspect.
"Obviously, we've had a rough go in our economy and banks are cautious to lend. They have been burned on your credit score alone. They want to do more research and the data is readily available."
First Published May 28, 2010 12:00 am
