Underbanked Help: Can Mobile Phone Usage Patterns Indicate Creditworthiness?
We know of social media sites giving birth to data nuggets that may benefit underwriting loans, but late last week we came across a new nonstandard data play for assessing credit risk that intrigues us — at least as an idea.
A Cambridge, Mass., startup, Cignifi, uses modeling software that ties mobile phone usage patterns to credit risk, and the implications for the underbanked populations could be quite meaningful. Though a consumer may not have a rich credit history, he could have a robust use of his mobile phone that could indicate his creditworthiness. Scott Kirsner, a writer for Boston.com, reports on the company:
Last year’s test in Brazil ran data for 3 million cell phone users through Cignifi’s software, and produced a behavior-based score that resembles the FICO credit score many U.S. consumers are familiar with, which runs from 300 to 850 points. Then, the company compared its predictions about their credit-worthiness against actual credit card debt information for that same group.
Though the article says the company has no immediate plans to use its model in the United States, we’re captivated by companies that use untapped data patterns to potentially help underbanked consumers, a population that has a rough go at gaining credit.
But finding data points on thinner credit files isn’t restricted to newer technology. In fact, just the other week I was speaking with an economist who argued that old school bank branches assist the underbanked population, too. Ozur E. Ergungor, an economist at the Federal Reserve Bank of Cleveland, who recently published research on how physical bank branches help underwrite lower income individuals, argued to Bank Innovation that the bank-customer relationship interactions can yield additional data points for lower-income borrowers that are crucial to credit risk assessment. In short, he wrote:
It makes it possible for creditworthy borrowers living there to obtain loans, and it leads to lower rates of default among them.
Or to put it another way, branches “provide additional information that credit scores can’t provide,” Ergungor tells Bank Innovation. “As long as there’s a branch in the area, the low-income borrowers benefit from credit.”
