Getline Whitepaper Article Series:
Competition & Challenges
We’re pleased to introduce the third of a series of articles based on our whitepaper. The purpose of this article series is to run through the whitepaper in layman’s terms, and make it as simple as possible to read and understand the details of what the Getline Network is, how we’ll function, how we’re structured, and how we plan to move ahead. These articles will be shortened & simplified versions of the whitepaper content. See the whitepaper for the full content.
Just as a short intro, Getline is disrupting a $1 trillion market through blockchain technology.
The Getline Network is a peer-to-peer lending market on the Ethereum blockchain. The platform will allow for instant and direct lending in cryptocurrencies. Getline will initiate a unique architecture for a credit risk prediction market to make lending safer for lenders and more accessible for borrowers. We aim to revolutionize the peer-to-peer lending market and fully decentralize it, making it easily accessible, safe, and compliant to serve as an infrastructure for a new kind of global financial system. For those of you who don’t know, peer-to-peer (or P2P) refers to the ability of two individuals or entities, to exchange value with each other directly, without the need of a middleman.
All Articles:
1st Article — Introduction, Aim, & Our Idea
2nd Article — Credit Risk Management & Loan Lifecycles
3rd Article — Competition & Challenges
In this third article of the series, we’ll cover sections 6–7, which are:
*6 Competition
*6.1 Legacy fiat currency credit system
*6.2 Legacy credit bureaus and credit scoring agencies
*6.3 P2P lending marketplaces
*6.4 Decentralized cryptocurrency P2P lending platforms — experiments
*6.4.1 WeTrust
*6.4.2 Dharma.io
*7 Challenges
*7.1 Identity fraud
7.2 Cryptocurrency value change
*7.3 Legal compliance and mitigation of regulatory risk
Let’s get started…
6 Competition
Failure to innovate in the lending sector has led to establishing P2P lending platforms, like the Lending Club or Zopa, which have grown rapidly & taken a large slice of the lending market. Some cryptography-based p2p lending companies, like BitBond, BitLendingClub, and Getline.in, have made their own P2P lending platforms. This chapter will compare Getline with these already established market players, & discuss key differences that gives the Getline Network a competitive edge over:
- Traditional financial market entities (e.g. banks, credit unions, etc),
- Centralized P2P fiat currency lending market operators (e.g. Lending Club, Zopa),
- Centralized P2P cryptocurrency lending market operators (e.g. BitBond, BitLendingClub),
- Decentralized P2P cryptocurrency lending market networks (e.g. WeTrust, Dharma).
6.1 Legacy Fiat Currency Credit System
In 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, the share of loans by these three big banks dropped to 21 percent. ~The Washington Post
In many cases legacy financial institutions, like banks & credit unions, can’t keep pace with newer, more agile, companies that benefit from the fact that from 2008 onward banks seem to be in a terminal decline.
The GetLine Network shows the following advantages over the legacy lending system:
- Less regulatory overhead,
- A borderless nature,
- A robust & competitive credit risk assessment market,
- Encourages international arbitrage & cooperation,
- Greater financial inclusion & can more easily serve the unbanked population,
- Puts most of the profits into the lenders’ pockets, thanks to disintermediation,
- Can operate on cryptocurrencies that are free from the risks faced by fiat currencies due to central banks’ cheap and abundant money supply policy (eg. overprinting & inflation). Though cryptocurrencies can have their own risks as well, such as larger volatility rates, among other things.
Banks worldwide are in a difficult position, after over-regulation, huge write-offs after the latest financial crises, & a lack of innovation that could cut operating costs. We believe the Getline Network will be delivered just in time to fully benefit from all the ills of the legacy financial system.
6.2 Legacy Credit Bureaus And Credit Scoring Agencies
The main industry the Getline Network aims to disrupt is the legacy credit bureaus & the credit scoring agencies market. Our biggest innovation is the concept of a transparent credit score market, where ARAs’ past performance can be measured, and each ARA can be ranked by its metascore. We believe this will lead to a complete disruption of the credit scoring industry. The metascoring system is meant to boost competition in an industry dominated by just a few companies, and leverage low operation costs & data-driven models of ARAs to provide overall much better risk assessment for lenders.
The Getline Network’s ARA network shows the following advantages over the legacy credit scoring organizations:
- Potentially has much more intense competition than on the legacy market,
- Is borderless in nature,
- Offers many more choices for lenders,
- Has the potential of huge efficiency gains thanks to the use of data-driven approaches.
All lending institutions & markets currently rely on credit reports from legacy credit bureaus. After the Getline Network’s credit scoring market matures, we believe it will be the most resilient, innovative, & competitive credit scoring mechanism in the world.
6.3 P2P Lending Marketplaces
Huge success from centralized P2P lending marketplaces, like the Lending Club, has inspired us to create the first decentralized lending platform. Although the former brought important efficiency to the lending market, they’re still expensive, relatively unstable, & force participants to trust a third party with credit scoring & handling all the money.
Today’s P2P lending marketplaces’ shortcomings could be avoided by using a fully decentralized architecture to harvest network effects & benefit from the scale factor. The Getline Network is designed to disintermediate the process of lending, by having the money handled by Smart Contacts, & not by a third party. Moreover, in the only aspect where a trusted third party is needed, credit scoring, we aim to build a network of ARAs to choose from, with a metascoring system assessing their performance, in order to boost competition & innovation.
We imagine most of today’s centralized P2P lending marketplace operators eventually becoming ARAs in our system, with their credit scoring algorithms & client bases. This could help us gain an excellent ARA network, scaling up our operations, thanks to the Getline Network’s borderless nature. In seven years time, we envision the Lending Club as one of the prominent ARAs in our network, or at least one of our prominent ARAs being just as large.
The Getline Network shows the following advantages over centralized P2P platforms:
- Less regulatory overhead,
- A borderless nature,
- Able to leverage a robust, competitive, credit risk assessment market,
- Encourages international arbitrage & cooperation,
- Greater financial inclusion, & could easily serve the unbanked population,
- Puts most of the profits into the lenders’ pockets thanks to disintermediation,
- Can operate on cryptocurrencies that are free from the risks faced by fiat currencies due to central banks’ cheap and abundant money printing policy (ie. overprinting & inflation). Though cryptocurrencies can have their own risks as well, such as larger volatility rates, among other things.
The only significant difference between current cryptocurrency P2P lending marketplaces (like BitLendingClub) and fiat currency lending marketplaces (like the Lending Club) is the type of currency that is being lent. Therefore, they share most of the key characteristics, including their shortcomings. To us, creating centralized marketplaces for lending in cryptocurrencies (which are supposed to be decentralized) seems to be a bit unfortunate.
6.4 Decentralized Cryptocurrency P2P Lending Platforms — Experiments
There’s just a few attempts to create a truly decentralized lending market. Though intriguing, we believe that none of these projects will likely create a stable, worldwide, effective, & compliant lending system, like the Getline Network. We still look forward to cooperating with their creators. If you’re one of them, please contact us at hello@getline.in.
6.4.1 WeTrust
WeTrust is a very interesting approach to decentralized lending. It’s based on lending circles and focuses primarily on third world countries, where informal lending groups are already formed as a reaction to a poorly developed financial system. As a result, it’s definitely not a full-stack lending solution and might be a bad market fit for developed markets & higher-income users in general. We find WeTrust to be hard to scale & to join the existing financial ecosystems in developed countries. We think that WeTrust is going to exist in symbiosis with the Getline Network, where WeTrust loans might serve as money helping people to move out of poverty, who will later use Getline as they develop a credit score.
6.4.2 Dharma.io
Dharma is a newly introduced project by Nadav Hollander, proposing a decentralized lending system. It shares many of the key mechanisms in the Getline Network, such as embracing disintermediation and introducing a decentralized credit scoring market, among others. We believe however, that the creators of this system need to employ more sophisticated fraud prevention systems to prohibit Risk Assessment Attestors (Dharma’s ARA equivalent) from manipulating their accuracy scores. We see many vulnerabilities in the Dharma system that are eliminated in the Getline Network, thanks to the GET token and the Network Trust Fee.
We believe that Dharma’s system, if ever introduced to the market, could eventually be merged with the GetLine system, as these both share key mechanisms. Yet, we believe this could only happen if Dharma users would adopt the GET token and start using the NTF mechanism. Only then could the Dharma lending contract be listed in the Getline browser, and ultimately start using the Getline Network’s metascore, which is superior to Dharma’s scoring of risk assessing organizations, in our opinion.
7 Challenges
7.1 Identity fraud
We aim to properly identify borrower identities. One of the most obvious attacks in a decentralized lending system is the possibility of creating multiple identities to apply for loans and then default on them. To prevent this & insure each lender has only one consistent identity in the network, Getline will use decentralized, blockchain-based, identity verification to allow for independent validation of borrowers.
Our ARA will use Boson identification technology, & make all Getline participants become part of the Boson ecosystem. Boson is an identity management product, allowing individuals & other entities to create global & trusted identities verified & saved in a decentralized system. A blockchain stores encrypted identity records, such as name, address, nationality, & other information. Boson makes it possible to verify such identity records by multiple institutions, such as banks, employers, and governments. Entities verifying identities in the Boson ecosystem are called verifiers. Each identity saved in the Boson blockchain has a percentage value attached that displays the network’s confidence in the identity’s authenticity and integrity. After each verification, the value rises or falls, depending on the verification results and the verifier’s trustworthiness.
After integrating the Getline Network with the Boson system, each ARA can become a Boson verifier. Each borrower will be required to issue a Boson identity record. Each ARA will verify the identity, & also score the creditworthiness of the borrower. ARAs will be incentivized to check the Boson network during credit scoring to ensure that an individual with little or no verification history in the Boson network did not create a duplicate identity in order to hide his previous credit history in Getline. Every GetLine contract will have to contain the encrypted hash of the borrower’s identity record in the Boson network.
This way, the individual’s credit history on the Getline Network will be attached to his Boson identity, & ARAs will be able to easily verify it. Advancements in decentralized blockchain-based identity verification helps repeat borrowers in the Getline Network to get lower loan costs by giving ARAs their verified Boson identities. Since the creators of Getline also made the Boson project, Getline’s credit history may be integrated with Boson identities in the future, which could help Getline borrowers prove their credit score to other entities that use Boson. We intend for this to create a strong & lasting network effect, lowering costs, & leveraging trust among participants.
7.2 Cryptocurrency Value Change
High fluctuations in cryptocurrencies can present too high of risks for borrowers seeking a loan. The solution for this problem is to enable denominating loans in fiat currency.
7.3 Legal Compliance And Mitigation Of Regulatory Risk
Marketplace lending in financial technology has not been well regulated. Startups in this field often face unclear & shifting regulatory burdens. Financial regulations on marketplace lending differ greatly from jurisdiction to jurisdiction, making centrally coordinated global lending nearly impossible in the long run. This has caused some centralized lenders to either restrict their activity or to go out of business by regulatory pressure. BTCJam, for example, restricted opening new accounts for US clients to limit the compliance risk, and BitLendingClub said that it was no longer feasible to run the platform & be compliant, and decided to limit it’s activity, & ultimately ended up closing the platform. Internationally, major issues regarding marketplace lending activity are regulated by various laws, including, but not limited to:
- Securities laws,
- International financial sanctions,
- OFAC/laws regarding international assets trade,
- Lending laws, including:
– Lender registration/licensing requirements,
– Usury laws;
- Consumer protection laws,
- Bankruptcy laws,
- Crowdfunding rules,
- Tax requirements and considerations,
- Remittances regulations.
We believe the way around the global compliance risk is to split & delegate it among the ARAs, who will have incentive to provide services only to lenders under one or a couple harmonized jurisdictions, in order to avoid compliance risks.
This will help ensure compliance for each individual loan contract, & shield local ARAs from government intervention. With this setup, even if an ARA authorized a loan in a non-compliant way (and was held accountable for it), it wouldn’t likely constitute a major event leading to a ban or shutdown attempt of the whole Getline Network.
We recognize the obligation of institutional lenders to comply with the KYC/AML and OFAC regulations, and the measures implemented by counter-terrorism laws. Thus, ARAs will need to provide complementary services to allow regulated entities to participate in the Getline Network. In most jurisdictions, financial institutions are allowed to outsource KYC/AML/OFAC processes to third parties. However, despite the fact of outsourcing these processes, obligated institutions remain accountable for all breaches of respective regulations, so financial institutions will be able to participate in the system only after the ARA market solidifies, and trustworthy ARAs emerge with proven track records. We hope that eventually this will attract big lenders that would not otherwise be able to enter cryptocurrency lending markets, who could give a huge liquidity injection into the system.
The focus on local markets will also allow ARAs to efficiently report credit defaults to local credit scoring agencies. This would allow the translation of the borrower’s lowered creditworthiness in the Getline system into lowered credit risk in standard (fiat currency) financial institutions, and in effect satisfy the ARAs’ fraud deterrence function better.
We hope you enjoyed this article, keep an eye out for the next article in our series,
The Getline Network team.
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