09:50 GMT21 January 2021
Listen Live
    Tech
    Get short URL
    by
    2011
    Subscribe

    As follows from a new report for the International Monetary Fund, traditional financial institutions, despite them still standing on solid ground when it comes to business-to-business operations, might soon be a thing of the past.

    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.

    Related:

    IMF Official Says MENA Oil Exporters to Struggle Worst With Post-COVID Economic Recovery
    Germany Pledges Extra $3.4Bln to IMF Coronavirus Response Initiative
    'Blow-Up' Event Could Crush US Dollar as Multi-Trillion Debt Mounts, Ex-IMF Deputy Head Warns
    IMF Approves $6.5Bln Loan for Ecuador, Ecuadorian President Says
    Tags:
    finances, IMF, blog
    Community standardsDiscussion