CAMBRIDGE, Mass.–Credit card companies are using a new array of vast datasets to precisely profile credit applicants, provide more targeted customer service, and combat fraud, according to a study.
The study, released by a senior fellow and a researcher at the Mossavar-Rahmani Center for Business and Government at Harvard's John F. Kennedy School of Government, analyzes the new techniques and information sources that carry the promise of better credit products for more people, but risk increasing customer intrusion and credit portfolio exposure.
“The Financial Services industry invested approximately $9-billion in Big Data in 2018, and that level of investment is projected to grow at 17% per year through 2020,” the report notes. “This industry focus on new technology has sparked optimism among business operators and regulators alike, who recognize the promise of better techniques to reduce fraud and profitably expand access to credit.”
In the study, Marshall Lux, a senior fellow at Kennedy's Mossavar-Rahmani Center and a senior advisor at The Boston Consulting Group, and Guillaume Delepine, a research assistant at the Center, conducted interviews with credit card company leaders, Big Data service providers, and regulators, to document the state of the field and make recommendations for upcoming regulatory challenges.
In the paper, Lux and Delepine present the mechanisms via which Big Data is transforming consumer lending, identify risks that may concern policymakers, and outline an approach to governing algorithmic lending without stifling innovation, the authors state.
The full paper can be downloaded at https://www.hks.harvard.edu/centers/mrcbg/publications/awp/awp107