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Could HMRC follow banks and start testing your personality?
A major British bank will start using personality tests to decide whether or not to lend to individuals. It sounds sinister, but it could be beneficial to today's borrowers, says Richard Dyson
Within months a major British bank will start using personality tests as part of its decision making about whether or not to lend to individuals.
It’s the latest and most extreme application of hi-tech “psychology” in finance.
For decades lenders have based their decisions on the reams of data held on file about each of us: our addresses, financial relationships with other individuals, existing debts and credit facilities, and so on. But this new “psychometric” testing provides another level of insight altogether.
It’s intimate, allowing lenders to form an idea of how we would be likely to behave in certain scenarios. It tests our work ethic and, according to the firm that pioneered it, London-based VisualDNA, it assesses our “humility”.
“Do you feel you have a right to material goods such as cars and expensive TVs? Or do you feel you have to earn and afford these things?” asks one of the firm’s directors, in explaining the type of information the test elicits. “Not everyone has a credit score, but they do have a personality.”
How resilient would a borrower be in the face of crisis? How important would it be to them, for example, to repay their debts, and where would that come in a range of other priorities? And much more.
Sound sinister? So far, it’s not, at least in the way it’s being used to date. Banks in developing countries are especially keen. That’s because they want to grow their loan books quickly where often big populations don’t have traditional credit histories. The tests have been in use by lenders in Russia since October 2013, and in Poland since January 2014. By the end of the year the tests will be undertaken on borrowers here.
How it works – and why it’s valuable
Several years ago one of the founders of VisualDNA undertook a major piece of research. He contacted individuals using data stored on one of the three big, traditional credit reference agencies in Britain. He asked the recipients to sit a test that would enable him to classify respondents according to personality types laid down in traditional psychology. Then he compared the results from 16,500 respondents with their own, real-life credit histories. A striking correlation emerged. It gave weight to the theory that lenders could reliably predict borrowers’ likely behaviour not just from how they’d dealt with actual credit in the past – but from their personality.
The questions in the quiz that then evolved take into account nationality, age and sex. They are highly detailed. It’s not only people’s answers that are fed into the response but, for instance, the time taken to answer and the person’s indecision, gauged by tracking the respondent’s computer mouse.
How it benefits borrowers today . . .
For now, in Britain, this powerful, potentially market-transforming test will be offered only to borrowers who have been turned down under the normal credit scoring. So someone declined a credit card, for instance, will be asked whether they wish to “try again”. That’s when the new personality test is introduced.
VisualDNA reckons that where 85pc of applicants for a credit card are rejected (a not uncommon proportion for some deals), the use of this profiling could reduce the rejection rate to 60pc. In other words, deserving applicants get a second shot at winning the loan or card they want. VisualDNA wouldn’t name the British bank rolling out the tests in the near future.
But it said the results of any personality profiling were kept separate from the respondent’s other files.
. . . but raises worrying questions about its future use
If the tests are as revealing and reliable as claimed, their uses are numerous. Banks already see applications in marketing and debt collection. Elsewhere? HMRC has been quick to adopt much of the data-screening technology of the private sector.
How eagerly would it seize on the predictive powers of personality profiling?
• richard.dyson@telegraph.co.uk