A team of researchers has looked into the possibility of using large bulks of predominantly open-source data – from one's browsing to search and purchase history for lenders to better determine their clients' credit rating, or score as it's commonly referred to.
The findings from a working paper have been presented in a new blog post for the International Monetary Fund.
The researchers came to the conclusion that the practice could result in borrowers having easier access to money in the event of them being rejected by traditional financial institutions.
"Fintech's potential to reach out to over a billion unbanked people around the world, and the changes in the financial system structure that this can induce, can be revolutionary", the team says.
The notion of using web search history to base one's credit score on will purportedly be rooted in the idea that lenders' reliance on some hard data may easily obscure borrowers' chances to take out a loan, for instance, by painting overly dire pictures at times of universal, global crises.
Referring to such information as search history as soft-data bits, the researchers suggested borrowers have higher odds when enjoying a closer and more sincere relationship with a prospective lender.
"Banks tend to cushion credit terms for their long-term customers during downturns", the paper's authors write.
Yet, a question arises as to how the relevant data would be incorporated into credit ratings and how decisively tech giants would step into the new fintech venture.
The researchers acknowledge though that there certainly will be privacy and policy standards related to incorporating this kind of soft data into financial analysis. For instance, Facebook and Apple could potentially be required to have a laxer approach to linking unencrypted information with individual accounts, so as to get their hands on personal finance-related information unhindered.
While the researchers make it clear that tech companies have advantages over banks, especially in terms of individuals' banking operations, they admit traditional institutions still continue to dominate in business-to-business lending.
"This may change, however, due to the rise of cloud computing, which may enable large technology firms to create B2B ecosystems that include large corporate customers", they point out.