Starting in January 2011 the IRS is no longer mailing paper filings for taxes, credit card spending has hit a 31 year decline while debit card transactions have increased nearly 7.9% overall. It’s estimated that credit card usage will drop below 50%while frauds drops quickly due to new detection systems. Consumers are using less credit and wanting less credit. In a world where traditional credit has evaporated, consumers have changed not how they spend money but how they perceive and attain credit- this time without banks.

Facebook the New Credit Database?
It used to be that credit scores were good indicators of risk associated with consumers. Looking at outstanding debt, previous history of payments, previous history of spending transactions you could evaluate the worth of someone’s credit and assign a credit score. For years banks had massive transactional data and tried to figure out the best way to calculate risk both for major fraud (on a criminal level) and minor fraud (personal, potentially accidental level). Obviously systems are in place now with algorithms that formulate risk. This isn’t a secret, it’s the bones behind why your debit or credit card has been declined: your cardholder information is processed against which ever authorization program being used and an answer is sent back to the originating terminal from either ‘approving” or “declining” that particular transaction. You know who is also really good at making algorithms and understanding user behavior? Facebook.

A Transaction is a Transaction

Transaction amounts and types are quickly categorized which is why with online banking many times a larger amount than spent at a gas station will be held against a checking account or why with some business debit cards a small transaction will be declined at one restaurant but not another. Many times transactions limits are set higher than they should be, as it allows banks to rack up fees for overdrawn or accounts improperly used. Americans poor spending habits have been nurtured by banks, it’s been a way to make money but with recent court cases like this one against Wells Fargo, banks are being forced to tighten the rope on spending and on granting credit. Tightened financial regulation has been needed for years just as paper checks are being phased out of Europe. Banks have less incentive to give money and consumers have less reasons to use banks. The bank and consumer relationship has become a hostile one coming and social media is becoming the catalyst for divorce.

Who Needs Money Anyway?
Already online holiday spending is up 7-9%. Credits can be earned taking surveys online, money can be made and spent playing games, loans can be given via websites like ZestCash and Prosper. The joke has always been and will increasingly become true that one day you can pay rent with Farmville points. This isn’t far fetched: earlier this year Zynga partnered up with a Softbank a Japanese venture, while SponsorPay continues to dominate the Europe virtual currency market. and the U.S banking system quickly falls behind the mark, or even worse can’t keep up. Mobile payments make taking money on the go easy, Paypal allows prepaid cards for cashing out accounts, and Facebook is partnered with Amazon for social shopping. Facebook credits the new money?

Klout Score the New Credit Score
Every time you use your credit card transaction information is being stored and used to evaluate risk. Everytime you like or share something on Facebook its being tracked. Retweets, tracked. Friends, tracked. With Facebook opt-in many other things you do online are tracked and associated with your Facebook user account, we know this thus how Klout is now able to give a “influence” score for Facebook as well as Twitter. Your Klout score tells the world the power you have online. It shouldn’t be long before the same principals behind traditional electronic spending can be applied to online influence. Want to get a homeloan? Did your car insurance rates go up? All of this, could, be measured against your online score.
What will consumers be doing this winter retail season? Besides shopping online, it may just be the beginnings of building online credit, social media style.