Is Facebook set to become a major part of the alternative finance ecosystem?
The pre-eminent social network has just acquired a patent that could one day allow lenders to assess the state of a potential borrower’s social media network in order to help determine that borrower’s creditworthiness. Such a development could help online lenders to assess the quality of borrowers that lack an established credit history, like students and high flying young professionals. These are exactly the types of borrowers that SoFi, CommonBond, Prodigy Finance and Upstart lend to.
The major marketplace lenders – Lending Club, for one – already factor online data into their verification processes. And there are a number of social media-centric credit assessment tools out there, like FriendlyScore. But Facebook’s entry into the credit assessment space would change everything, and you can bet that various representatives of the alternative lending industry would be among their first customers.
But although Facebook now holds the patent, there’s no guarantee that they’ll use it. As Tech Insider points out, using social data to complement due diligence processes is a tricky business. The Equal Credit Opportunity Act is designed to prevent credit discrimination based on factors like race, colour, religion, age and marital status. US federal law also requires lenders to inform applicants why they have been denied credit.
If, however, Facebook does enter into the credit assessment space, here’s what the newly acquired patent permits them to do:
“In a fourth embodiment of the invention, the service provider is a lender. When an individual applies for a loan, the lender examines the credit ratings of members of the individual's social network who are connected to the individual through authorized nodes. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.”
One to keep an eye on.