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Businesses The Almighty Buck

Banks Using Mobile Phone Usage To Gauge Credit Risk 196

Posted by samzenpus
from the gauging-your-minute-score dept.
Hugh Pickens writes "A new startup is revolutionizing the way financial service companies meet the needs of an estimated 2.7 billion people worldwide with a mobile phone but no access to formal financial services by developing sophisticated modeling software that can look at usage data from consumers' mobile phones and make predictions about credit risk. 'There's a vast market of consumers in countries like Brazil, China, India, and the Philippines who want access to financial services like credit cards, loans, or insurance,' says Jonathan Hakim, chief executive of Cignifi. 'But while they may have jobs, and some have bank accounts, there really is no credit history for them.' The way you use your phone is a proxy for your lifestyle say the developers. 'We're looking at things like the length of calls, the time of day, and the location you make them from. Also things like whether you top up [a pre-paid SIM card] regularly. We want to see how stable the patterns are. When you look at that, you can create these behavioral clusters that give you information about users' appetite for new [financial] products, and their ability to repay a debt.' Currently operating in Brazil, Cignifi doesn't plan to deploy the technology in the US. in the near-term. 'The business opportunity is so much bigger in Brazil, India, China, and Mexico, where you have around half a billion people in those four markets alone who have a mobile phone but no banking relationship.'"
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Banks Using Mobile Phone Usage To Gauge Credit Risk

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  • by FreeCoder (2558096) on Sunday January 22, 2012 @03:52PM (#38783701)
    The countries listed, and where credit is not usual for people but mostly businesses (and only then for billing duration), have it more right than US. In the United Status people need to take loans just to build up their credit history, which is just useless costs. The only justified things for loans should be loans for starting businesses, houses and maybe cars. Living on credit for your everyday things is just stupid and bad for economy. And this also includes credit cards, even if you pay them back as soon as you get the bill.
    • by im_thatoneguy (819432) on Sunday January 22, 2012 @04:09PM (#38783853)

      I disagree. I live off of credit for day-to-day things for a very simple reason: my income is very consistent and infrequent (payday).

      I know how much money I'll have at the end of the month down to the penny. I also know that my credit card is due 1 month after the statement. So if I want to make a big purchase that I can't afford for instance I can buy it now and pay it off in up to 2 months interest free. My bank account usually has enough cash on hand to cover my monthly expenses but when it doesn't I use it to smooth out the discrepancies between my wants and my pay-dates. Why wait a week for pay-day when the credit card bill won't be due until the end of the month? It makes my income and my expenses both equally predictable instead of the haphazard day-to-day uncertainty of spending.

      As a result I've never paid a penny in interest, I've flown around the world on my miles and my bill paying is far more predictable and automated.

      • by Colin Smith (2679) on Sunday January 22, 2012 @04:26PM (#38784017)

        Course that would only be a sane thing to do if interest rates were positive and reasonably above the real rate of inflation.

      • by evilviper (135110)

        So if I want to make a big purchase that I can't afford for instance I can buy it now and pay it off in up to 2 months interest free.

        Why don't you control yourself for a few months, save a little bit of that money, and then never need a credit card again?

        Sure, you're not paying interest (suposedly... every that I've heard say that before comes back with "Oh, except that one time, and the other time..."), but you could be EARNING interest on that money. Right now, Ally gives 0.8% on it's CHECKING accounts.

        • by keytoe (91531)

          Sure, you're not paying interest (suposedly... every that I've heard say that before comes back with "Oh, except that one time, and the other time..."), but you could be EARNING interest on that money. Right now, Ally gives 0.8% on it's CHECKING accounts... more than any brick & mortar banks are giving on even their savings or 1year CDs right now...

          Or do both like I do. Put all your expenses on your rewards card, keep your cash in an interest bearing checking account (credit unions usually offer these w

        • Why don't you control yourself for a few months

          Controlling oneself for a few months is often easier said than done. Consider what would happen if one's means of transportation to and from work were to break down, or one's health were to break down.

          Right now, Ally gives 0.8% on it's CHECKING accounts... more than any brick & mortar banks are giving on even their savings or 1year CDs right now

          But as I understand it, in order to get cash or checks into Ally, you have to deposit them into a bank with a local branch and then ACH the money to Ally. Then the local bank ties up $1500 of your money in a minimum daily balance.

          • by evilviper (135110)

            But as I understand it, in order to get cash or checks into Ally, you have to deposit them into a bank with a local branch and then ACH the money to Ally.

            Completely untrue. With any online banks, you can endorse and mail checks directly to them. Many even send you prepaid envelopes.

            If you really have to deal with cash, you could go to the nearest gas station and turn it into a money order for a $1 fee.

      • by snookums (48954)

        I do this too, because I earn 6.5% p.a. tax free on the cash that I don't spend until the end of the month.

        How do I get 6.5% tax free? Mortgage offset account [wikipedia.org]. These things are apparently a lot less common outside Australia, but basically I have a savings account which, rather than paying interest, reduces the balance used to calculate my monthly mortgage interest. Home loan interest rate is 6.5%, so that's what I effectively earn on my savings, and because it's applied as a discount, not paid as interest,

        • by russotto (537200)

          How do I get 6.5% tax free? Mortgage offset account. These things are apparently a lot less common outside Australia, but basically I have a savings account which, rather than paying interest, reduces the balance used to calculate my monthly mortgage interest. Home loan interest rate is 6.5%, so that's what I effectively earn on my savings, and because it's applied as a discount, not paid as interest, it's not taxed.

          People were doing this for a while in the US, but as far as I know it never really caught on

          • by snookums (48954)

            There's other drawbacks, though; the home equity loan is variable rate, and generally much higher than a fixed-rate mortgage.

            Variable rate is more or less the norm in Australia. Fixed rate is generally available for up to the first 3 years (sometimes more), but the rate depends on which way the bank thinks interest rates are moving, and even if rates are falling (putting fixed rate below variable), the longer fixed terms tend to have higher rates because there's increased risk to the lender that they're selling themselves short.

      • by mjwx (966435)

        As a result

        As a result, you've continually paid more for every product you buy in everyday life.

        Do you honestly think banks give away those "miles" for free?

        Banks make money off of credit cards out of merchant fees, this is a fee, usually a percentage of the purchase paid by the merchant to the credit card operator. The merchant must build this fee into their operating costs. The more people using credit, the more the merchant must raise their prices to compensate.

        Now as for the interest argument, it's bolloc

    • Yep

      It is the reason our economy is so bad and Europe is dangerously close to going into a 1930s style depression.

      In the old days before deregulation there were usuary laws. You couldn't charge more than 6.5% interest by law! Can you imagine if they had that today? The financial industry controls too much of the worlds government to ever go back but it might be needed.

      If interest rates were capped at 6.5% you bet poor people would not be targetted and could get credit cards, prices would go down for used car

      • by hedwards (940851) on Sunday January 22, 2012 @04:39PM (#38784147)

        The problem isn't the interest rates in that regards, the problem is that the spread is so large. If I have an account at a bank the typical interest these days is roughly 0.1% on most accounts I've seen. A quick look at average rates reveals that low interest cards average out at about 10.75%. So on average they're borrowing money from account holders for 0.1% and they're lending it for an additional 10.65%. There is some overhead involved, but people wonder why savings rates in the US are so low. 0.1% is 1.9% below the Federal Reserves typical inflation target.

        I don't agree with Ron Paul on pretty much anything, but the fact is that he's dead on when it comes to the harm that the Federal Reserve represents. Tax laws are nothing compared with the income redistribution that's resulted form the Fed purposely creating inflation and holding interest rates well below inflation.

        • Alan Greenspan said pretty much the same thing. Inflation is basically a side-band method of taxation as it confiscates personal wealth. While I don't think going back to the gold standard is a good idea (there was a reason for going off it for international commerce), something needs to peg our fiat currency back down to reality.

          • Inflation is really necessary, as it requires people with money put it to work. If you just hang on to your money, it will depreciate in value and vanish. If you want your money to maintain its value, you need to invest it, and get that capital into circulation again. If your currency has negative or zero inflation, you'll have a massive "credit crunch" as all the people with capital stop loaning it out.

            • by 0123456 (636235)

              Inflation is really necessary, as it requires people with money put it to work.

              That's true, because otherwise people would just pile up their cash in their vault and swim in it, like Scrooge McDuck.

              Back in the real world, inflation is just another scam by which governments steal money from the productive members of society.

            • by hedwards (940851)

              That's not true at all. The reason people put their money to work is so that in the future they won't have to work. Inflation just screws over people who don't have enough money to invest in the stock market.

              Also, please stop spreading this FUD. The reason for a credit crunch is that people stop lending money. That's not going to happen with a negative or zero inflation scenario, the interest rates will typically rise to factor that in. Most recently we had a credit crunch because nobody felt safe lending m

          • by Rockoon (1252108)

            While I don't think going back to the gold standard is a good idea (there was a reason for going off it for international commerce), something needs to peg our fiat currency back down to reality

            Who told you that it was for international commerce? Thats complete bullshit.

            The reason we dropped the silver and gold standards was because these standards put hard limits on government deficit spending, preventing debt from being issued willy-nilly like it is today.

            • My limited understanding is that Nixon in 1971 canceled the international gold to dollar standard. This was a result of the French trading US dollars for gold and thus causing a problem for our currency internationally. It was one of his many changes in a period known as the Nixon Shock.

    • by blueg3 (192743)

      You can have an excellent credit score by holding a single credit card that you never use. (This is true of any other kind of loan, but credit cards are generally the only credit you can hold at zero cost.) The only time this would be a problem is that these days, some credit card companies will close your account if you don't use your card occasionally. Many, however, don't.

      In fact, many never-using-credit behaviors positively influence your credit score [myfico.com]. If you don't request credit, you should have no rec

    • I don't know what is the impression you have out there, but most people at Brazil are as stuck in debt as anybody at the US. The main differece is that interest here is highter, thus people get bankrupt earlier.

      Yes, people do not take credit at banks, instead, they take credit at the stores, and those stores take credit at the banks. That is how people can be in debt without a relationship with a bank.

    • by Americano (920576)

      And this also includes credit cards, even if you pay them back as soon as you get the bill.

      Actually no, doing exactly that isn't stupid, provided:
      1) You have a credit card with a grace period for new purchases; (And if you don't, shame on you for being too stupid to shop around)
      2) You pay your entire balance off each month during the grace period; (And if you don't, shame on you for being unable to manage your finance properly)

      Using your credit card according to points 1 & 2 above gives you a short-t

  • All phone service is really a credit account because you have access to overage minutes, pay-for numbers, etc. You can run up an unlimited bill if you or your teenager goes over the usage plan. Pay those bills on time and you can gain credit score points, run up a higher bill than you can pay and it goes as a missed payment.

  • No science to it (Score:5, Interesting)

    by Dyinobal (1427207) on Sunday January 22, 2012 @03:54PM (#38783715)
    They just use this as a mean of hiding the fact that banks really have no idea if you'll be good for the money they are loaning you. They are just trying to get the contact numbers of your friends and work associates so they can harass them when you don't pay up.
    • Mod up

      Sadly, the banks are looking at loan sharking as great fiancial instrustments. Is there any professionalism in them left?

      Greed has gone out of control and reading about Foxconn 3 stories down, and now this I feel time warped back in the 1880s. Big greed, child labor, loan sharking, riots and unrest, and the formation of unions. What finally ended it was The Great Depression.

      Maybe if the market fully froze in 2008 a reset would ahve cleaned up this mess. Anyway not to go offtopic but this is just insan

    • by icebike (68054) *

      They just use this as a mean of hiding the fact that banks really have no idea if you'll be good for the money they are loaning you.

      There may be some science to it, but that does not negate the idea that the banks have no other data about you in these countries. That is, after all, the main tenant of the article. It is precisely because banks have no way of evaluating your repayment potential that they want to surf your phone records.

      And of course they have no plans to bring this business model to the North America or the EU precisely because such practices are outlawed in these countries. Even with a signed letter of authorization t

      • It is precisely because banks have no way of evaluating your repayment potential that they want to surf your phone records.

        And of course they have no plans to bring this business model to the North America or the EU precisely because such practices are outlawed in these countries.

        No, the reason they have no plans to bring this model to North America or the EU is precisely because they have other (better) was of evaluating your repayment potential. For example, the big 3 credit reporting agencies: as flawed as their data may be from time to time (and I fully support laws requiring them to give you a copy, help to correct mistakes, etc), this data "lubricates" the economy (facilitating transactions between strangers) to an astonishing degree. The information gives sellers a wider mar

        • The credit report agencies are complete criminals. The regulations surrounding their 'business' are so flawed it's unbelievable.

          They should be required to give you a free copy of the data they have on you, and they should be required to correct mistakes. I wouldn't mind them not having to give me a report every time I ask - perhaps once a year to stop people wasting their time. But it's almost impossible to get them to correct mistakes.

          They rely (at least in the UK - anyone able to comment on other countrie

          • I don't know about UK agencies - in the US they ARE required to give you a free report, once a year.

            The credit reporting agencies (at least in the US) do not make credit decisions - they merely REPORT information (hence the name) and let the recipient make the decision.

            It does seem like they ought to work more aggressively to correct mistakes, but it's harder than it sounds: EVERYBODY is going to claim that they paid the bill on time and it must have gotten lost in the mail (or whatever), so it's hard
      • And of course they have no plans to bring this business model to the North America or the EU precisely because such practices are outlawed in these countries.

        Getting a person's call list is illegal at Brazil to,.nNo difference. They may get around that by not releasing any number with the data, but I'm not sure if that is actualy legal.

        Hell you often can't even get your own phone records from the carriers without a huge argument, a letter from law enforcement, or threat of lawyer, etc

        Again, no difference he

    • by slasho81 (455509)
      Exactly. Also, no one said there is a link between this arbitrary data to risk estimation, and even if there was a link you don't know how to get from the data to the risk estimation. It sounds like a startup looking for a sucker to buy it.
  • by Anonymous Coward on Sunday January 22, 2012 @04:04PM (#38783803)

    So, phone companies are selling who i call, how long and where did i make the call to this companies? Isn't that invasion of privacy?

    • by Kenja (541830)
      First off, the theoretical you we are talking about agreed to this with the terms of service for your phone. Secondly, how is this more of an invasion then needing your social security number, two years pay history and a full credit report?
  • by Chemisor (97276) on Sunday January 22, 2012 @04:08PM (#38783841)
    1. Avoid all debt
    2. Avoid all debt
    3. Avoid all debt
    4. Profit!
    • by Kenja (541830)
      Without a history of debt and repayment you will have a hard time getting a loan for a house etc.
      • by Anonymous Coward on Sunday January 22, 2012 @04:31PM (#38784073)

        In civilised countries you only need steady income and a valid payment plan.

      • Re: (Score:2, Interesting)

        by Anonymous Coward

        Loan? Did you somehow miss the first three sentences of GP's post? If you can't afford a house, don't buy one.

        Speaking of home loans, I wonder how affordable homes would be if it were not for banks artificially giving everyone the "buying" power to get one (temporarily).

        The typical home loan (30 years of debt) is financially insane, and has made home ownership (i.e. with no debt on the house) harder for everyone. Some of the price inflation caused by loans could be witnessed after the 2008 home mortgage "cr

    • 98% in the EU.

      Your chances of avoiding all debt are small.

    • Or how about:

      Buy low, sell high.

      Buy high, sell higher.

      Buy when undervalued, sell when overvalued

      Buy, add value, resell.

      Profit.


      Depending on what you do, debt may be, or may not be a bad thing. There are things that are pretty stupid to get into debt (meaning with interest) such as cars, furniture, TVs, computers, etc. but lets say you have a skillset to work with aging luxury cars and restoring them and selling them at a much higher price. If you don't have enough capital to buy the
    • by hercubus (755805)

      1. Avoid all debt [ homeless / live in a box ]
      2. Avoid all debt [ walk / never own a car ]
      3. Avoid all debt [ lose / no credit benefits ]
      4. Profit! [ small / less profit and quality than you could have ]

      congrats! you're now a small, on-foot, homeless loser who minimized a trivial expense and lowered your income potential and your quality of life. w00t?

      okay, seriously, debt is a tool, not a sin. as a tool, you can injure yourself with it or build something useful. and to throw another cliche, for every problem there is a short, simple solution that's wrong. or in your case, not exactly wrong, just sub-optimal

      H. A. N. D.!

    • by TheRaven64 (641858) on Sunday January 22, 2012 @05:51PM (#38784865) Journal
      I'm not sure how you get from the first three to the fourth one. For example, I took out a mortgage a little under two years ago to buy a house. As a result, I am now paying in mortgage interest less than a third of what I was paying in rent. Because the house I bought has better insulation than the place I was renting, my gas bill has gone down. Because I bought new appliances when I moved, rather than using the old ones that came with my rented flat, my electricity bill is also down. And yet, I am quite clearly not avoiding all debt - I have more debt now than I have ever had, yet my monthly cost of living is much lower and, as a result, I am paying back the mortgage quite quickly. In a few years, it should be fully paid off. At that point, my cost of living will be even lower. In contrast, if I'd avoided all debt, I'd still be slowly saving up to buy a house, while paying someone else for the privilege of living in a property that they owned.
  • Seriously (Score:4, Insightful)

    by Billly Gates (198444) on Sunday January 22, 2012 @04:10PM (#38783877) Journal

    FUCK OFF

    I normally do not use those strong tones in my slashdot replies but what I do, and what videos I watch are no ones business! Why is this even for sale?

    When employers tried to call your doctors and pyschologists to weed out applicants with potential issues like depression people were outraged and HIIPA became law. The medical industry hates it but it was a must as in an alternative universe anyone who has taken an anti depressent would be labeled a credit risk and unemployable or someone with ADD would be unemployable and another credit risk etc.

    I think the same should apply. I mean what is next? Installing video cameras that view into your house all over the street? Maybe looking for who you invite over or what you do in the bedroom next?

    • by mjwx (966435)

      I normally do not use those strong tones in my slashdot replies but what I do, and what videos I watch are no ones business! Why is this even for sale?

      This is not for the US. Nor any other western nation so calm down.

      In the west banks can already buy this kind of detailed personal information without having to ask phone companies for it.

      Countries mentioned in the fine summary are places like India, Brazil and the Philipines, in these places people dont have ready access to legitimate sources of credi

  • by no-body (127863)

    Give me your phone number and I tell you your credit worth.
    Start it in another country where it's possible, then expand...

  • Almost enough said.

    Assuming such correlation is useful for credit analysis, how does someone other than the telcos access that kind of information to produce such evaluations?! I'd say it is private information. Correct me if I'm wrong...

  • For this is where we are headed to. it is utterly stupid to think that people behave the same way in every aspect of life.

  • If any telco shares my phone records with anyone or anything outside itself, I'm suing.

    If I volunteer to release those records to a specific other person/thing, because I want to use it to prove something, that's my privilege if the telco allows access to it. But never before than.

    I have the rights to be secure in my person, home, papers and effects. And I have a government we created to protect those rights.

  • by dangle (1381879) on Sunday January 22, 2012 @06:03PM (#38785013)

    I'm not a tinfoiler (in fact, part of my job is to try to help tinfoilers) but this is just another (? inexorable) step towards total information awareness. MasterCard and others have demonstrated an almost spooky ability to make future predictions based on seemingly irrelevant data, predictions that hold true and provide valuable guidance for large populations, despite the fact that individuals will be harmed. With a little more database interconnectivity, coupled with a gigantic complex of computers, there's no limit...

    -Dan

  • by Mock (29603)

    You can't predict credit risk based on phone usage. There are far too many system inputs to even begin to separate this kind of data. You might as well argue that you can predict credit risk based on television viewing habits or toothbrush selection.

  • Since when the bank care about credit risk? They didn't care about that in the morgage crises, they didn't care for Greece or Italy, they didn't care in the credig card crisis (or the credit card buble), they didn't care for American students if they can ever pay back their loans.

    In fact, the more banks lend out, the more captial they have. And if they make bad loans, they just get bail out from the government. But of course they are now sitting on so much cash (also they get interest for the money they s

  • You're looking at another banker scam, er innovation. An excuse to hijack a fresh portion of the economy with more counterfeit credits. Think people would eventually learn, and shoot/jail them for counterfeit, on sight.

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