Using your regular contacts as collateral: The information value of call logs

Abstract

This paper aims to uncover the deterrent effect of external social ties on online peer-to-peer lending by extracting valuable information from the phone usage data. Contrary to the studies viewing online internal friendships as the signal of credit quality, we find that the total number of outgoing calls made in the month before loan requests is positively associated with the probability of default, which suggests that more social interactions offline mediated by mobile phones are more likely to signal poor trustworthiness. Only the features pertaining to the calls made during the morning for a given day have the potential as an effective predictor for the borrower’s credible social collateral. However, the online peer-to-peer lending platform studied by us fails to perfectly judge borrowers by their external social ties since the total number of outgoing calls generally has a negative relationship with the interest rates charged for funded loans. Overall, our work advances the understanding of the economic value carried by call logs in the context of disintermediated financial markets with information asymmetry.

Keywords: Peer-to-peer lending, Phone usage, External social ties, Information asymmetry

JEL Classification: D82, L14, G1