Social Media as a Tool to Identify and Evaluate Credit Risk

1. Social Media as a Tool to Identify and Evaluate Credit Risk:  The Technology, Potential Best Practices and Legal Considerations for the Credit Team David Huizinga Experian David.Huizinga@experian.com Craig Combs KYR Financial Services LLC craig.combs@kyrcredit.com Virginia Soderman, CCE V. Soderman Consulting LLC virginias405@gmail.com Scott Blakeley, Esq. seb@blakeleyllp.com

2. Customer Use of Social Media as a Tool • 68% of companies that sell products or services to other businesses said they engaged in social media marketing • 79% of consumer brands use social media for marketing purposes • Given the proliferation of Social Media activity, is there an opportunity to “plug in” and use the data?

3. Facebook Customer’s Use to Market and Promote • Find and Connect with their Customers • Post upcoming events • Create groups • Centered around • Sharing • Links Supplier’s Use to Evaluate and Monitor Credit Risk. • Show business presence of brands or organizations as well as how they are perceived by: • Volume of activity and current postings • Numbers of “Likes” • Number of followers • Research of negative comments :

4. Yelp Customer’s Use to Market and Promote • Crowd-sourced reviews about local businesses • Users • Rate, review, provide tips, and publish experiences regarding businesses • Small businesses • Respond to reviews • Host social events for reviewers • Provide information about their business Supplier’s Use to Evaluate and Monitor Credit Risk • Utilize reviews for indications of business acceptance and market penetration • Sheer volume of reviews either favorable or negative can provide early indications of change in circumstances

5. Twitter Customer’s Use to Market and Promote • Simplest of all social media platforms • Messages are: • Limited to 140 characters or less • Links • Images • Trade information regarding businesses, products and influencers Supplier’s Use to Evaluate and Monitor Credit Risk • Does the customer have a large following? • Is there frequent activity around the product or organization? • Is the general tone positive or negative? • Has the number of followers increased or decreased dramatically?

6. LinkedIn Customer’s Use to Market and Promote • Only mainstream social media sites that’s geared towards business • Meeting customers • Getting in touch with vendors • Recruiting new employees • Latest in business or industry news • Connecting with prospective clients • Profiles are basically virtual resume Supplier’s Use to Evaluate and Monitor Credit Risk • Typically a company or professional’s “Best Foot Forward” • Goals and objectives are openly published • Much Comment Activity can be monitored for actionable data • Connections can be evaluated to assess overall market situation

7. Google & Google+ Customer’s Use to Market and Promote • Search results are as much about “Sponsored Links” as they are about frequent access • Groups and activities are promoted in various segments • Visibility on Google Maps as a labeled business Supplier’s Use to Evaluate and Monitor Credit Risk • Does the business show in the results listing? • Is the “Google Earth” photo of the location consistent with the type of business that is presented? • Is the level of marketing what you would expect from a legitimate and growing business?

8. SM Decision Tree

9. The Credit Team's use of SM at the New Account Stage • Sites to consider • Must supplier disclose to customer that SM used as a factor to approve B2B credit request? • Must customer consent to SM use? • May  supplier decline credit based on SM grounds?

10. SM and Monitoring Accounts • Sites that may be early indictors of credit risk • May the supplier terminate the credit relationship based on SM information? • Should the supplier update its T&C’s to address SM use? • May industry group members share customer SM information with group members?

11. SM and the Delinquent Account • Sites that assist with collecting the delinquent account • Legal restrictions on using SM to collect delinquent account • A distinction if collecting against a personal guarantor?

12. SM and Customer Disparagement • Defamation in the Internet age • Generally, defamation is by either libel (false and unprivileged writing) or slander (false and unprivileged verbal statement) • Anything written on social media can and will be used against the sender • Harvard Business Case Study ex. • Salesman posted negative comments about his company on Facebook • Posts affected how business was perceived by customers and competitors • No policy on social media posting

13. SM Laws Decision Tree B2C

14. Summary and Observations • Focus has been on validation of facts • Much of the data relates to market share and success with target audience • The degree to which SM is pertinent for the credit team depends on supplier's willingness to expand credit considerations • Potential uses • Provides rich potential for small and mid-sized business data potential • Data associations: Is there a relationship between negative reviews on a business and that business’s ordering pattern with supplier or in the industry? • Will payment patterns be impacted as a result?

15. Summary and Observations • Potential uses (cont’d) • “Big Data’s” role seems assured, due to the sheer massiveness of the data elements, worldwide geography and constantly refreshed input • Silicon Valley analysts are testing full integration of data as an alternative to FICO Scores • With leading edge data input, the SM factor will need to be integrated into the credit evaluation and credit scoring process…..preferably • Is it the only factor utilized? • Is it a component of the overall scoring process with many facets analyzed?

16. Interested in continuing the discussion?We are gauging interest in a panel discussionPlease send us your name, email address and company affiliation and we will include you in our planning kwenzel@blakeleyllp.com