Introducing Credit Checks To The Crypto Lending Market• January 17, 2022 9:59 pm • Comments
Crediting reporting firm TransUnion is looking to introduce credit checks to the cryptocurrency lending industry.
As part of the company’s process, blockchain companies will be able to access consumer credit scores when issuing loans.
This move will make the crypto lending market regulated in a fashion that is similar to traditional financial lending markets.
As a result, users with good credit would be able to borrow more crypto as loans at fair interest rates that are above current interest rates at traditional lending platforms.
TransUnion states that this will also help encourage the growth of crypto lending platforms because credit scores are an essential part that is used by mainstream entities.
In order for TransUnion to be able to pull credit reports from the blockchain, the company announced that it is partnering up with a startup called Spring Labs.
Crypto lenders will be able to check consumers’ credit data through @TransUnion, possibly allowing them to offer more favorable rates and without requiring crypto as collateral.
— CoinDesk (@CoinDesk) January 12, 2022
TransUnion and Spring Labs announced Wednesday that TransUnion’s consumer credit data will be added “on-chain,” as it’s known, via a platform called the ky0x Digital Passport.
This should be welcome news for this set of borrowers because it could mean lower interest rates or even an opportunity to take out loans without having to offer up Bitcoin, Ethereum, or other digital assets as collateral—which is the way they currently get loans.
“With TransUnion’s identity and credit data,” Spring Labs CEO John Sun said in the two companies’ press release, “we’re providing the first building block to bringing reputation on-chain, in turn helping create a more efficient DeFi lending environment that can offer better loans, more available liquidity, and ultimately accelerate adoption in the space.”
Steve Chaouki, a TransUnion U.S. president, added that this partnership provides “a solution for users to control and share their data on blockchain in a privacy-preserving way, enabling them to safely interact with a broader set of financial products.”
Once this feature is launched, there is also the possiblity that lenders can decide to issue loans without requiring any collateral depending on the customer’s credit history and risk profile.
This could potentially lessen the strict requirements typically required for investors to secure a loan and would also allow investors to get better interest rates.
Currently, in order for a user to take a loan, typically crypto assets like Bitcoin must be required as collateral for the loan.
As TransUnion is also known as one of the big three credit agencies, the company’s involvement in the space will also allow for a far more efficient lending environment as the company will be able to provide greater lending liquidity and better loan rates in general due to the size of platform.
This recent development will also help accelerate the growth of decentralized finance as a whole as being able to provide credit data on the blockchain is a huge step towards achieving mainstream DeFi adoption.
TransUnion is not the first credit agency that has jumped into the blockchain and crypto industry.
Previously, Credit Suisse had also announced that it had partnered up with FinTech FQX to provide financing to manufacturing companies using e-notes.
TransUnion to Allow Crypto Lenders to Check Credit Reports https://t.co/b4Ju06j2Uw pic.twitter.com/tpA4sVghhN
— DAVID PREMIER (@davidpremier) January 12, 2022
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