Banks Using Mobile Phone Usage To Gauge Credit Risk

Hugh Pickens writes "A new startup is revolutionizing the way financial service companies meet the needs of an estimated 2.7 billion people worldwide with a mobile phone but no access to formal financial services by developing sophisticated modeling software that can look at usage data from consumers' mobile phones and make predictions about credit risk. 'There's a vast market of consumers in countries like Brazil, China, India, and the Philippines who want access to financial services like credit cards, loans, or insurance,' says Jonathan Hakim, chief executive of Cignifi. 'But while they may have jobs, and some have bank accounts, there really is no credit history for them.' The way you use your phone is a proxy for your lifestyle say the developers. 'We're looking at things like the length of calls, the time of day, and the location you make them from. Also things like whether you top up [a pre-paid SIM card] regularly. We want to see how stable the patterns are. When you look at that, you can create these behavioral clusters that give you information about users' appetite for new [financial] products, and their ability to repay a debt.' Currently operating in Brazil, Cignifi doesn't plan to deploy the technology in the US. in the near-term. 'The business opportunity is so much bigger in Brazil, India, China, and Mexico, where you have around half a billion people in those four markets alone who have a mobile phone but no banking relationship.'"

Comments

The entire credit history thing is stupid

[FreeCoder]

The countries listed, and where credit is not usual for people but mostly businesses (and only then for billing duration), have it more right than US. In the United Status people need to take loans just to build up their credit history, which is just useless costs. The only justified things for loans should be loans for starting businesses, houses and maybe cars. Living on credit for your everyday things is just stupid and bad for economy. And this also includes credit cards, even if you pay them back as soon as you get the bill.

Re:The entire credit history thing is stupid

[im_thatoneguy]

I disagree. I live off of credit for day-to-day things for a very simple reason: my income is very consistent and infrequent (payday).

I know how much money I'll have at the end of the month down to the penny. I also know that my credit card is due 1 month after the statement. So if I want to make a big purchase that I can't afford for instance I can buy it now and pay it off in up to 2 months interest free. My bank account usually has enough cash on hand to cover my monthly expenses but when it doesn't I use it to smooth out the discrepancies between my wants and my pay-dates. Why wait a week for pay-day when the credit card bill won't be due until the end of the month? It makes my income and my expenses both equally predictable instead of the haphazard day-to-day uncertainty of spending.

As a result I've never paid a penny in interest, I've flown around the world on my miles and my bill paying is far more predictable and automated.

Re:The entire credit history thing is stupid

[hedwards]

The problem isn't the interest rates in that regards, the problem is that the spread is so large. If I have an account at a bank the typical interest these days is roughly 0.1% on most accounts I've seen. A quick look at average rates reveals that low interest cards average out at about 10.75%. So on average they're borrowing money from account holders for 0.1% and they're lending it for an additional 10.65%. There is some overhead involved, but people wonder why savings rates in the US are so low. 0.1% is 1.9% below the Federal Reserves typical inflation target.

I don't agree with Ron Paul on pretty much anything, but the fact is that he's dead on when it comes to the harm that the Federal Reserve represents. Tax laws are nothing compared with the income redistribution that's resulted form the Fed purposely creating inflation and holding interest rates well below inflation.

Re:The entire credit history thing is stupid

[man_of_mr_e]

Are you serious? I don't know of any family of 4 that can save money on $50k a year. Rent, clothing, food, etc.. they'd be lucky to save $100 a year, much less $10k.

Raising a family is expensive. Insurance alone can cost upwards of $500 a month. I think you're incredibly naive if you think that someone can put away 10% of their salary at that level.

Re:The entire credit history thing is stupid

[Anonymous Coward]

He is serious, he suffers from the mentality that there's always *something* more you could do.

He wants them to live like crap. Never do anything, sit in the empty living room with no tv or cable and absolutely never do anything that isn't tied to staying alive.

You get about $1500 every 2 weeks on 50,000 a year give or take taxes. $900 rent because you're 19 with no savings and can't get a house loan, $300 for your $7K car with a $13K payment (because you have no credit and had to get a high interest loan without family to co-sign), $200 for gas and car maintenance, $300 groceries, $50 phone, $50 internet, $60 cable, $300 car insurance (again you're young and it's insane rates for even a boring daily driver vehicle), $230 health-insurance.

Let's see here.... If you get $3000 a month with the above bills that's a whopping $610 to show after the above bills. Don't get bad teeth or a $1750 root canal will sink you. Don't do nothing wrong and get hit while stopped by another driver, $1000 deductible will sink you. Don't break your left foot in 3 places, that's $2700 and that will sink you. Don't forget your landlord will foreclose the house and stop paying the mortage so you have to immediately come up with $3500 to move and that will sink you!

Heaven forbid two or more things happen within the same year then you're really fucked. Take away another $70 a month to use check into cash services to keep the gas in the engine and the lights on since you have no family to help...... Don't forget that $130 license plate renewal right on your birthday and don't forget your renters insurance.

Now other people bitch that you even have TV to show for your hard working middle class salary.... You should probably cancel that and sit looking at the wall since you definitely want to be *active* after busting your ass for 11 hour days to make up for the vacation (borrowed mind you with a sobbing call to HR) you used while the foot was broken!!!!

FUCK THESE PEOPLE. Middle class means I should be enjoying my life for my hard labor. Fucking poor people on food stamps often have more spending money with ZERO effort.

THIS is what is wrong with society. Also looking forward to no pension or Social Security in 2060 when I'll need it..... I bet that's already spent too right?

No science to it

[Dyinobal]

They just use this as a mean of hiding the fact that banks really have no idea if you'll be good for the money they are loaning you. They are just trying to get the contact numbers of your friends and work associates so they can harass them when you don't pay up.

Seriously

[Billly Gates]

FUCK OFF

I normally do not use those strong tones in my slashdot replies but what I do, and what videos I watch are no ones business! Why is this even for sale?

When employers tried to call your doctors and pyschologists to weed out applicants with potential issues like depression people were outraged and HIIPA became law. The medical industry hates it but it was a must as in an alternative universe anyone who has taken an anti depressent would be labeled a credit risk and unemployable or someone with ADD would be unemployable and another credit risk etc.

I think the same should apply. I mean what is next? Installing video cameras that view into your house all over the street? Maybe looking for who you invite over or what you do in the bedroom next?

Re:The Laws Of Personal Finance

[Anonymous Coward]

In civilised countries you only need steady income and a valid payment plan.

Re:The Laws Of Personal Finance

[TheRaven64]

I'm not sure how you get from the first three to the fourth one. For example, I took out a mortgage a little under two years ago to buy a house. As a result, I am now paying in mortgage interest less than a third of what I was paying in rent. Because the house I bought has better insulation than the place I was renting, my gas bill has gone down. Because I bought new appliances when I moved, rather than using the old ones that came with my rented flat, my electricity bill is also down. And yet, I am quite clearly not avoiding all debt - I have more debt now than I have ever had, yet my monthly cost of living is much lower and, as a result, I am paying back the mortgage quite quickly. In a few years, it should be fully paid off. At that point, my cost of living will be even lower. In contrast, if I'd avoided all debt, I'd still be slowly saving up to buy a house, while paying someone else for the privilege of living in a property that they owned.