Moderated by Matthew Bishop (The Economist, left), Errol Damelin (Wonga, center) and Sebastian Siemiatkowski (Klarna, right) discussed how financial institutions online now use data in new ways to learn about the behavior of their prospective borrowers.
Erol Damelin created Wonga, an online lender that makes a profit when people repay their loans, contrary to traditional financial institution who benefit when people default. “When people have short term cash flow problem, Wonga offers short term cash advance on mobile.” He claims the service is totally transparent, “you know what’s the cost will be” the moment you apply online.
Sebastian Siemiatkowski co-founded Sweden-based Klarna in 2005 to create a frictionless buying experience. It allow buyers to get their products first, and pay later. In 2011, Klarna processed on average approximately 40.000 transactions per day and their database holds 6 million people, while the population of Sweden is 9 million.
Both companies use data to learn more about their customers. Siemiatkowski explains: “Klarna gets a lot of data, including the products you are buying” which eventually helps the users “because we can see who will or will not pay”.
Damelin, critical of a “minority who is nostalgic about human bank tellers” states clearly, “it’s a proven fact, computer processed data are superior to human based interaction in a bank”. This digital method, according to Damelin, reduces risks. Wonga’s defaulting customers number is ” a single digit, lower than credit card number” claims Damelin, ”We never lend more money than necessary and we are really selective”. Thanks to the data Wonga gather, only a third of the loan applications are given the green light, he explains.