Credit Bureau Archives - Lend Academy

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.

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The ranks of thin file consumers continues to grow in this country. According to Experian these consumers now number 25% of the total U.S. population. These are people with five or fewer items in their traditional credit history.

Clarity Services is a credit bureau covering this non-prime population (you can listen to my podcast with Clarity founder Tim Ranney from last year). They have 65 million consumers in their database with a majority of these people not being covered by the traditional credit bureaus. Experian has been buying data from Clarity Services for many years but they decided last year to acquire the company.

Since the acquisition they have worked with the Clarity Services team to build a new score specifically for the non-prime segment. They are calling it the Clear Early Risk Score. As the name implies this new score is designed to give lenders a clearer view of the risk of these thin file consumers, many of whom should not be categorized as subprime.

I spoke with Alex Lintner, the president of Experian Consumer Information Services, last week to learn more about this new score and what it means for consumers.

Alex first explained that since the financial crisis more consumers have used short term lenders more than ever before. Many of these people have paid back these loans on time but they are invisible to the traditional credit bureaus. This is because many, if not most, of these short term lenders do not report their activity to these bureaus. But they often do report it to Clarity Services.
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Spring Labs is Building the Future of Anti-Fraud and Identity Verification

A new blockchain-based anti-fraud system is being built in cooperation with major online lenders

Experian Releases a New Credit Score Aimed at Non-Prime Borrowers

Experian’s Clear Early Risk Score is the first product released since their acquisition of Clarity Services

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