Managing the friend portfolio


The Economist reports that lenders are beginning to scour social networks for data to refine the credit ratings of would-be borrowers:

Professional contacts on LinkedIn are especially revealing of an applicant’s “character and capacity” to repay, says Navin Bathija, the founder of Neo, a start-up that assesses the creditworthiness of car-loan applicants. … As statistics accumulate, algorithms get better at spotting correlations in the data. Applicants who type only in lower-case letters, or entirely in upper case, are less likely to repay loans, other factors being equal, says Douglas Merrill, founder of ZestFinance … Neo’s efforts to improve accuracy include recording borrowers’ Facebook data: Mr Bathija reckons that within a year there will be enough evidence to determine if making racist comments on Facebook is correlated with a lack of creditworthiness.

The social graph, too, provides a rich store of information for gleaning risk-worthiness. Your friends say a lot about you:

Facebook data already inform lending decisions at Kreditech, [where] applicants are asked to provide access for a limited time to their account on Facebook or another social network. Much is revealed by your friends, says Alexander Graubner-Müller, one of the firm’s founders. An applicant whose friends appear to have well-paid jobs and live in nice neighbourhoods is more likely to secure a loan. An applicant with a friend who has defaulted on a Kreditech loan is more likely to be rejected.

More than that, though, your friends provide leverage should you fall behind on a payment:

 [To borrow from Hong Kong-based Lenddo,] loan-seekers ask Facebook friends to vouch for them. To determine if those who say “yes” are real friends rather than mere Facebook contacts, Lenddo’s software checks messages for shared slang or wording that suggests affinity. What’s more, the credit scores of those who have vouched for a borrower are damaged if he or she fails to repay. Put the word out about this “social-enforcement mechanism” and “boom, the money shows up,” says Jeff Stewart, Lenddo’s boss.

It may give a new meaning to getting poked.

Rob Horning points out that people may need to start redlining their friends:

Better purge all those high school friends from your Facebook who aren’t likely to be successful; get rid of all those college friends who seem weird or who update about unsavory low-class, low-status things. … It is dismaying to see how readily social media can be used not as a tool of connectivity but as a sorting mechanism that helps rationalize social inequality. It doesn’t merely map the social territory, but starts to dictate it, along the segregated lines it reveals and then reinforces.

I see a new revenue stream for Facebook here — some kind of automated friend-portfolio management app that optimizes your mix of friends and alerts you whenever a buddy spends too much time in a bad neighborhood or starts hanging out with low-lifes. Maybe Facebook could even set up an exchange for trading friend-portfolio derivatives. You could have everything from Aaa-rated friend portfolios (stable marriages, high-net-worth zip codes, regular statin intake) to speculative junk-rated friend portfolios (druggies, socialists, poets).

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