Yeah, it's going to be an awkward implementation in the financial markets; as it gets more efficient, we might also basically get red-lining all over again. There was a somewhat recent study that I was reading about in last week's Economist, and when they ran the data through, most of those efficiencies went to white borrowers.
I don't know what the right solution is, but at some level we have to be able to feed the algorithms good data, and I'm not entirely sure the data sets aren't stacked against some segments of the population.
Basically efficiency in the article was in terms of more accurate lending decisions bringing down APR’s as we can get better risk analysis rather than the somewhat coarse estimation as done today.
This was looked at in terms of mortgage loan performance specifically and presumably similar would apply to auto and unsecured loans too.
Credit card optimization would likely be different to your point: carry a balance, less likely to churn, do we need a SUB to lure them in or for this consumer can we just win on the merits, but ultimately it will go to the banks’ bottom line.
That said that is a more sophisticated optimization engine than something like FICO, and presumably the big lenders might be able to optimize FICO out entirely everywhere except mortgage if the predictions are accurate enough.
To your point though about swerving (or speeding) in cars: more data can always be sorted through... which is why I am a staunch supporter of data privacy laws and keep such a low online profile: sorry Chase you don’t need that data, though Chase probably knows who I am on this forum if they cared enough to try for example of data acquisition from online sites.
This was looked at in terms of mortgage loan performance specifically and presumably similar would apply to auto and unsecured loans too.
Credit card optimization would likely be different to your point: carry a balance, less likely to churn, do we need a SUB to lure them in or for this consumer can we just win on the merits, but ultimately it will go to the banks’ bottom line.
That said that is a more sophisticated optimization engine than something like FICO, and presumably the big lenders might be able to optimize FICO out entirely everywhere except mortgage if the predictions are accurate enough.
To your point though about swerving (or speeding) in cars: more data can always be sorted through... which is why I am a staunch supporter of data privacy laws and keep such a low online profile: sorry Chase you don’t need that data, though Chase probably knows who I am on this forum if they cared enough to try for example of data acquisition from online sites.