Big data and difficult decisions: How to keep the consumer’s best interests in mind

(Part 3 of a 3-part series related to the CFPB action on BNPL)

In prior articles in this series, we discussed the CFPB’s concern around the potential dangerous increase in debt loads?for BNPL customers and encouraged regulatory agencies to both protect consumers and increase credit supply. In this, the 3rd and final article in the series, we want to bring attention to the difficult ethical and practical concerns for consumers around data harvesting by BNPL lenders.

As an entry point to this discussion, we want to talk about the data challenges that Kafene faces as a company focused on extending financing to the underbanked at the point of sale. Traditional metrics like FICO scores and Vantage scores simply don’t work for this population. In order for us to offer meaningful financing solutions, we need to collect significant quantities of alternative data (over 10,000 data points in fact!) that help us paint a real picture of a consumer’s financial stability. On a one-off basis, this feels fair.?The consumer opts in to provide us this data, and we provide a service.?

However, the more complicated part comes when we consider what other services we can offer and how. We know that even our customers who successfully complete a lease with us using our core product generally still have difficulty in obtaining traditional forms of credit like credit cards. Given this information, along with the data we have, we could likely offer them a credit card on terms that are more favorable than what they would find elsewhere. So, should we offer them a credit card upon completion of our leases as a step up on the financial ladder?

What if we think bigger? How about a better banking experience? If we offer this service, are we overstepping our bounds by suggesting a new product to them based on data we collected about them for other purposes, or are we offering a valuable service to them by building on our prior relationship? The consumer has a need and we have a solution, but is it ethical to use the information we have at this point to offer them something they did not ask for?

In a nutshell, this is the tricky terrain that we have to navigate in relation to data that we collect. Rather than come up with our own one-size-fits-all answer here, we have created some basic guidelines around the use of payment data that we believe should be followed:

1)???Never resell data – Once you lose control over a consumer’s data, it will almost certainly be used in invasive ways you would not have predicted. We believe that if you are generating non-public data, you have an obligation not to resell it.

2)???Don’t mix uses across unrelated goods and services – If the initial data was collected in order to facilitate a credit-like transaction such as lease-to-own, we think it would be ok to offer consumers a credit card, but we don’t think it would be fair for to reach out to consumers to monetize non-financial services with that data (e.g. selling advertising).

3)???Keep data maximally secure -?Respect data integrity and privacy. Protecting PII and generated data is a fundamental responsibility we all have when collecting consumer information.

4)???Over-disclose how data will be be used – Be as transparent as possible with your customers as to how their data will be used and never hide behind legalese.

5)???Respect any requests to delete data – If a consumer asks you not to use their data, don’t use it and don’t keep it.

6)???Self-audit to make sure there is no bias in your data usage – Invest the time and money to make sure that whatever conclusions or actions result from your use of data, that those activities are free of bias. Make sure that you aren’t unknowingly selecting or targeting a particular group of consumers based on correlative data.

7)???Don’t say one thing and do another – If you ask for cell phone data, for example, be explicit as to why. Don’t imply that you are using the data to verify a phone number while actually tracking geolocation or contact information. In addition to being unethical, this can sometimes be illegal in the United States as well.

8)???Use good judgment – Have exceedingly high standards for anyone who handles data on your team. There’s no substitute here.

These guidelines are a helpful starting point for us at Kafene, but we know that not every provider has the time, ability, or interest in being so scrupulous about their data practices, so we applaud the CFPB for taking the initiative to make further recommendations and regulations for the industry at large.

As we conclude this series on the CFPB’s BNPL inquiry, we want to say how excited we remain about the future of alternative financing for consumers in the United States and how happy we are to be a part of it. We believe this inquiry is an excellent step in the direction of ensuring that the industry continues to grow in an innovative, safe, fair, and transparent manner.

We welcome any additional comments and feedback.