In the U.S., consumers tend to take credit for granted. Access to credit is nearly ubiquitous, and the three major credit unions ensure that the vast majority of Americans have a credit score, which allows them to be assessed for risk by potential lenders considering making an offer for a loan product. But the recent Equifax data breach proved that there are drawbacks to the robust credit scoring system, even in the U.S. Pave seeks to solve that problem with their Global Credit Profile, a decentralized database that allows the consumer to control who has access to their credit information.
Why Credit Data Should Be Decentralized
As the Equifax data breach shows, no one’s credit information is secure. It’s estimated that 143 million Americans and as many as 400,000 Brits may have been affected by the breach. Since the breach has been reported, there has been a run on credit monitoring products. And none of the credit bureaus can guarantee that hackers won’t gain access to their data. In fact, its getting increasingly more difficult for any company using the Web for database storage to insure the data they keep is 100% secure.
What Pave wants to do is solve that core data issue for the consumer.
“We’re looking at the existing paradigm and saying it’s broken,” Pave CEO Oren Bass said. “Not too many people are looking to solve the data access problem on a global basis.”
Bass said the three major credit bureaus—Experian, Equifax, and TransUnion—collect information on individuals, which they get from banks, credit card companies, and other businesses that issue credit, and sell that data to third parties. The individual doesn’t get any of the money. They’re cut out of the equation altogether. And who can guarantee that the buyer of the data can keep it safe from bad actors? Pave’s solution is to wrap up the data in a digital wallet-like security lock connected to the blockchain.
Pave’s Meandering Path to Its Data Security Solution
Bass started Pave in 2012 with co-founders Justin Mitchell and Sal Lahoud. They founded the company as a response to the 2008 financial crisis. Their primary product was an income sharing agreement for people with limited credit history, and the target audience was millennials.
“Due to lack of data and legal clarity on the product, it didn’t have staying power,” Bass said, “so we pivoted to include short-term consumer loans.”
Their intent was to lend to people with limited credit histories, but they struggled with getting a solid process for underwriting them. That’s when they wrote an algorithm to assess creditworthiness and were delighted to see it worked so well. They ended up lending to 1,700 people with limited credit histories.
Then, 2016 happened. A difficult year for online lenders on the whole, it proved to be very difficult for Pave. “We capsized as a marketplace lender,” Bass said. “We didn’t have the equity capital to become a balance sheet lender.” So they started using their technology to solve a different problem—the problem of data access for the underserved population.
Earlier this year, Pave ended a seed round and funded half a million dollars in startup capital for the Global Credit Profile. Since 2015, they’ve managed to fund $18 million including a Series A funding round that year.
What the Global Credit Profile Does
The gist of Pave’s Global Credit Profile consists of its three buckets. They collect data for marketing, or prospecting, for underwriting, and to assess the value of consumer information. But when you collect information on individuals, you have to make sure that data is secure. That’s why they decided to connect the data to the blockchain.
Using the Global Credit Profile, users will be able to:
- Monitor and control their own financial data in real time
- Dispute errors and omissions
- Link credit accounts so that more data is included in their profile
- Port their data anywhere they want to globally to ensure they have access to the best credit products in any country they live or travel to
- Control who gains access to the data and get paid for that access
Pave’s Global Credit Profile will work by leveraging the inherent decentralization of the blockchain as a distributed ledger allowing each credit transaction to be approved using the same or similar processes used to record cryptocurrency transactions in real time today. Any information currently collected by the credit bureaus can be kept in a consumer’s self-controlled file including rent and mortgage payments, utility bill payments, lines of credit, and more. Plus, the credit profile can include social data gathered from user’s social media accounts.
Each user gets an IP address and a key to enable the application. The user can access all of their financial information in one location.
Who is Using the Global Credit Profile Right Now?
In pre-launch, Pave got quite a few users, but it escalated when they decided to lend to consumers. They have lent $23 million to 1,700 users. Current users include many in Africa and India who connect their utility bills and payment data.
Pave’s technology is powered by a core data center including visualization and data integration. The data is hosted on Amazon Web Services (AWS). For data storage, they use IPFS. Due to the decentralized nature of their system, a hacker wanting access to credit information would need to hack as many 145 million different files with information on different individuals within each file.
The bulk of Pave’s user base today are immigrants, people who have a credit history abroad but don’t have a credit profile in the U.S. where they are living. They’re new to credit, but they have a low profile. They can use their education history, social data, and utility payments. Bass said they want to help these individuals build a credit profile and work their way up to prime status.
“We hope the credit bureaus will partner with us and use our technology to protect against the security issues they have,” Bass said.
Bass sees alternative data becoming the norm in credit profiling in the future. That will include machine learning algorithms, social data, and utility payments for many of the world’s unbanked and underbanked. They currently have plans to raise more capital through an ICO token issue, but they’re currently working with private investors. Ultimately, they want to build an ecosystem that will allow others to develop and build apps that interact with the Global Credit Profile. To make that happen, they need more people on their team with alternative credit, data, and programming expertise.
“The only way we’ll be successful is to take on the status quo of the credit bureaus,” Bass said. And Pave is off to a good start.