TransUnion, Spring Labs partner to provide credit scoring to blockchain apps

TransUnion and Spring Labs are partnering to allow consumers to share their credit score information with decentralized financial lenders.

The purpose is to allow consumers to leverage their credit reputation to get better terms from decentralized finance (DeFi) lenders than they usually do today. Many crypto lenders do what is called “over-collateralized lending,” where to borrow $1 worth of digital currency, a user must put up and maintain $1.25 worth of collateral. If consumers can prove they are creditworthy, the reasoning goes, they can borrow much more affordably.

The new credit data offering, delivered through a Spring Labs spinoff called Quadrata, will allow decentralized applications to use the matching mechanisms that traditional financial applications must use, according to Matt Smith, chief technology officer at Spring Labs. It will let them add identity verification, anti-money laundering checks and know-your-customer checks, “making all of this verifiable so you can satisfy your compliance requirements as a regulated company and still interact with this new model,” he said in an interview .

“This is where we’re seeing a lot of growth across the blockchain space because it’s been a wild west for a long time, but there’s really a limit to how much capital can be injected into that kind of unleashed ecosystem,” Smith said.

Spring Labs handles identity verification and pulls the credit score information from TransUnion. Spring Labs also provides an attestation, basically a signature that claims it has assessed this user’s score and that it fell within the range specified by the DeFi application. The DeFi lender gets the information “off-chain”, not recorded on a blockchain.

This service will only be used at the customer’s request, noted Liz Pagel, senior vice president of consumer lending at TransUnion, which is based in Chicago.

“If I have one [cryptocurrency] wallet, do I have to ask to put my score on the wallet,” Pagel said in an interview. “I know it will benefit me because I can work with more institutions through my wallet. If I confirmed AML [Anti-Money Laundering]KYC [Know Your Customer], all that is checked and I got a stamp of approval and I have a credit score of 780, which opens up the world for me. I choose to put my data there and then this data can be shared and it remains anonymous. So there’s a 780 credit score, a verified fraud check, but you don’t know it’s Liz Pagel.”

This form of sharing credit information with DeFi devices is new in the United States, according to Seoyoung Kim, associate professor of finance and business analytics at Santa Clara University’s Leavey School of Business.

“But it has started to be implemented in other countries, especially countries where lending activity is sparse because they don’t have the financial infrastructure in place in terms of a solid record-keeping system,” Kim said in an interview. “If you think about areas where the record keeping system has not been as advanced or as reliable as developed wealthy nations, then you really want to use some kind of public blockchain that people will have more faith in.”

Eventually, TransUnion and Spring Labs hope established financial institutions will use this service to underwrite other types of loans, such as mortgages, on a blockchain.

For several years, Spring Labs in Marina Del Rey, California, has been developing technology to secure and tokenize sensitive information, such as personally identifiable information. It has long had a vision to help financial firms share identity verification, KYC and fraud information without sharing their client lists.

Some fintechs are already using Spring Labs’ technology to verify income and employment and share fraud information. Another group of lenders that specialize in efficient energy projects such as installing solar panels are also using the technology.

“We’ve added a couple of new use cases for it, like helping organizations minimize how much personally identifiable information they have available in their raw data,” Joel Eckhause, CEO of Spring Labs, said in an interview. This information is replaced with tokens using Spring Labs’ technology.