Last week fintech startup Spring Labs announced they are developing the Spring Protocol, a blockchain based anti-fraud and ID verification system, with 16 consumer and small business lenders as launch partners. The 16 partners include SoFi, OnDeck Capital, Avant, GreenSky, Funding Circle, BlueVine, Fundation, Upgrade, Fundbox, and Better Mortgage. There are six other lenders who were not named in the release.
I have been following the development of Spring Labs with great interest since they announced their initial funding in March of last year. Most of the management team came out of Avant so they were familiar to me and I have spoken to them several times since their launch, most recently, just a few days ago. What they are looking to achieve, I think, is groundbreaking and sorely needed in the online lending space.
Much has been written about the Equifax breach and it is clear that keeping credit and identity data in a centralized database is not the best solution and probably not sustainable long term. Spring Labs provides a real alternative, one that takes advantage of blockchain technology. They have built a peer to peer network that allows any member company to query information that may be held at another member company.
It is easiest to understand with the use of an example. Let’s say someone applies for a loan at Avant. In order to do identity verification on this borrower Avant sends a request to the Spring Protocol to see if any member company can verify the address and phone number of this person. A one way encrypted hash of this information is sent to the protocol as an API request to determine if any other network participants can verify the information for this borrower. It just so happens that Upgrade has made a loan to the borrower nine months ago so the protocol sends a request back that the information has been verified. Avant has no idea who verified the information only that this borrower is within the network and their identity has been verified. There is no central store of this information, instead, the validation of the request is provided via the protocol without unencrypted or personally-identifying data leaving Upgrade’s servers.