By James Blake CEO of Hello Soda
The digital era has changed the way we live and therefore automatically changes the way we need to do business. Through innovative technology, businesses can become more efficient, accurate and even more flexible.
Using social media to analyze the digital footprint of customers can actually help to revolutionize the financial services and fraud detection markets. Snapshots from borrowers’ social media activity could reduce the number of loans rejected based on inefficient and inaccurate data from traditional credit scoring methods. Businesses in the credit industry need to evolve to maximize the opportunities that social media presents in order to respond to a fast-paced culture where consumers are being much more demanding.
If we look at credit scoring, traditional rating models are based on historical financial performance, and do not take into account a person’s ‘true’ and real-time circumstance. Credit scores usually consider long-term behavior, focusing on payment history (35%), total amount owed (30%), length of credit history (15%), new credit (10%) and type of credit in use (10%). The evaluation of these five categories allows lenders to forecast future behavior and risk of the borrower. Credit scoring is accurate, but linear. It doesn’t take into consideration the context of that information and is therefore inefficient.
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For instance, a lender may reject a borrower because of their intermittent employment – it is assumed the borrower is irresponsible. In the real world, the borrower could have saved up enough money to leave regular employment and take up an internship, or perhaps go travelling, and still afford to pay their bills and fulfil their responsibilities. Another challenge banks face is that credit data isn’t live meaning that major changes may not be seen for months at best. For instance, a borrower may have had a well-paid job but have been made redundant or have started their own businesses and already accessed a lot of credit. It’s likely the borrower would put that information online, in the form of a status or profile update, contributing to their trail of Big Data stored online. If Big Data had been plugged in to the credit score calculation it would have bridged the knowledge gap between intermittent employment and the context of the irregularity, making the application successful first time.
As technology advances, more data about a borrower is created and stored online but currently it’s unmeasured. According to IBM, 2.5bn gigabytes of data was generated every day in 2012 alone and 90 per cent of online data has been created in the last few years. There are calls for the industry to incorporate unmeasured Big Data into the credit score calculation to add context to the fixed, historical data.
Social data brings personalization into the equation. Affordability assessments will become more detailed and bespoke than ever before and still maximizing efficiency, thanks to automated data analysis via packages provided by business such as Hello Soda. Lenders have a unique insight into their borrowers, able to see if they had recently needed to invest in a new boiler, whether they currently shop at Lidl or Waitrose, if they have just been on holiday, got engaged, or had a new baby. Social data reveals these snapshots so businesses can draw their own, well-informed, financial conclusions. In addition, an average user spends 42 minutes a day on Facebook. Any business would love to have that much time with their customer so social data can provide a real and unrivalled insight.
The traditional system is essentially an antiquated system which incorporates no room for the human element which is embedded into each statistic and shred of personal data.
Hello Soda has developed a unique technology platform called PROFILE which is a cloud-based, unstructured data engine. This takes customer information from social media platforms and blends it with other third-party data sources to create real reputation scores with a human element. Something that we call 4D profiling. PROFILE embraces Big Data into the credit scoring process, plugging an industry gap to give an accurate report based on live data which can reduce the number of loans rejected, helping make fairer decisions around affordability and improving responsible lending and borrowing. By using Bayesian Belief Network principles, we are using technology to help companies understand a person as an individual.
But it’s not just creditworthiness that social media analysis is being used for; propensity to commit fraud, employee vetting, and insurance claimants’ trustworthiness are just some of the issues the technology is being put to use to resolve.
Insurance companies are inherently interested in personality traits, fraud detection and high-risk alert. So social media profiling can score on characteristics such as openness, extraversion and conscientiousness. It also offers employment and date-of-pay indicators to effectively reduce fraud and high-risk applications. It uses psycholinguistic analysis of unstructured text through social media to identify and flag patterns which feed into insurers’ decisions. For instance, eliminating fraudulent claims, identifying retention and cross-selling triggers and analyzing how likely it is a customer will make a claim.
Meanwhile, we know that employers and recruiters use social media to check up on potential staff during the recruitment process. In fact, 95% of employers already do this. Having an official and tested profile to conduct this element can deliver informed and accurate behavioral intelligence and employee vetting. In addition, PROFILE is also being rolled out in the gaming industry to provide verification and profile indicators and we are also bringing our capability into the public sector domain where fraud, error and uncollected debt can cost billions each year.
As a company, Hello Soda started up as a SME in the UK in 2013 but is already taking big strides. We operate on a global basis and in just two years have experienced huge demand for our platform. We’re now opening up an American office in New York where we have recruited two new heads of sales – Layton Brooks and Oliver Peckham – which will enable Hello Soda to push further into the US market and develop an established international brand presence.
Our decision to expand into the USA has come off the back of success we have already had in North America. With 40% of our clients already US based, this was the natural next step and we hope the start of further expansion internationally where there is a strong appetite for technology that can aid customer insight not only for better risk pricing and fraud prevention but also to increase customer acquisition, retention and cross sell up sell identification.
Social media use is continuing to balloon. Worldwide social media users exceeded 2bn in August and it is only set to increase. There has never been a better time for organizations to join the data revolution and utilize thousands of data points, extracted from digital footprints which will revolutionize the industry.