Bach Seat

Updated 10-22-10 – GigaOm has a post about Rapleaf here.

If you’re among the 67% of the global online population which Nielsen Online says uses social media networks to stay in touch with friends, grow their business, or just have fun then your information is for sale to banks, insurance companies, employers, and the government. Some banks are turning to social media analytics firms to enhance their credit-check procedures.

Banks are now looking at an applicant’s social media profile, behavior, and associations on sites like Facebook (FB), Twitter, and MySpace according to a recent article on the banking industry site CreditCards.com. The banker’s theory is that people run with folks who share their values and behavior. If your Facebook friends are deadbeats, the banks theorize you are a deadbeat also. These assumptions may make it harder to get a credit card or mortgage, according to CreditCards.com.

Many banks are now outsourcing their social network data mining operations to firms such as Rapleaf. Rapleaf, is a San Francisco, CA-based company that specializes in social media monitoring. According to CreditCard.com, Rapleaf compiles everything you and your network do – including status updates, “tweets,” joining online clubs, linking a Web site or posting a comment on a blog or news Web site. These firms turn the conversations into consumer profiles called social graphs. Social graphs give companies insight into behavior patterns: what you like and dislike, want and don’t want, do well and do poorly.

In the article, Rapleaf characterizes its social network data mining operations as “a unique way to improve customer experience by whitelisting customers based on their social circles and friend relationships.”  Since the firm uses data to “whitelist” people, it may also very easily be used to “blacklist” people and deny them a credit card or a job. “Who you hang around with has empirical implications with how you behave,” Joel Jewitt, Rapleaf’s vice president of business development told FastCompany.

“It’s a marketing trend as opposed to a credit score trend,” says Jewitt.  Despite his assurances, Rapleaf’s Web site suggests that clients “use friend networks to enhance … credit scoring” according to FastCompany. Jesse Torres, president, and CEO of Pan American Bank in Los Angeles told CreditCards.com that online information aggregators fill a need within the banking community. “They’re able to scour the social media universe. They are constantly listening and reporting back.”

The bankers are protecting their bottom line, “credit card companies have been stung very hard during this downturn, and they’re going to work that much harder to avoid extending credit…,” Ken Clark, author of The Complete Idiot’s Guide to Boosting Your Financial IQ told CreditCards.com. Rob Garcia, senior director of product strategy at The Lending Club, a peer-to-peer lender, says his firm uses multiple sources of “social information collateral” for its decision-making processes “It’s a wealth of information about a person,” says Garcia.

Not everyone in the industry is data mining social networks. “It’s difficult to make a judgment about an individual’s credit based on the people around them,” says Gregory Meyer, community relations manager for Meriwest Credit Union in San José, CA.  Meriwest only assesses credit reports and application data to make lending decisions. “[Social media] is a great way to keep up with what my 10-year-old nephew is up to, but it doesn’t have a place in the credit process.”

What you divulge can have an unintended impact. “We’ve seen this with applicants not getting jobs and employees getting fired for their Facebook and Twitter-based escapades,” financial personality Clark told CreditCards.com, “so we shouldn’t imagine this to be any different.” There are steps to take to guard your privacy. “I think it is crucial that everyone visit the privacy notices for the sites they use, read them, and change their settings to limit who can see their information,” says Clark. “For example, on Facebook, you can change your privacy settings so that only your acknowledged friends can see the majority of your information.” You can also enable “private filtering” on your browser. Do so and your activity will be entirely out of the Web profiling system.

Scott Stevenson, president, and CEO of EliminateIDTheft.com told CreditCards.com people should:

1. Don’t accept invitations until you check the profile out first.
2. Be acutely aware of what you write. Don’t make public anything you don’t want public.
3. Take an annual inventory of all your social networking sites and delete people and information that can potentially damage you in the eyes of a creditor or employer.

Rapleaf offers a service to discover your online footprint and see what others might see on your social graph. Google (GOOG) offers a similar tool, the Google Privacy Dashboard. which presents an overview of the accounts and information you are connected with through Google. Take advantage of tools like these to check your own online reputation. What you don’t know can hurt you. Rapleaf’s Jewitt reminds users that, “The custodian of the information is you.”

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There is nothing illegal about social network data mining banks and firms like Rapleaf do. Facebook and the other social networks are legal commercial enterprises that openly broker user data for exactly these kinds of purposes. People freely put information on Facebook with the full knowledge that it will become permanent parts of the public Internet record. Users need to know about this kind of data mining for two reasons. First, the stakes are high. It’s about getting access to credit that might be necessary for your family or business or even getting your next job.

Second, data mining gives the lenders insights into relationships that are unknown to and often completely out of the control of the applicant. Maybe being a Facebook fan of NASCAR says something in the sum about your socioeconomic status and your creditworthiness or employability, according to some second-order derivative analysis of millions of data records.

The asymmetry in the relationship between data-driven marketers and consumers is structural and permanent. Institutions like banks (and, potentially, insurance companies, employers, and the government) will use it to gain an advantage, because that’s what they do.

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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.