By Patrick Jenkins
When Douglas Merrill left Google, he made the kind of move into financial services that many believe the tech giant itself may one day make.
Mr Merrill, the internet group’s former chief information officer founded Zest Finance to develop a simple theory: that consumers’ online behaviour can be a decent proxy for their reliability in managing money. “All data is credit data,” he once told the New York Times. “We just don’t know how to use it yet.”
Zest is one of a fast-growing coterie of financial technology companies – “fintech”, to use the jargon – that are aiming to revolutionise the way banks and other financial services companies operate.
Talk of fintech investment is all the rage these days, as banks try desperately to focus attention on a positive forward-looking agenda, and draw a line under the legacy woes. This is partly spin, of course. But investment in technology is also genuinely needed after seven years of crisis and post-crisis regulatory reform that distracted focus – and funding – away from the pipes and cables that make everything work. Who knows? Done right, it could even help prevent some of the scandals of the past. And, as with so much in the mass market internet world, it can claim to be an agent of democratisation.
Zest and companies like it claim that many people who have traditionally been denied credit – either because they lack a record of previous borrowing, or because that record is bad – will be validated by their broader approach to credit scoring. By using “big data” records sourced from individuals’ social network and internet footprints, typical credit scores can end up 40 per cent higher, Zest says. [Read more…]