As a futurist, I have been watching the trend of big data for some time. In fact, it has become so commonplace that it is not technically a trend anymore. However, while the practice of big data is becoming unremarkable, a common understanding of what it really means is not. Somewhat like the idea of ‘the cloud’ ten years ago, big data is just beginning to form its definition in mainstream culture. Furthermore, the effects of this shift are becoming apparent.
Today’s blog provides insights about the implications of big data. The examples below find their origin in a recent LA Time article which provides fascinating insights about how big data is changing the banking lending industry. Let’s begin with a quick overview of how we have traditionally awarded consumer credit before we look at how big data is changing things.
We all have credit scores. In fact, how much credit we are granted is based on your score. These numbers are created from a combination of several factors and include things such as how much you owe, how well you pay back what you owe and the length of your credit history. Together, these factors are used to provide creditors with an indication about how safe or how risky your loan request is.
So what happens when big data impacts the lending industry and the traditional credit request process? In short, the industry begins to innovate!
As a reminder, big data refers to using the vast amounts of information that is available as a result of living in an information age. This includes data about which web sites you visit (and when), your social media profiles and your on-line purchasing habits. While you knew that Amazon uses this type of information to customize your buying experience, you should also be aware that this data is now being analyzed by credit companies.
In his LA Times article, Koren pointed out big data ingredients are now being used by some lending companies to assess credit applications. Your credit application may not include reviews of things such as;
- Your college major,
- The reviews on Yelp about your business (your good business balance sheet can be negated by negative customer reviews!), and,
- Whether you type your application in ALL CAPS (people who do are a much higher credit risk).
If these things surprise you, listen to the most shocking one! Facebook recently secured a patent that “would assess a borrower’s creditworthiness based on the credit scores of Facebook friends” (Koren).
So is the application of big data to credit a good thing or a bad thing?
Yes (meaning it’s both)!
At its worst, big data can be invasive and based on algorithms that don’t fully reflect the way real-life works (e.g. – A degree in Russian Language may not seem highly employable until you understand that this person works as a translator for the Russian Embassy). At its best, big data can move us beyond credit assumptions that are antiquated and inadequate. For example, Mr. Brigham was recently given a loan for a $700,000 condo by a lender who uses big data. After being turned down by many banks, Brigham was granted a loan because non-traditional assessments deemed him loan-worthy. In fact, he was even assessed with low enough risk to also waive the costly mortgage insurance (Koren).
Welcome to the era of big data banking. Whether you acknowledge it or not, big data is impacting your life. In and of itself, it is a neutral issue. However, how we use it will create our future Jekyll and Hyde’s! In fact, look for the ethics of big data to become a dominant issue in the next decade.
So how should you respond to big data? The company ZestFinance’s slogan summarizes perfectly – just remember that, “All data is credit data”.
Dr. Jeff Suderman an educator, futurist, consultant and pracademic who works in the field of organizational development. He can’t wait to ask his banker how they assessed his line of credit! He partners with clients to improve culture, leadership, teamwork, organizational alignment, strategy and organizational future-readiness. He resides in Palm Desert, California. Twitter: @jlsuderman