Steven Uster, the CEO and co-founder of FundThrough is photographed in his Toronto office on May 6, 2016. JENNIFER ROBERTS FOR THE GLOBE AND MAILJENNIFER ROBERTS/The Globe and Mail
A future where the time you spend on Facebook, LinkedIn and other online platforms could affect your creditworthiness isn't merely coming – it's already here.
Dozens of alternative lenders in the financial technology (fintech) space say they look beyond your credit score to determine a person's or business's loan eligibility. But what are they looking at then, if not only the credit score?
"Everything that you do on the Internet is tracked," says Steven Uster, founder and chief executive officer of FundThrough, which advances small businesses' supplier invoice amounts. "Someone who spends a lot of time on social media has a different credit profile than someone who doesn't."
Mr. Uster says alternative lenders like his may look at social media history, how responsive business owners are to customers and the time the loan application was completed – 4 a.m. could be a signal of desperation. Data on how quickly the form was filled out, your company's shipping history and the economic profile of your neighbourhood could be factored in. Solid five-star reviews on TripAdvisor or Yelp are definitely a plus, while having thousands of Facebook friends or LinkedIn connections may be an indication too much time is spent online – and not enough time is spent focused on actual business operations.
Depending on the nature of the loan, some fintech firms may look at personal social media profiles, while others may only look at business pages. These metrics can help authenticate applicant-provided data, ferret out fraud, help self-employed people get credit and give online lenders a broader base from which to determine loan eligibility, Mr. Uster argues.
"Think of it in a positive way," he says. "There are a lot of things that can make you creditworthy that you might not even know of."
Ali Pourdad, CEO of Vancouver personal-lending firm Progressa, says the lack of due diligence that led to the 2008 financial crash taught fintech firms to expand the definition of creditworthiness and examine applicants under a microscope, often by employing computer algorithms to analyze big data and assemble modern credit profiles. "We take a very close and detailed look at their financial situation." Mr. Pourdad says.
And it seems the majority of people who use online lenders accept giving up reams of personal data to access capital. Adam Nanjee, the head of the fintech cluster at Toronto innovation and entrepreneurship centre MaRS, says almost everyone under 35 seeking loans or financing want credit as mobile as they – and their data – are.
"No millennial is going into a bank branch to apply for a loan these days," Mr. Nanjee says.
Entrepreneurs have taken note. Mr. Nanjee says nearly 20 alternative lending companies have emerged in the past two quarters in Canada to serve individuals and small businesses. He points out that Canada's high degree of smartphone penetration has helped create an expectation that almost everything should be available at our fingertips.
"The future of lending that people talk about at various conferences is that it's really about the click of a button," says David Gens, CEO of Merchant Advance Capital in Vancouver.
But is it ethical to build a lending model around filtering a person or company's online presence?
The CEOs at FundThrough, Progressa and Grow would say so. They told The Globe and Mail their companies only examine data readily found online via search engines. Besides, online presence isn't the only determining factor in loan adjudication.
"Social media is just one of many, many data points and I don't think it's going to replace some of the more proven data points like credit score and financial information," Mr. Gens says. "Social media's just kind of the icing on the cake."
But there will come a day, says Mr. Nanjee of MaRS, when tech titans such as Facebook, PayPal and Apple – companies that have detailed personal and financial information about millions, if not billions, of people – become players in the fintech space, either through providing the data to help companies adjudicate loans or by hopping into online lending themselves. At that point, the lines around online privacy may become blurrier than ever.
"I think the convergence is coming," Mr. Nanjee says.
Special to The Globe and Mail
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