A recent paper by Tobias Berg of the Frankfurt School of Finance and Management in Germany and his collaborators showed that a person’s digital footprint can be as predictive of financial behavior as a credit score. One of their findings, for example, is that the difference in loan default rates between iPhone and Android owners “is equivalent to the difference in default rates between a median FICO score and the 80th percentile of the FICO score.” iPhone ownership, apparently, is a reliable proxy for higher income and thus for creditworthiness.
Fintech companies already trust big data more than traditional scoring methods. The financial industry will increasingly make judgments about us from the minutest, most innocuous traces we leave on the internet. And it’s likely the algorithmic decisions that use the statistical analysis of these traces will often be wrong. That means we should seek out research like Berg’s and give the algorithms based on it much more thought.