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Digital Footprint
Understand what is digital footprint analysis for credit risk assessment - definition, types, and sources.
Understand what is digital footprint analysis for credit risk assessment - definition, types, and sources.
Traditional credit scoring based on the credit history of potential borrowers no longer meets the needs of financial organizations.
This is due to the fact that one third of the world's adult population does not have access to banking services. Accordingly, they do not have a credit history.
Therefore, more and more lenders – mostly fintech companies – are relying on digital footprint analysis to assess the creditworthiness of their customers.
A digital footprint is a set of data created when users interact with digital platforms, online services, and content on the Internet.
There are several types of digital footprint: active and passive, positive and negative (bad).
An active digital footprint refers to information that users share on the web. For example, it can be posted on blogs or forums, photos on social networks, and so on.
A passive digital footprint is data about online activity that specialized systems collect without users' participation. This includes browsing history, device location, audience demographics, etc.
In the context of credit risk management, a positive digital footprint should be understood as well-designed professional profiles (e.g., on LinkedIn and other similar networks), matching avatars in all online accounts, timely payment of subscription fees, etc.
A negative or bad digital footprint includes information that will negatively affect the rating created by a digital credit scoring solution. Examples include using TOR or temporary SIM cards, utilizing other people's photos, and more.
A digital footprint can include a user's social media activity, use of paid services, purchases on e-commerce platforms, transactions on gambling sites, etc.
Financial organizations are resorting to digital footprint analysis to improve the effectiveness of credit risk management. Here are the data sources that lenders should use.
According to Statista analytics, there are 5.4 billion internet users in the world. And this figure has been growing steadily over the past decades.
Analyzing online acumen will, therefore, provide lenders with information on more than 60% of the world's population.
According to statistics, 5.17 billion people in the world have social media accounts:
Analyzing the data they contain can also tell you a lot about a potential borrower.
For example, face-matching technology can be used to check whether a person has the same avatar in different accounts. Detected mismatches can indicate a high likelihood of fraud.
According to current data, there are now 4.26 billion email users in the world, and this figure continues to grow.
Innovative email lookup solutions are highly effective. They allow determining whether accounts are registered to the email address specified in the loan application.
If it is found that there are no accounts associated with the email, this may indicate that the address was created specifically for the loan application and belongs to a fraudster.
Based on data as of the end of 2023, nearly 7 billion people worldwide use mobile operators:
Thanks to advanced technologies, credit organizations can obtain important information about each of them.
For example, using a phone number lookup solution opens up access to such data for analysis:
Information about how timely borrowers make payments on online subscriptions can also speak about their creditworthiness.
The relevance of using this source of information is confirmed by the growing number of subscribers to such services.
Here are some statistics confirming this fact:
SVoD surge. According to forecasts, the number of SVoD (subscription-based video-on-demand) subscriptions will reach almost 1.7 billion by 2027.
Streaming boom. The number of users of streaming video services is approaching 1.8 billion. Now, almost 83% of households in the US have a subscription to any streaming service, which is significantly higher than in previous years:
A digital footprint is an invaluable source of information about a potential borrower, which allows lenders to objectively assess the borrower's creditworthiness and make an informed decision on granting a loan.
The use of innovative scoring systems based on digital footprint analysis helps credit institutions optimize credit risk management and increase business profitability.
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