The Equifax data breach that exposed 143 million personal records was a wake up call about the shoddy security at one of the major credit rating bureaus. But it left many of us thinking about larger issues. What value do the three big ratings bureaus, Equifax, Experian and TransUnion, provide today in our emerging digital economy? Not only do these agencies dangle the sword of Damocles over our creditworthiness, they each rely on nearly identical metrics to do so. And they have the gall to charge you to access your own data, which they collect to sell to businesses. Your data is their product.
Mostly they’re interested in what you’ve paid for and what you own and how timely you are about paying what you owe. Increasingly in a world where payments may involve a peer to peer exchange, a global transfer, and more and more often a mobile phone transaction, the definition of good credit is going to change and widen. The multiple streams of information available about you: where you shop, who your network of friends are, and what you buy may ultimately paint an entirely new, more psychographic way to evaluate your creditworthiness.
Too Big To Fail?
Today, Experian maintains credit information on 215 million American consumers [Experian]. That's over two-thirds of the total U.S. population [U.S. Census]. Roughly half of the population in the US has a FICO credit score that is less than 650, meaning that nearly half of people in the US cannot get credit from banks today. Climbing out from under a bad rating or establishing a line of credit becomes a Sisyphean task.
The Equifax debacle turned up the volume on the call for change. We’re about to see more innovative ways of looking at credit, most of them built by mobile-first fintech companies. We’re also going to demand more secure customer login at credit agencies, and we’re going to demand systems that give the customer control of locking and unlocking their own accounts for creditors to see. The mantra “your data belongs to you and should be made available with your permission in order to get something that you want” will be heard across the payment/lending landscape.
Companies like PayPal, Kabbage, SmartBiz, Square, and others have stepped in to look at new ways to determine creditworthiness. Rather than depend solely on a single score like FICO, they are looking at a more holistic picture of a credit applicant. See https://marketsmedia.com/opinion-fintechs-dirty-secret/ for more.
SoFi, another lending startup, is using AI to analyze data from sources other than credit card information. They’ll look at your educational pedigree for example. And ShoCard, a blockchain-identity management system (IMS), teamed up with Creditinfo to let a customer claim their identity and manage who it gets shared with.
The new credit managers are going to need to start thinking of consumers as customers (not just data) and infuse a dose of authenticity and trust if they’re going to survive. Credit Karma has won a large share of the younger market (75 million users) because they carefully cultivate a site that puts the consumer first.
Chad Swenson of Lantern Credit believes your credit should be under your control. “Companies,” he says, “now have the ability to work with multiple alternative data streams outside of the traditional data delivered from the bureaus.”
Swenson believes that the recent credit file breach at Equifax underscores the need for new and improved tools. Consumers are going to play a more central role as these emerge. “There will be new tools to increase the simplicity, scope and prevalence of consumer initiated fraud alerts and credit freezes,” Swenson says.
It will probably lead to a situation where files are permanently locked unless the consumer approves a specific release of information. And credit agencies may be barred from releasing a consumer’s record without their approval.
Swenson is bullish about new techniques for real-time multi-factor identity verifications that consumers would be able to use via their mobile phones, tablets, and computers to authenticate their identity in real time.
Evan Singer, CEO of SmartBiz, a company devoted to helping small businesses secure loans, says that other metrics like your bank rating (how you use your bank rather than your credit) is another important piece of the puzzle often ignored.
"When lending to non-prime borrowers, it’s almost more important to look at additional consumer data," says Eric Von Dohlen, Chief Analytics Officer at Elevate Credit. The company works with Yodlee and Plaid's bank data to reach under served borrowers and it has created a Center for the New Middle Class to increase understanding of the under-banked.
Equifax was a yet another security breach wake up call. Instead of getting complacent about these, it may be time to get serious. I’d love to see standard penalties imposed for each person affected by a breach. If Equifax unmasks my data, it would be required to send me $100 as compensation for the inconvenience. If you’re in the business of keeping consumer data safe there should be an incentive to do it right. As it stands there is no compensation to the victims of a breach, and we can’t even take our business elsewhere, because we are not the company’s customer. We’re the product.