Photo via Pixabay

Blockchain transforms the edges of industries: Part I

Jack* was not having a good day. His son had hit a baseball through his neighbor’s car window. Ouch, Jack would have to find an extra $700 to have the window replaced.

According to a 2017 GOBankingRatessurvey, more than half of Americans (57 percent) have less than $1,000 in their savings accounts. After the 2008 financial crisis, getting a loan as a subprime borrower (credit score of 650 or less) has become complicated. With few services to choose from, many end up defaulting to a Payday-like loan option. Recall store fronts with big neon signs and employees processing small loans for financially fragile individuals. This route may multiply financial hardships through excessive compounding interest payments. Some scenarios can become nightmares of perpetual interest payments that go well beyond the initial capital borrowed.

Today however, through the use of blockchain-based enabling technology the world of small loans has seen a dramatic re-invention. Removing the bricks-and-mortar and employee overhead can transform the financial penalty of seeking a small loan as well as provide a significant list of other benefits.

Meet Leap Credit.

Leap Credit offers a fully automated and almost entirely on-line small loan service. In Jack’s case, the system scanned fifteen data bases and was able to underwrite Jack in seconds. No credit history? No problem. Individuals without a credit score can also be automatically processed within seconds using this approach. Once the customer accepts the auto-calculated repayment plan, loan origination occurs within five minutes. Jack’s anxiety melted as the funds materialized before his eyes.

This service provides loans between four hundred and eleven hundred dollars. Repayment terms are up to eight months with no prepayment penalties. As mentioned, almost all communication is done via automated texts and emails. Just a couple of customer representatives handle the rare person to person communication for over five thousand early users of this technology. Furthermore, instead of borrowers ending up with traditional debt collectors, difficulty with repayment triggers a workout process to an adjusted path towards successful repayment.

Octane Systems is the platform which hosts this initial product called Leap Credit. The founders chose to take advantage of Microsoft’s Corda; an architecture designed specifically to fill the need for transparency and ease of audits right out of the gate. With Leap Credit’s customer base doubling every quarter, filling the audit gap, a challenge inherent with traditional non-blockchain infrastructures became increasingly important. Within months, the team was able to demonstrate that the small loan market place was performing well on at least three counts: required documentation was complete, fully immutable and institutional investors could review loan books directly.

With the success of the first product up and running, the company is developing alternate products which would cater to customers with a diverse set of financial needs. These will include different loan sizes, different interest rates and different opportunities for investors.

Again, the chosen blockchain-based architecture will enable cross product management from the ground up.

Finally, reaching across borders will also be vastly more efficient by this platform as ledger transfers replace the wire transfers of funds. Additionally, by using this fully automated approach, cross-border services won’t be dependent upon partnerships with tens or hundreds of banks. Just one or two trusted banks per new geography is all it will take to underwrite and originate loans within minutes. With strong expertise defining the local regulatory requirements, the team simply sets the specifications, developers then code and finally the software takes care of the rest; satisfying all rules automatically for each transaction. Reliability, immutability and auditability are designed in at the ground level using blockchain-based infrastructure.

To support growing to this trans-global scale and managing hundreds of investors at a time, Leap Credit plans with their venture partner 11–11 Investments to raise a series of $5 Million traunches. Given their success to date, this raise is likely to be very popular among investors.

While large banking players may avoid the hassle of small loans, new start-ups are taking full advantage of distributed ledger technology and providing a much-needed service with not only significant convenience but also new affordable prices. Radical innovation is driving significant transformation at the edge of the global financial industry. Rescuing the financially fragile like Jack may be just the beginning.

*Jack is not a real Leap customer