EXCLUSIVE — When it comes to blockchain, lenders need to stop thinking about smart contracts and start thinking about identity, according to industry experts.
“To get an identity verified, to get an organization to service you, it can be a lot smoother, it can be more secure, and you can be more in control of your information,” Daniel Maren, co-founder of blockchain startup Bloom, said during a panel discussion on lending and blockchain last Friday. “Once you establish your node on the blockchain, you are the one who has access to that, you authorize anybody to access the information that’s associated with that node.”
The panel took place during American Banker’s Digital Lending and Investing conference and included Eric Piscini, global lead for blockchain in financial services for Deloitte, as well as Maren and Ron Quaronta, chairman for the Wall Street Blockchain Alliance.
A lender tying a user’s credit history to that node, Maren continued, would create an “interesting” online infrastructure for financial transactions given the traditional immutability of the blockchain.
Together with a startup like Bloom, which will perform KYC for a lender (or other fintech) using that node, financial institutions could have an easier, lower-cost way to authenticate and lend to borrowers.
Smart contracts, an Ethereum-based feature of blockchains, are often considered as a way to fix regulatory issues for lenders — the feature allows for simple “if this, then that” actions to perform themselves automatically, for example, collecting a payment if a certain clause in the contract is met — but were not discussed by the panel.
Rather, experts discussed how blockchain is an ideal technology for identify verification especially when it comes to an industry like lending, where regulation, KYC, and other constraints can often hamper the ways and places in which a business can lend.
“I think identity is really unappreciated in terms of its importance on a global financial level.,” Quaronta said on the panel. “We’re seeing what [economic] identity means when it’s leveraging blockchain.”
The main draw of the technology in this space is twofold, according to Piscini, who described blockchain as “a non-human trustee.”
“The cost of trust will go down over time, [it] will go down dramatically,” Piscini said. “So what [that] does is, it gives [businesses] the opportunity to actually lend to a larger coalition because the cost is lower, but also to lend in a very tailored way.”