{"id":15251,"date":"2016-11-16T21:14:17","date_gmt":"2016-11-17T02:14:17","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/from-facebook-to-finance-how-kountable-uses-social-media-data-to-generate-credit-scores\/"},"modified":"2016-11-16T21:18:17","modified_gmt":"2016-11-17T02:18:17","slug":"from-facebook-to-finance-how-kountable-uses-social-media-data-to-generate-credit-scores","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/from-facebook-to-finance-how-kountable-uses-social-media-data-to-generate-credit-scores\/","title":{"rendered":"From Facebook to finance: how kountable uses social media data to generate credit scores"},"content":{"rendered":"

Forget what unconscious message your social media is sending to the kid you sat next to in middle school and never saw again; much more significantly, one day in the near future, it could hold the key to your \u2013 or your business\u2019 – creditworthiness.\u00a0 kountable Inc is one company that is already testing the concept of using social media data to credit score entrepreneurs in need of trade finance. It is exemplifying what the Wall Street Journal calls \u201cthe Uberization of finance\u201d[1]<\/a> by using technology to disrupt traditional sources of funds. The business was set up to support an underserved SME community in Rwanda, and has plans for expansion into new markets, including the US, this year. It operates by using a proprietary algorithm to evaluate businesses\u2019 social capital across social networking sites, text messages and emails. On the basis of this assessment, kountable generates a \u201ckScore\u201d, and promises that users can use the score \u201cto secure funding for [their] project at very favorable rates\u201d[2]<\/a>. As well as scoring companies, the promise is also to connect businesses to investors, operating as an intermediary between the two and, in withholding payment to the entrepreneurs until goods are delivered, assuming much of the risk. Its revenue comes from financing fees.<\/p>\n

\"kountable\"<\/a><\/p>\n

The value proposition is clear: entrepreneurs are able to secure funding for growth, at reasonable rates, even if they don\u2019t have some of the data and documentation that has been traditionally required for credit scoring. Entrepreneurs receive the funds they require in a much shorter timeframe than a bank could originate a loan \u2013 typically as little as three to four days[3]<\/a>. It\u2019s also easy to access, accepting data uploads by cellphone. And very importantly, there is also a positive social impact as SMES \u2013 which represent 80% of the region\u2019s employment[4]<\/a> – become more and more able to meet vital needs in their communities. Projects include providing healthcare equipment and supplies, classroom furniture and materials, and educational technology. No wonder the firm has received enthusiastic encouragement from the Rwandan government[5]<\/a>. \u00a0It also seems to work for investors; there have been zero defaults to date, with over $5M of financing provided[6]<\/a>. The company puts this down to social media and email data enabling the measurement of performance risk rather than credit risk.<\/p>\n

That said, there are definitely questions for kountable\u2019s leadership team as they set out to scale their business. The first set of questions are around data integrity and the accuracy of the conclusions drawn. Is Kountable\u2019s technology sufficiently robust to detect where data has been tampered with or pre-edited? Will the answer to that question change as it enters more developed markets? Is the current focus on performance risk (for example looking at the depth of someone\u2019s networks) enough, or should the company also be focusing on risk of default? As the company grows, management may well need to re-consider their requirements \u2013 perhaps considering insisting on some customers securing their loans (which they currently do not need to do) or requiring additional documentation in some cases.<\/p>\n

Additionally, the leadership must focus on the potential regulatory difficulties that will come with expansion into new markets. FinTech being a comparatively new space, regulators have yet to fully get to grips with what is and isn\u2019t acceptable or ethical, and it may be that US authorities and others deem the use of this information invalid. There\u2019s also the \u2018creepy\u2019 factor; will enough entrepreneurs continue to be happy to submit all this data to translate to meaningful volume for kountable? A real focus for the company moving forward should be to mitigate against this risk by building out their customer community and using them as champions for the process. Ensuring a high level of transparency as to the process will also be key.<\/p>\n

Aside from the \u201cFin\u201d part of the equation, kountable must also keep the \u201cTech\u201d part at the top of the priority list, to defend against a proliferation of potential competitors developing similar or smarter credit-scoring technology. \u00a0As banks look to push back against FinTechs by developing this technology, the space is becoming more and more crowded. Competing here will require significant upfront investment, but will likely pay dividends over the long-term for the business.<\/p>\n

These are non-trivial challenges for kountable, but overall the company has an appealing opportunity to use digitization to great effect in many more markets than Rwanda. Un- and underbanked communities exist all over the world, even in highly developed economies. The potential impact is enormous and, if it can translate its learnings from Rwanda, maintain its encouraging default rate, and stay at the leading edge of algorithmic technology, so is the upside for kountable.<\/p>\n

779 words (excl. footnotes)<\/em><\/p>\n

[1]<\/a> Wall Street Journal<\/em>, \u2018The Uberization Of Money — The familiar middlemen of 20th-century banking and investing are giving way to something very different; Are we ready for the opportunities — and the risks?\u2019, 9 November 2015: http:\/\/www.wsj.com\/articles\/the-uberization-of-finance-1446835102<\/a><\/p>\n

[2]<\/a> Kountable website: www.kountable.com\/about\/<\/a><\/p>\n

[3]<\/a> Hope Magazine<\/em>, \u2018Kountable; Quick financial support for business needs\u2019, http:\/\/www.hope-mag.com\/index.php?com=news&option=read&ca=1&a=1993<\/a><\/p>\n

[4]<\/a> TradeStreaming.Com: \u2018\u201dWhen they win, we win\u201d: Kountable brings social supply chain financing to Rwanda\u2019: http:\/\/www.tradestreaming.com\/digital-lending\/when-they-win-we-win-kountable-brings-social-supply-chain-financing-to-rwanda<\/a><\/p>\n

[5]<\/a> TradeStreaming.Com: \u2018\u201dWhen they win, we win\u201d: Kountable brings social supply chain financing to Rwanda\u2019: http:\/\/www.tradestreaming.com\/digital-lending\/when-they-win-we-win-kountable-brings-social-supply-chain-financing-to-rwanda<\/a><\/p>\n

[6]<\/a> Kountable fact sheet, accessed via www.kountable.com\/about<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A FinTech develops an innovative approach to credit decision-making in developing economies. <\/p>\n","protected":false},"author":1878,"featured_media":15252,"comment_status":"open","ping_status":"closed","template":"","categories":[788,2029,874,460,259,2158,424,416],"class_list":["post-15251","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digital","category-digitization","category-emerging-markets","category-entrepreneurship","category-fintech","category-smes","category-social-impact","category-social-media"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\nFrom Facebook to finance: how kountable uses social media data to generate credit scores - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/from-facebook-to-finance-how-kountable-uses-social-media-data-to-generate-credit-scores\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"From Facebook to finance: how kountable uses social media data to generate credit scores - 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