Lending Market Watch

Social Media relevancy is the new Credit Score

Techcrunch Disrupt just finished and I have to say it was a first class event (from the limited vision of the live feed at least). You can watch all the panels/interviews/announcement over at Techcrunch TV.

One of the panel I was most interested in was the New Mobile Frontiers panel with Laura Chambers (PayPal), Holger Luedorf (Foursquare), Keith Rabois(Square). The all conversation was top notch but one of the most interesting details given by Keith Rabois is how Square is using Yelp and Twitter to validate the existence of their customers.

Note: Square is famous for allowing credit card payment on the Iphone/Ipad with a small free plastic dongle, but what most people don’t realize is that one of Square key aspect is that you can receive those payments without opening a merchant account. There are almost no requirements to open a square account: no need to give years in activities / past years financial details / etc.. As described by Keith Rebois, Square is looking, in part, at helping the ebay vendors of real life. Small businesses that don’t want/don’t need to pass the hurdle of opening a merchant account but would benefit in being able to accept credit card payments.

Because of Square’s specific strategy described above, they need to innovate and one way to reduce their risk is to validate their customers in new ways (see video at 12:10) . It’s a clever strategy because there is a unique alignment on that perspective between Square, and companies such as Twitter and Yelp. For Yelp and Twitter bots/fake reviews are detrimental to the quality of platforms and they are actively implementing strategies to reduce those making it more probable that active users are companies/people with a relevant real-life existence, for Square, how long you have been on the platform, how many reviews you have, how many followers can help them make their underwriting decision (maybe satellite imagery next per Keith Rabois, who did not want to go into too much details on the algorithm)

Another good example of a company using the same strategy is Kabbage, an online lender for Ebay sellers:

it’s easy to see if you qualify for an advance with Kabbage. Do you have about 5 seconds to spend with us? Simply enter your eBay marketplace ID and we will start the process. If you have sufficient activity and a great history of selling on eBay, we will then ask you to complete our application. You can go from eBay ID to cash (in your PayPal account) in as few as 10 minutes!

For any merchants, especially with the current state of lending to business from “mainstream” banks, having a 10min approval timeframe is disruptive. In more details, Kabbage is using the DataView360 platform from GDS Link to aggregate the ebay data and create their own “scoring”. I am guessing they have done detailed comparative analysis between ebay rankings/volumes and credit score/information to obtain a good level of confidence on how to rank their borrowers. Here is a quick video of Marc Gorlin from Kabbage describing broadly the criteria they use.

To conclude, I believe social profiles will be more and more important in the future for financial institutions. I think it is something that will also grow in the P2P lending field where more data about the borrowers will help fluidify the marketplace. Facebook especially will be a key part of this trend because it is the first platform that explicitly ask that your net presence matches your real life presence. What do you think?

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