Another nasty Christmas Present from Facebook

Whenever somebody comes up with a new business idea involving social media it’s usually time to cover your private parts. To the extent that you can. Take this idea from Hong Kong-based microlending startup Lenddo as described in this article in The Observer.

[Lendo] calls itself “the first credit scoring service that uses your online social network to assess credit.” The first thing Lenddo asks for is a Facebook account; then it wants access to Gmail, Twitter, Yahoo, and Windows Live. The Observer was given a respectable score of 470. But when we tried to apply for a loan, we were told “you need at least 3 connections with scores above 400 in your Lenddo trusted network.”

The company’s algorithm is proprietary and secret, said CEO Jeff Stewart, but the primary metric is what Lenddo knows about the people you’re friends with. “We think that in the age of the internet you should be able to establish your reputation and your identity through your social graph, through your on- and offline community, and use that to get access to financial products and information,” he said.

If Lenddo sees one of your best Facebook buddies took out a loan and paid it back, there’s a good chance you will too. “Our backgrounds are in machine learning and pattern recognition,” Mr. Stewart said. “It’s some serious math.

“There’s no reason there shouldn’t be thousands of engineers working to assess creditworthiness.”

I should note here that I too have a background in machine learning and pattern recognition but would hardly summarize it as “some serious math” except maybe to US GOP Presidential nominee hopefuls to whom addition is apparently an arcane art, but I digress…

Marketing hype aside, this simply checks to see if your Facebook “friends” are creditworthy and makes the unwarranted leap that you are like them with respect to creditworthiness. Problem with that idea is when you have “friends” with completely fictional profiles on social media sites. Like say me (when I was on Facebook) or Nitrozac and Snaggy. If you had friended me on Facebook, services like Lendo might conclude (not without basis) that you were a total wackjob. Seriously though, there is a very ugly side to this social credit rating business.

In another nifty but nefarious innovation, Lenddo reserves the right to broadcast your loan status if you fall into default. As the site warns: “Failure to repay will negatively impact your Lenddo score, as well as the score of your Lenddo friends. Lenddo MAINTAINS THE RIGHT TO NOTIFY YOUR FRIENDS, FAMILY AND COMMUNITY if the borrower fails to repay, however, this is only done after several notifications to the borrower and an attempt to work out a payment plan.”

“I think Mark Zuckerberg said it best,” Mr. Stewart said. “Every industry will be in fact impacted by social.”

Banks have been curious about using social media to gauge risk for at least a year, said Matt Thomson, VP of platform at Klout, which calculates “influence” based on a user’s social media activity. Determining creditworthiness is not a core product of Klout’s, he said, but banks have approached the startup to ask about it. He wouldn’t name names. “It’s really like the who’s who of banking,” he said.

(Mr. Stewart of Lenddo also said his startup is approached “regularly” by major banks curious about the algorithm.)

So let me get this straight, the same weasels who trashed the global economy with financial instruments that institutionalized fraudulent and unsecured, except by other equally dodgy financial instruments like credit default swaps, mortgages are now using the fact that everyone knows – or is – someone who was victimized in this debacle to further victimize people?

This time I’m not even going though the pretense of some imaginary conversation about privacy being dead, I’ll just throw out this quote and leave it at that.

Media theorist Douglas Rushkoff dismissed the idea that social media credit scoring is a serious erosion of privacy, mostly because there’s nothing left to hide. “We’re already in the nightmare scenario,” he wrote in an email. “They already know everything about you—more than most of us realize. If anything, the addition of social networking information to this data mining will help us come to some understanding of how much more these companies know about us than we know about ourselves.”

And there you have it folks from the lips (or keyboard) of a bona fide Media theorist – social media credit scoring doesn’t invade your privacy because you have no privacy to invade. So if you are still on Facebook you might as well just bend over. Again. Or quit being a tool. I’m just saying.