Earlier today AMPlify (a thought-leadership conference currently underway in Sydney) hosted Venessa Miemis to discuss the future of money and the position of Facebook credits as an emergent global virtual currency. During her enlightening session, Vanessa briefly touched on the topic of leveraging the Social Graph to help build more reliable and meaningful credit scores.
This is not the first time I’ve heard this concept discussed. I was fortunate enough to catch up with a few of the guys behind Bank Simple earlier in the year and they hinted at their own personal research into non-traditional measures of a persons reliability to pay back debt.
If you haven’t come across the concept previously, the Social Graph is a term coined by Facebook to describe “the global mapping of everybody and how they’re related”. There is a truism that we are the average of the six people we are closest to. If this is the case, imagine the wealth of behavioral data we could gleam from the ways in which friends of the borrower held themselves when taking on debt.
As p2p lending services gain in popularity a far higher degree of qualifying data will be demanded. The impact of microfinance in emerging markets is already well documented, and while generally a successful enterprise, the vast majority of lending is performed on the basis of charity without a high degree of certainty the loan will be repaid. But how can you improve this confidence? Without a credit history, borrowers could choose to leverage the good standing of their friends to provide a non-financial guarantee attesting to their ability to repay.
Of course, issues then appear around users gaming the system or self-selecting friends to improve personal standings – when there is financial benefit on the line people have a fairly big incentive to do the wrong thing – but as increasingly more data is placed online and into the graph this challenge is certainly not insurmountable.
How we judge just who is and isn’t trust worthy may be a very different proposition in the near future.
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