Data Driven Finance

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24 March 2011, 11:44pm

Lots of start-ups now are offering financial services using completely different data sets than others have in the past:

Second, decisions are made very quickly. Klarna and Wonga feed all the data through elaborate algorithms which determine, almost in real time, how likely it is that a user with a certain data profile will default. Consumers who shop online at 3am may find themselves among the 20% of buyers who get rejected by Klarna. Having a mobile phone with a contract helps to get money from Wonga (which says 'no' to 70% of applications). But no single factor is decisive, says Mr Damelin. "It’s about how the data connect to each other."

This is refreshing, as I don't think a "credit score" can really be as telling as some think. It reminds me a bit of how my mom told me to do more community service when I was young so I could put it on my college resume — why should I need to use a credit card just to "build up good credit"? (Note: I still use credit cards and only credit cards, as I really like the rewards!)

And by the way, anyone who hasn't signed up for mint.com should seriously consider it.