Two companies using Facebook profiles to generate credit scores, their stands side by side at Cebit, are chasing different customers — although they are competitors in the trade show's Code_n startup contest.
Kreditech, a two-year-old German company, uses customers' Facebook and other social media profiles to evaluate credit risk for its own loan business.
Next door is Big Data Scoring, an Estonian company with its data science team in Finland. It doesn't make loans, instead helping lenders reduce risk by factoring social media profiles into their scoring systems.
Venerable U.S. credit scoring agency FICO worried some in early January, when a report in the Wall Street Journal suggested it might one day consider using Facebook profiles in its credit scoring process. But the two startups here at Cebit say there are plenty of borrowers willing to share their profile information in the hope of getting a loan.
Big Data Scoring's loan provider customers can ask would-be borrowers to share their Facebook profile as they fill in an application form, perhaps by offering discounts, said Big Data Scoring's CTO, Juha Palomäki.
Once Big Data Scoring has permission to access the profile, it extracts work and education history data for the customer and their friends, and looks at their Facebook activity.
"We are not looking at photos or messages they have written, but at how many actions they take on Facebook each day," he said.
Lending institutions already collect information such as income and marital status about their customers, allowing them to identify the very best and the very worst. "With the information we provide, they can identify more good customers from the gray area in between," said Palomäki.
To develop its scoring system, Big Data Scoring divided customer repayment data initially provided by lenders into two, training the system with one half of the data and using the other half to verify whether its predictions about repayment risk were correct.
Basing credit scoring decisions on social media profiles may worry some, but it will be a bonus for others. "This is very interesting because credit rating agencies work with credit histories — and young people or people in emerging markets have no credit history," Palomäki said.
Borrowers' willingness to share profile data caries by market. In South America, almost 100 percent are willing, he said, while in Poland between 30 percent and 50 percent are.
"In countries like Germany, it's quite low," he said. "It also varies with the incentives the lender is offering."
Big Data Scoring evaluates not just the borrower's profile, but also how long it took them to fill in the form, said Janne Liuttu, the head of the company's data science team. Forms filled in too quickly may be a sign of an automated attempt to commit fraud. The company collects far more data than it needs today, storing the rest to see how lenders' customers change their behavior over time, he said.