Do computers make better bank managers than humans?

Algorithms are increasingly making decisions that affect ordinary people’s lives. One example of this is so-called “algorithmic lending”, with some companies claiming to have reduced the time it takes to approve a home loan to mere minutes.

But can computers become better judges of financial risk than human bank tellers? Some computer scientists and data analysts certainly think so.

How banking is changing

On the face of it, bank lending is rather simple.

People with excess money deposit it in a bank, expecting to earn interest. People who need cash borrow funds from the bank, promising to pay the amount borrowed plus interest. The bank makes money by charging a higher interest rate to the borrower than it pays the depositor.

Where it gets a bit trickier is in managing risk. If the borrower were to default on payments, not only does the bank not earn the interest income, it also loses the amount loaned (provided there wasn’t collateral attached, such as a house or car).

A borrower who is deemed less creditworthy is charged a higher interest rate, thereby compensating the bank for additional risk. Read more

Saurav Ditta - The Conversation - 17 Oct 2017