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IMF Says Your Search History Is A Better Credit Rating Than Your Pay Slip

Mon Dec 21 2020

How long before a Facebook or Amazon credit card based on your purchase history becomes reality?

In a recent article the International Monetary Fund (IMF) has stated that they believe a person’s search history, plus records of the browser and device they were using at the time would allow financial institutions to calculate a much more accurate and reliable credit history of a person than traditional methods currently allow.

They also said that being able to make decisions on those results is a good thing rather than a ‘privacy nightmare’.

They explain their thinking in the article: “What is Really New in Fintech”. The article, written by four workers at the European Central Bank and the University of Amsterdam is about ‘new types of date’ and why organisations should be on the look out for them in their decision-making processes.

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The most transformative information innovation is the increase in use of new types of data coming from the digital footprint of customers’ various online activities—mainly for credit-worthiness analysis because factors like your income, employment duration, assets, and debts vary across the economic cycle. The result is that lenders get loose in good times but tighten up during downturns. The latter outcome helps nobody. Fintech resolves the dilemma by tapping various nonfinancial data: the type of browser and hardware used to access the internet, the history of online searches and purchases. With a little AI/ML fairy dust sprinkled on that data these alternative data sources are often superior than traditional credit assessment methods.

Arnoud Boot, Peter Hoffmann, Luc Laeven, Lev Ratnovski – IMF & University of Amsterdam

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The authors feel using new steams of data produces better credit results and could :

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Advancing financial inclusion, by, for example, enabling more credit to informal workers and households and firms in rural areas.

Arnoud Boot, Peter Hoffmann, Luc Laeven, Lev Ratnovski – IMF & University of Amsterdam

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The other thing they suggested to look out for if you’ve a keen interest in data is new and upcoming communication channels that would allow organisations such as Facebook, Alibaba or Amazon to offer a platform for financial services to challenge established banks.

We already have the likes of Monzo… how long before we see a Facebook credit card?

Creating new competition in the marketplace almost always benefits consumers and doing it in the online arena “generally improves customer convenience and makes financial intermediation more cost-efficient.”


Of course, that approach isn’t without its own pitfalls, which the authors did highlight.

Security concerns, influence on lending behaviours, the weakening of banks and their support for established financial systems were just a few.

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Other critical areas include competition policy, to address the monopolistic tendencies of large digital platforms, related to network effects and the natural tendency to converge to a few large platforms; and data policies to ensure consumer privacy and efficient and safe collection, processing, and exchange of data. Overall, while much of the technological progress in finance is evolutionary, its pace is accelerating fast. Fintech’s potential to reach out to over a billion unbanked people around the world, and the changes in the financial system structure that this can induce, can be revolutionary.

Governments should follow and carefully support the technological transition in finance. It is important to adjust policies accordingly and stay ahead of the curve.

Arnoud Boot, Peter Hoffmann, Luc Laeven, Lev Ratnovski – IMF & University of Amsterdam

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Mon Dec 21 2020

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