Blockchain firm Spring Labs is looking to eliminate centralized entities such as credit bureaus from the loan process. The centralized entities play a crucial role in granting loans to individuals and companies.
According to a report by Bloomberg, credit bureaus such as Equifax Inc. and Experian plc have become very important in the loan process. The problems banks have when it comes to sharing customer information during the loan process has made most people turn to these credit bureaus for a loan.
The first problem with banks is their competitive nature. A bank will always try to convince its customer to seek a loan from them instead of another bank. Secondly, there are regulations in place that limits the ability of banks to share personal identification information. Also, under the current terms, banks credit bureaus their customer information for free and then have to buy it back in the form of credit reports. According to Adam Jiwan, chief executive officer of Spring Labs, this is a system that lenders hate.
He stated that “That’s the reason they don’t like sharing with the bureaus because they give it away for free.” He revealed that the lenders he has interacted with so far are interested in using a peer-to-peer system that eliminates the middleman as long as they can tackle the competitive and regulatory issues.
Spring Labs has former Federal Deposit Insurance Corp. Chair Shelia Bair and Trump administration chief economic advisor Gary Cohn as its advisors.
Blockchain technology is gaining adoption beyond the cryptocurrency space. Industry experts have predicted that the technology if used properly will save billions of dollars by handling data and transactions more efficiently and rapidly. However, most corporate efforts with the technology are still in early development or at the testing phase.
Spring Labs to achieve goal via partnerships
Spring Labs has partnered with 16 lenders and fintech firms including SoFi, OnDeck Capital, Avant, GreenSky, and Funding Circle to test the new technology it developed. The technology makes use of a “triple blind” method of information sharing, and the identities of both the lenders and the customers will be unknown. Spring Labs will also not have access to information being shared on its network. The company combined cryptography, blockchain, and privacy in developing this technology, Jiwan noted.
Blockchain technology in the project enables the network to be decentralized, boost its security, and allows for a chain of ownership to be established, Jiwan stated. He added that the blockchain components would enable digital assets to be issued that will incentivize lenders to share customer information.
The technology is still in development due to some regulatory concerns. The primary aim is to pay lenders for sharing customer information with the native cryptocurrency, Jiwan said. He pointed out that the company is also hoping to reduce fraud with the new technology.
He explained that the system is more similar to crowdsourcing rather than the bilateral exchange between a bank and credit bureau and this will allow granular profiles of identity to be created. With this type of system, fake identities would not be able to make their way into credit reporting databases and appear legitimate. He stated that “It’s a newer form of fraud, it’s pernicious and it’s growing rapidly.”
Jiwan finally revealed that the company is looking to have its information-sharing and anti-fraud products ready for testing and deployment for real-world applications in the second half of the year.