Mobile Phone Information: New Barometer for Credit Worthiness


Image By: Diane Diamond

Financial institutions, overcoming some initial trepidation about privacy, are increasingly gauging consumers’ creditworthiness by using phone-company data on mobile calling patterns and locations.

The practice is tantalizing for lenders because it could help them reach some of the 2 billion people who don’t have bank accounts. On the other hand, some of the phone data could open up the risk of being used to discriminate against potential borrowers.

Phone carriers and banks have gained confidence in using mobile data for lending after seeing startups show preliminary success with the method in the past few years. Selling such data could become a more than $1 billion-a-year business for U.S. phone companies over the next decade, according to Crone Consulting LLC.

Apparently, lacking a bank account no longer precludes prospective borrowers from pursuing sources of capital funds. Some financial startups have been using mobile phone data as a barometer for credit worthiness, and it has been going on for years. These companies have found that patterns gleaned from mobile-phone information can be used to delegate funds to financially viable small businesses and individuals. Companies have used a variety of different methods of credit assessment via mobile-phone information:

  • Volume of calls/texts received (“It turns out, the more economically active you are, the more people want to call you,” Moriarty said. “That level of activity, that level of usage is what’s really most predictive.”)
  • Psychological questionnaires sent to potential borrower’s mobile phone
  • Whether or not the phone is present at the home or work address
  • Whether or not the potential borrower has been in contact with trustworthy debtors, or those who are not trustworthy

There are 2 billion people with no bank account. A lot of these people (albeit: only those who have a cell phone plan) now have a manner through which they can utilize leverage, sign up for credit cards, and the like. This “financial inclusion” should be a win-win: people who previously did not have access to credit have it and lenders have a way to access ~27% of the world’s potential creditors that were previously off-limits.

However, this new method of credit risk evaluation is another battleground in the tug-of-war between personal privacy and economic opportunity. I am decidedly skeptical as to how “consensual” this release of mobile-phone information is. The article clearly illustrates that the different players are keeping their cards close to the chest. The majority of startups and financial companies were not willing to disclose what phone companies they have as partners. The telecommunications providers? Not a single one answered Bloomberg’s inquiries for comment regarding whether or not they share data with financial institutions. These providers understand that they are treading in potentially deep water. I mean, tracking the location of your cell phone and who you are talking with? People need to ask the following: what are these companies going to do with this data? Sell it again? To whom? Save it and create a database to, theoretically, include/preclude consumers from other opportunities? I advise you to not ignore the overwhelmingly Orwellian issue at hand: never take your privacy for granted. Stay mindful of how your own personal information is being used/exploited in this increasingly inter-connected world.

Hopefully, we all don’t end up in Room 101.

P.S. We can have a follow-up blog when financial institutions reassure desperate Americans that they can use their mobile information to apply for loans/credit cards in lieu of their depleted bank statements & crappy credit scores. That’ll go swimmingly.


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