Using social media to avoid asymmetric information

This article from Quartz reports that PayPal co-founder Max Levchin is starting an online consumer finance startup called Affirm. Here is a money quote:

Since many of its customers are under age 30 and have little credit history, traditional assessments of borrower risk don't cut it, Levchin tells Quartz. So instead of just using popular credit score data (such as the widely used FICO score), Affirm brings in a bunch of other data from public sources such as Facebook and LinkedIn. It turns out, the amount of time a person has been employed can be a good indicator of creditworthiness since it helps explain how consistently cash comes in, Levchin says.

"You can't replace the traditional debt to income ratio with your Facebook friend count, but you can use nontraditional data to reduce risk and better analyze customers," he says.

Labels: Asymmetric information, e-business