At Captalys, we tend to look at credit in a historical perspective to try to understand its future trajectory. One thing that is clear is that credit comes from the concept of believing and having confidence.
Today, with technology, abundant data, and the new ways that people interact with each other and with companies, brands and communities, the concept of what is credit is changing radically. According to Nik Milanovic, a writer at TechCrunch magazine, we are about to have a credit revolution.
For thousands of years, credit was based on subjective knowledge and judgment of people. Credit, therefore, depended on the proximity of people and the relationship between them, and therefore presented several problems when the borrower was a stranger.
In the middle of the twentieth century, this changed drastically with an American technology company called Fair, Isaac, & Co., today known as FICO, introduced the concept of using an algorithm to determine a people's credit score. This score would eventually replace the gossip, impressions, and other widely subjective information that form the basis of credit decisions even for the most sophisticated bankers. Today, the use of algorithms is ubiquitous.
But, credit bureaus offer limited information, that is, for the most part, tied to the past. What's more, their approach is opaque and unfamiliar. Our world full of gate keepers, such as credit bureaus, data aggregators, among others, will be replaced by a world where the individual will be in control of your data. Milanovic estimates that this alone could reduce costs by approximately R$15 billion annually paid to these third parties.
It is likely that the current scoring concept will be totally replaced by a relational and contextual system, in which each individual will be ranked relative to others similar to him. Score inputs will come from multiple sources and technologies and will take into account the normal needs of people at certain stages of life. Credit costs can be defined based on the intrinsic value of the asset being acquired (eg college financing should be cheaper than for a ski trip in Switzerland, for example). And with that, credit will be dynamic, with limits calculated based not only on an evaluation of past behavior but also on projections of each person's cash flow, taking into account not only revenues but also current and future expenditures. Everything automatically.
In the end, we are on the precipice of the next generation of credit. It is still difficult to predict exactly how this future will unfold, but it is certain that the future will be very different from the present, and with this our own conception of trust will be challenged.
In this new world, is it possible to trust without having “data”? While it is clear that information, increasingly accurate, will be the basis of future credit, does that mean that information will also be the basis of trust? It seems that the implications of this are very far reaching and we cannot yet appreciate how this will impact not only the next generation of credit but the next generation of everything.