According to research from the International Monetary Fund (IMF), your internet habits – including browsing history – could soon be a factor in calculating your credit score.
The IMF writes, “The use of non-financial data will have large effects on the provision of financial services. Traditionally, banks rely on the analysis of customer financial information from payment flows and accounting records. The rise of the internet permits the use of new types of nonfinancial customer data, such as browsing histories and online shopping behavior of individuals, or customer ratings for online vendors.”
The IMF cites research suggesting that “combining credit scores and digital footprint further improves loan default predictions.” The additional data can be used for more individualized risk assessment, and therefore more accurate risk assessment.
However, the IMF warns that there would be an “efficiency-privacy trade-off.”
“These advantages come at the risk that hard information may become monopolized,” the paper says. “Bigtech firms and other platforms may have privileged access to customer data, or their scale provides them with relative advantages in collecting and processing information. There is a tension between the private accumulation of data on the one hand and the increased public availability of data on the other hand.”
The IMF states that the adoption of new technology is usually a “medium-term process” but the economic shock caused by the COVID-19 pandemic could spur that process.
The paper says, “external shocks – such as the ongoing COVID-19 crisis – can make the adoption of financial innovation more rapid, and amplify its effects on the financial industry structure.”
“Digital platforms may strengthen their market position thanks to higher demand for digital services, and leverage upon their balance sheet strength to penetrate new markets more easily,” the paper explains. “In contrast, banks may have to prioritize crisis management and postpone investment in digital transformation. Prudential regulators may be softer in responding to medium-term prudential risks, including those from new technology-driven entrants, as they focus on restarting lending. In this context, the ongoing COVID-19 crisis makes the response to information and communication innovation in finance an even more urgent policy priority.”