February 25, 2016
Social media offers a host of benefits to the lending sectors and it brings tangible opportunities to the lenders. As credit underwritings evolve and while credit standards advance with the economic cycles, the credit underwriting process largely remains the same. While factors such as salary, job history and credit score servings would remain the core of credit decisions, the array of data with the potential to provide accurate risk scoring and better evaluation is available using social media.
The LTP report on the US social finance market talks about the benefits and advantages of social media in the finance industry for SME lending, key players in the market, latest technology trends and government regulations.
A few innovative lenders are incorporating social media data into the credit underwriting process. Lenders that are taking advantage of the data generated by social media are able to differentiate themselves with enhanced credit lending process and customized service offerings.
Leveraging data from applicants’ social media presence brings tangible opportunities and benefits for lenders. Here a few of them:
- Capture new customer segment
- Provide differentiated customer experience
- Strengthen existing underwriting process
- Enhanced fraud prevention
- Develop competitive edge
By leveraging, social media data lenders get an opportunity to capture the underbanked customer segment. In the US, nearly 64 million consumers do not have credit scores. Depending on their strategies, lenders have several options for incorporating social media into the lending processes. Social media data can be a tool that allows lenders to expand their customer base by providing alternative data points that mitigate risk and allow an increased acceptance rate for borrowers.
Facebook is the most popular social media network among other networks.
73% of adults (above 18 years of age) in the United States are active on at least one social media network. Companies use the publically available information from social networks and provide customized solutions based on data analytics. Also, customers often use social networks to express opinions and share experiences with small businesses. This can be a huge source of information for lenders to evaluate the creditworthiness of SMEs.
There are growing numbers of lending companies that use data found on social media sites to supplement the assessment of a customer’s credit risk. These startups see gaps in the traditional financing system and provide technology-driven, enhanced solutions. These companies use social media data to help score the creditworthiness of middle-class borrowers in emerging markets for small loans. Companies like Vouch, Trusting Social
Companies are heavily investing in IT infrastructure to incorporate social media data analytics which requires a different infrastructure compared to traditional credit risk modeling. Lenders and financial institutions are considering the architectural implications of multiple processing systems and the use of tools and big data analytics platforms such as Hadoop.
The consumer finance market is transforming as a result of innovative lender and finance firms reshaping business models and customer experiences. The firms are leveraging socially available information and advanced analytics and big data together to gain insights to fuel growth. The innovations are customer-centric, reflecting an understanding of changes in demographics, customer needs and how to connect customers through social networks.