Make Way for the Internet of Credit
Accessible, affordable credit can jumpstart and strengthen economic activity at every level of society, improving the financial situation of billions of people.
But for credit to be extended, trust is required. And trust is built on data. Unfortunately, it increasingly seems that data is becoming the new oil.
If we don’t want credit to be a scarce resource, held by self-interested cartels and a source of conflict among haves and have-nots, we must explore a better way: neutral, decentralized, and open — an Internet of Credit.
The Internet as a model
Although the theory behind the internet dates back as far as 1962, it wasn’t until 1991 when Tim Berners-Lee invented the World Wide Web and that the “network of networks” was available for public use and truly took the world by storm.
For the first time, the Internet gave millions of computers the potential to communicate with each other and share resources. People could instantly access a wealth of information, communicate with others millions of miles away, and carry out financial transactions; all with the touch of a button. Since the 1990’s the Internet has developed with exponentially increasing connection speeds, and an increase in the quantity of what can be transferred and stored online.
Most importantly, the internet is a decentralized open network. This means that it’s entirely democratic; anyone can post information online and anyone can access that information. The internet has sourced some of the greatest revolutionary movements of our time such as The Arab Spring and with the onset of open universities led to education moving towards the ideal of universalization.
The “New” Internets
As the Internet evolves, it is spawning growing sub-networks.
The Internet of Things (IoT)
The ‘Internet of Things’ (IOT) is made possible by ever increasing WIFI capabilities and the capacity to make powerful technology smaller and smaller in line with Moore’s Law. IOT refers to a range of objects with sensors allowing machine-to-human interaction. One of the most popular devices IOT has birthed is Amazon’s Echo — a personal assistant which responds to voice and can communicate with a myriad of households appliances. IOT objects have a range of impact-centric uses and are now being used to revolutionize issues like child care and to create smarter cities.
The Internet of Value (IoV)
Similarly, Chris Larsen at Ripple has argued for The Internet of Value — a way to do for money what the Internet has done for information… make it instantly exchangeable without a middleman by decentralizing control and removing asymmetries. Stellar, the decentralized ledger platform LendLedger is built on, goes even further by being specifically designed for small-value transactions across any border.
The Internet of Credit (IoC)
Just as the Internet, IoT, and IoV revolutionize how we exchange information and value, we believe that a networked, decentralized approach can do the same for credit. This is what co-founder Gautam Ivatury has termed the “Internet of Credit.”
Yes, credit is a kind of value. But that doesn’t mean that a network for credit can simply rely on the Internet or IoV to emerge. What makes credit unique is that it depends on acquiring trust.
Today, using the Internet or IoV, a sender can transfer information and value at virtually zero cost to a recipient. But as soon as we want the recipient to repay that value, the cost of this exchange becomes tremendously high. Why? Because it is expensive to build trust.
(This is what makes efficient digital marketplaces so valuable — the marketplace builds a repository of buyers’ and sellers’ reputations, reducing the cost to have trust. From eBay in the early days to Airbnb today, online e-commerce sites and platforms have relied on reviews, and often, recourse to the platform owner if the buyer defaulted on delivery).
LendLedger and the IoC
Now that value can be exchanged instantly, how can we solve the cost of trust, so that credit — the lifeblood of commerce — can become widely available to the hundreds of millions of small businesses and consumers who power our economies?
LendLedger and its ilk are creating an Internet of Credit to address this.
LendLedger takes the form of a decentralized, open marketplace where digital data in many forms can be tied to unique identities and power low-cost acquisition of trust (credit worthiness). By building the pipes that connect data providers to borrowers, lenders, and others, LendLedger enables a small merchant anywhere to tap the data generated by his or her payment terminal, inventory system, mobile phone, or vendor relationship to source credit virtually. Over time, as borrowers pay back loans and lenders build a book, these transactions form a decentralized, accessible reputation that can be shared and make the marketplace even more efficient.
LendLedger’s sister venture, Happy (India), has powered over $20 million in instant, digital loans for small businesses through integrations with more than 20 large data providers. Happy is perhaps the world’s best example of the power of the Internet of Credit, initially in a centralized incarnation (although Happy’s lending is now being recorded on-chain).
The Impact of the Internet of Credit
Globally over 250 million small businesses lack access to credit. The Internet of Credit is an opportunity to invigorate how these companies do business, and the individuals who own and are employed by them — as high as 40% of all employment in some countries.
LendLedger is currently working on a range of pilots to unlock credit to small business borrowers in India, the United States, and other markets.
