Blockchain in the credit bureau
There is an extreme amount of discussion occurring across the globe and web about Blockchain. Some say Blockchain is the new internet, some say Blockchain is a bubble. I attended several meet ups in New York City and Washington, DC to truly understand the concept of Blockchain. While initially skeptical, after understanding the concept of Blockchain I was blown away seeing the power of this technology. Since then, when I come across a problem I try to analyze if and how Blockchain can address that problem. So far, I have identified two problems in my life, and with my introductory knowledge, I dig deeper and deeper to understand how the concept of Blockchain can be applied to my problems. The two problems are the current broken credit bureau ecosystem and the disasters of online dating. In this article, we are talking about Blockchain in the credit bureau. The subsequent article will discuss my analysis of Blockchain in the dating industry.
So, Let’s Start With What is a Blockchain?
A Blockchain is a decentralized public ledger where data is stored in a decentralized ledger using the power of cryptography. This means that it is not stored in a centralized ledger. There is functionality build in that means once the data is stored it cannot be deleted. The private and public key feature offers user complete authority to control their data, privacy, and ultimately, trust. Sounds confusing, right? Trust me I had the same feeling when I initially started to learn about Blockchain. From life experience, I realized the best practice to gain knowledge is get yourself into the shoes from the perspective of the problem and solution. Let me explain below.
Blockchain in Credit Bureau.
We all aware of credit bureaus — Equifax, Transunion, Experian are the biggest examples. Have you ever stopped to think about why we pay money to these companies to access our own data? A couple of weeks back, while I was attending the Blockchain meet ups, I had to apply for a personal loan so I thought I would sign up in one of the existing credit bureau and check the breakdown of my credit score before I apply for the loan. I was surprised that I would have to agree to pay $20 dollars a month to check my data — the first shock. The second shock I discovered after signing up and agreeing to pay $20 dollars a month. This shock was that they published incorrect data about my employment, income and credit applications I made in the past two years. The third shock was that I could not fix these errors at my end. I had to call the credit bureau, request them and they would verify with my respective bank/financial institutions and change it in their centralized server if they are satisfied with the facts and figures. Even more concerning is the fact that they have no obligation to go the extra mile in speaking to the bank and fixing the error for me. All I can do is follow-up again.
I found this situation to be deeply annoying and distressing. Since then I started to analyze whether Blockchain could address this problem, the answer I found was YES with the help of the distributed public ledger and private key. However not very transparent about the usage, hence I started researching is there any Blockchain credit bureau in the industry. In evaluating sites, I came across Guppy through a Linkedin article.
Guppy, a Blockchain Fintech, is a credit bureau on Blockchain Technology. The product is not available in the market at the time of this writing. It is still in the development stage. I conducted comprehensive online research and interviewed the CEO of Guppy. This allowed me to acquire sufficient information about the product and how it can address the problem I encountered. Thanks to Mr. Sanjib Kalita for being extremely generous to share the product information ahead of release.
Guppy offers complete control and privacy of consumer data through the following blockchain features:
Private, Public key, Smart contracts, Digital signature, and distributed ledger. How do they do it? Let me explain with the illustration below. Please follow along with the diagram to understand how Guppy uses Blockchain.
As a consumer, when I authorize the use of my data the product stores the data in the off-chain database. The Guppy platform creates relationship between my financial data and run through Hash functions to create hashes. These hashes are stored on the Blockchain distributed ledger, which acts as a data index. The consumer owns complete control to their data using private keys and is paid when their data is accessed by financial institutions.
This technology enables consumers to have complete control over their data. For example, I want to publish only my employment, income, and address details available in the credit bureau system. The rest I want to keep classified including “how many applications have I made” “What is my credit score” “the breakdown of my credit score & report”, and “What has been the trend of my credit score”. The reason for this is simple, I do not want everyone to see this information. Under the current credit bureau system, as a consumer my options are limited. Guppy found a solution to this by applying Blockchain technology to the problem. As a consumer I can choose which data I want to make public/accessible by financial institutions and which data should remain private. Now if financial institutions want to access this data, they will have to seek my permission through Blockchain distributed ledger and, subsequently, I hear about the transaction from the peer to peer network, then its upon my sole discretion whether I want to offer the access via cryptographic keys. Based upon my requirements, I can choose to take a decision that empowers me. This demonstrates a lot of flexibility at the consumer end. The process gives me complete ownership of my data which is much more than can be said for a traditional credit bureau system. As a consumer, having this level of control is exciting.
When I, as the consumer, has complete ownership of my credit data and I authorize the transaction request made by financial institutions, I also receive the complete transparency along with ownership. Powered by Blockchain, this system shares the complete breakdown of my accessed data such as who accessed my data, date and time, and which portion of my data was accessed. Under the current credit bureau ecosystem, the only notification a consumer gets is who accesses their data. Guppy addresses this by using the Blockchain wallet feature. Each time consumer data is accessed, the consumer gets paid and their wallet shows the complete list of transactions along with the public address of financial institutions to identify who accessed the consumer data, which portion of the data is being accessed, with date and time.
As mentioned above, the consumer is paid when their data is accessed. Once the Guppy network confirms the transaction and the payment reaches the consumer wallet, and the consumer approves the transaction, only then can financial institutions access the data. Consumers can unlock the value using their private key in their Wallet.
Moving further into the current credit bureau ecosystem, consumers can file a dispute if their data such as employment details, income, address, or transactions is wrongly uploaded in the credit bureau system. Once a dispute is filed its reaches to bank through the Credit Bureau and it’s the discretion of the bank as to whether they want to rectify or respond to that. This process marginalizes the consumer voice. To contrast, when using the power of Blockchain technology Guppy addresses this where the consumer will now have an equivalent voice in the system. Banks and financial institutions prefer to receive the most accurate data to ensure their money is well spent. This new system will help address data inaccuracies by engaging consumers to review and interact with their data, resulting in data purchasers getting more value for their data purchases. The transparency of blockchain identifies disputes and participants with a large number of complaints, including both consumers and institutions, to promote good behavior.
I also came across a startup named Spring Labs, a Blockchain startup based out of Los Angeles and founded by Adam Jiwan. They recently raised $15 million dollars from multiple investors included Great Point Ventures, Jump Capital. The product is still at the development stage and the company is targeting the introduction of disruption to the credit data ecosystem. One of the major disruptions the product is focusing on is letting financial institutions share consumer credit report within the Blockchain network. How is that possible? If Wells Fargo & Citibank are going to run a hard credit check the same day if they intend to issue a loan, they both run a separate credit check on the consumer, which is a hard pull and that impacts the consumer credit score severely. But the product “Sping Labs” addresses this gap. Let’s look at an example to illustrate this. Consumer data will be in the Blockchain network and let’s suppose Wells Fargo ran a credit verification check for a consumer to issue a credit recently, and sometime later Citibank needs to check the credit report of the same consumer to issue a credit. Instead of running one more credit check and impacting the consumer credit score, Citibank can check on the Blockchain network and request Wells Fargo to share the report in exchange of Crypto Coin (digital Currency). Further, a portion of this Crypto Coin will be compensated to the consumer as well. Therefore, the consumer is getting paid as well as their credit score is not negatively impacted for repeated inquiries; also, they have the complete transparency of their data.
Second, the product allows consumer to contest with their bank for their information. As previously mentioned in my personal credit report, I have found incorrect details about my employment and address, even after paying to access my own data. My power and options in this case are limited. The only thing I can do is file a dispute. There is no guarantee that I would receive any response and if I do it could take months. “Spring Labs” addresses this consumer gap too. The product offers a free hand to the consumer to contest their information through the Blockchain platform. The biggest advantage of this feature is that the consumer has a direct relationship with the bank or financial institution to contest incorrect information, rather than communicating this request through a third party.
Further, as consumer data is stored through the Blockchain technology, their data is safe and secure. There are minimal chances of data breaches because the consumer has to offer the access and Blockchain network approves transactions. The customer is made aware of any activity through the Blockchain network, and this allows consumer data to be safe and secure.
The experience of Blockchain technology can address gaps of the credit industry and simultaneously bring solid solutions that benefit both banks and consumers. The power of private, public key, and distributed ledger is immense and the right utilization can bring disruptive revolutions for many existing problems. All that is needed is a right approach and aligned research to blend the technology and problem together for a solution. We are seeing a lot of concepts around us based on Blockchain to solve these wicked problems.
Hence, to truly understand Blockchain is not a hype or myth. Deep reading, research, and analysis with basic daily problems is highly recommended. We are forging ahead to a 360-degree digital economy where authenticity, trust, and control will be a pressing problem. Industry is foreseeing Blockchain as the answer and solution to those problems that come with the digital economy.
This article represents the views and thoughts of the author based on deep research and analysis. There is no claim to state this would be accurate in every circumstance. Your own perspectives, thoughts, and findings might differ based on local use cases, experiences, and findings. If you identify content that differs from your experience, contact me directly through email and messaging to have a further conversation on the subject.