By André Spicer, Professor of Organizational Behaviour, Cass Business School (London, UK).
An increasingly important part of today’s banking landscape are payday lenders. These are businesses that offer short-term loans at extremely high rates of interest for small amounts to borrowers who usually earn less than the national average. For instance, one of the leading UK lenders has a top rate of over 5,000% APR. Pay-day lenders have typically located themselves in retail premises in the midst of impoverished communities which have been neglected by banks. More recently, they have taken to the web. Leading online lenders use an impressive range of indicators to calculate the riskiness of potential borrowers. These range from traditional credit scores to more unexpected measures such as the computer you are using, the locale you are logging on from, and even your likes on Facebook. One site takes into account over 8,000 data points when deciding on your rate. To big data nerds, this might sound impressive. To the social critic, it sounds like big brother meets the mob.