Written by Eamonn MoranThe Federal Deposit Insurance Corporation’s Center for Financial Research recently issued a research paper that looks into whether the digital footprint – information that people leave online simply by accessing or registering on a website – helps augment information traditionally considered to be important for default prediction and whether it can be used for the prediction of consumer payment behavior and defaults. The researchers analyze the information content of the digital footprint for predicting consumer creditworthiness and default. By incorporating more than 250,000 observations, the researchers found that even simple, easily accessible variables from the digital footprint equal or exceed the information content of credit bureau scores. Furthermore, the researchers found that the discriminatory power for unscorable customers is very similar to that of scorable customers. According to the researchers, their results “have potentially wide implications for financial intermediaries’ business models, for access to credit for the unbanked, and for the behavior of consumers, firms, and regulators in the digital sphere.” As the researchers note, “understanding the importance of digital footprints for consumer lending is of significant importance.” If digital footprints yield significant information on predicting creditworthiness, “then fintechs – with their superior ability to access and process digital footprints – can threaten the information advantage of financial intermediaries and thereby challenge financial intermediaries’ business models.” The researchers’ data set, in addition to containing a credit score from a private credit bureau, also includes a set of ten digital footprint variables:
- the device type (for example, tablet or mobile);
- the operating system (for example, iOS or Android);
- the channel through which a customer comes to the website (for example, search engine or price comparison site);
- a do not track dummy equal to one if a customer uses settings that do not allow tracking device, operating system and channel information, the time of day of the purchase (for example, morning, afternoon, evening, or night);
- the email service provider (for example, Gmail or Yahoo);
- two pieces of information about the email address chosen by the user (includes first and/or last name and includes a number);
- a lower case dummy if a user consistently uses lower case when writing; and
- a dummy for a typing error when entering the email address.
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