Think back to a lazy Sunday morning, enjoying a brunch with your friends. Your smashed avocado arrives in a form that begs for Instagram-ing, which you duly oblige.
You have a good job, good friends and are enjoying life. But along with enjoying socialising, you’ve also worked hard to carefully save enough for a deposit on your own place and have put in a loan application.
A couple of weeks later, you are sat in the bank being told your home loan application has been denied, but not because you don’t have the deposit or that you don’t have a good enough job.
Instead, the bank has analysed your social media accounts and deemed your spending on socialising with your friends as a regular expense and, therefore, a threat to the serviceability of the loan.
The above may sound farfetched, but some financial service providers are already setting themselves up to do just that. And it is an issue that a cross-disciplinary research team at the University of Melbourne have considered in our new FinFuture White Paper and Consumer Research Report.
If we look at what’s happened in the UK, we can expect our social media usage in financial decision-making to increase rapidly.
Both NAB and ANZ explicitly state in their privacy policies that they may collect information about you that is publicly available; for example, on social media.
The problem we have today is twofold.
Firstly, we don’t really know how social media posts are being used or evaluated – the process is completely opaque.
For example, what impact does that have if you don’t have a social media account? Or your accounts are restricted to access only by friends or family? And are the algorithms and processes used to evaluate our posts fair and unbiased?
Secondly, we need to establish whether there is sufficient research and evidence to suggest social media posts are a valid tool for evaluating risk?
Social media isn’t an independent ledger of your actions, it’s a carefully curated stream that projects an intended image.
Most of us know that reality is often very different to what we post on social media; whether it’s the seemingly perfect view from the hotel, carefully cropped to hide the building site next door that allowed you to get the room at a discount; or the photo in the Michelin-star restaurant, which doesn’t mention it was taken during the afternoon seating on a two-for-one offer.
Most of us want to project the most successful image of themselves (that’s only to be expected) but when an organisation starts taking that data out of context and making decisions based on it, it not only changes the nature of social media, but dramatically increases the level of surveillance capitalism.
But social media monitoring is just one example of the increased privacy invasion taking place in the finance industry.
The introduction of the Consumer Data Right (CDR) for banking data, which has been heralded as a tool to empower consumers, actually risks resulting in further increases in profiling and privacy invasion.
While the CDR’s aims appear noble – increased competition, allowing consumers to harvest the value of their data, and enhancing consumer welfare – there remains a concern as to whether consumers are sufficiently prepared and protected to engage in a marketplace explicitly looking to harvest value from their data.
In the case of the CDR, which can give access to a year’s worth of transaction data, providing a method for greater sharing of consumer data exacerbates a problem known as information asymmetry.
Information asymmetry occurs when one party in a transaction or negotiation possesses more information than the other. Imbalances like this give rise to economic advantages for the party that possesses more information.
It stands to reason that if the seller knows how desperate the buyer is to buy any product, and they know the maximum amount the buyer can afford to pay, then the seller can charge closer to the maximum without losing the customer.
When customers are having their every transaction evaluated, from gym subscriptions, through to spending on fast food, then this information asymmetry becomes extreme.
And crucially, there is no burden for equivalent information sharing on the financial service provider. They are only required to provide access to their product information, and they don’t have to provide information about how they use the customer data or make their decisions.
So, customers are left in the uncomfortable position of having to share more data, feeding into a process that is almost entirely opaque and difficult, if not impossible, to challenge.
Before we get to a point where greater data sharing taking place, there is a need for greater transparency around exactly how our data will be used, as well as the ability to challenge automated decisions, which could be made using information that is taken out of context.
And far from empowering consumers, legislation like the CDR may further undermine them.
Failure to redress these increasing information asymmetries will lock customers into a perpetual state of disadvantage, which will be bad for their financial wellbeing, and ultimately, bad for the economy as a whole.
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