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This is a guest post by Bill Clerico, the CEO of payment processing service WePay.

Social media has created a vast amount of data and every second we add more information. Consider that in a single day we send 400 million tweets, share 985 million pieces of content on Facebook, “like” 50 million brands or organizations on Facebook, and post 40 million photos on Instagram. Many have argued that sharing so much personal info in such a public forum can leave users open to identity theft and fraud, but I’d argue that it may also help prevent it.

Companies such as Kabbage, Affirm, and WePay (my own business) have begun using social data to understand and measure risk and help save millions of dollars in fraud. Each year, fraudsters attempt to steal billions of dollars online. In today’s technology-fueled world, we can be smarter about the information we use to assess risk potential. A traditional credit score only shows a sliver of a person or business’ risk potential, but an online profile shows a more accurate personal history of verified social data.

In addition to money stolen, online fraud costs payment companies, small businesses, and consumers a lot of time and grief. All companies are vulnerable to fraud, but small businesses are particularly vulnerable because decision-making and other responsibilities are often concentrated in a few key positions. In many instances we’ve seen small business names, addresses, and IDs are easily found online and used to sign-up for fraudulent merchant accounts.

By analyzing years of social data that is difficult to fake, we can more intelligently combat ever-more-sophisticated cybercriminals. Simply put, online identity is becoming the new and improved credit score. A few reasons for this:

Extensive profiles are hard to fake

It is difficult to fake an online presence these days as social networks push users to share more information across a longer period of time. Sure, you can create a profile quickly, but with Twitter and Facebook Timeline alone, it could take fraudsters years to build a fake, yet realistic, social presence. If you also consider years of online reviews and other data, social can provide a picture of a merchant that simply looking at a website and a credit score can’t.

Social data can tell you about quality

Online social activity can provide a look into the quality of merchants. Social data analysis reveals customer reviews, who a business associates with on LinkedIn, or who is commenting on their Facebook profile — all of which can give an indication of whether a merchant is trustworthy or not. Social data allows payment companies like mine to underwrite accounts without asking initially for any private data (credit scores, social security number, etc). In fact, it gives us the ability to sign up a new merchant and understand their risk in minutes. Most businesses need to fill out pages of information simply to be allowed to accept their customers’ money. Social data allows us to cut that to a fraction of the time.

It’s cheaper and faster

Using social data is more cost-effective than running credit checks and/or social security numbers and can be done more quickly. For the vast majority of businesses, this information is enough to verify the quality and existence of the business, allowing everyone to get on with the business of serving and customers and getting paid, rather than delays in paperwork.

It works

We’ve been using social data actively to evaluate risk in our merchant underwriting process since last year. In the past six months, we’ve stopped more than $30 million in attempted fraud. In addition to protecting our business and our customers, it makes things easier and faster. More than 40 percent of our merchants are automatically approved to accept payments without giving us private identification data, such as a social security number.

Social data is increasingly becoming a crucial tool for businesses in a number of ways. Combating fraud is one of the newest and (I’d argue) most valuable uses for this treasure trove of information. Fraudsters have become sneakier, and it’s crucial that we are one step ahead of them at all times. I think we’ll see more businesses using social data to manage risk and lower fraud rates.

Bill Clerico is the CEO of WePay and drives the company’s vision, strategy, and growth. Before joining WePay, Bill worked in technology investment banking at Jefferies & Company, where he advised enterprise software, digital media, and financial technology companies on M&A and capital market transactions. Previously, he worked for the U.S. Army’s Communications Engineering Research Command and in electronic trading at Goldman Sachs.

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