A healthy credit score is a lifeline for many people around the world. Banks and financial institutions use this score to establish the ability of any individual to pay back the loan they seek. Based on a variety of data that includes credit card usage, current and former loans, etc, a person with a good score can secure a larger loan or a lower interest rate (or both).
For the approximately 4 billion people without proper access to basic banking globally, this means no matter how sound their financial standing is to obtain a loan and payback, the numbers don’t exist in the banking sector. Even for people who do have proper financial services, there is always a chance that it is not properly assessed. In the USA alone, it is estimated that one-fifth of Americans have a lack of data that prevents them from obtaining a loan.
The issue is further compounded with the ever-increasing wealth gap, especially when you move from being underbanked to unbanked. Heavily reliant on recorded data, banks deny services to 1.7 billion people – people who in the first place cannot open up a banking account. The cyclic reason exposes the illogic of the established credit scoring system and there is a dire need for a new method that can incorporate the under/unbanked.
This does not mean that attempts have not been made to give the unbanked and the underbanked a means to take part in the global economy. Micro banking, for example, is a very popular alternative to banking that allows for the less fortunate to start using basic banking services. Things like micropayments to shopkeepers, online purchases and other e-commerce activities are very popular amongst the unbanked, especially in emerging economies where opening bank accounts or obtaining a credit card is difficult, especially with tough KYC regulations.
As good as micro banking is, it still doesn’t connect with mainstream banking the way it should. The rich personal data that is built over time is still of no use as a means to obtain a credit score. If this is made possible, not only will billions of people have access to loans, but add up to $250 billion in the global GDP.
In the last decade, a new financial system has also emerged as a major contender. Cryptocurrencies have become the buzzword and Decentralized Finance (DeFi) has proven to be an excellent means of investment and profit-making for people in the recent recession caused by the meltdown of the global economy, no thanks to COVID-19.
The rise of different crypto loan platforms has given people a new means of securing loans, but these are heavily collateralized, with borrowers getting as low as 50% of their crypto collateral, making it infeasible for many.
William Zhang, Security Architecture Lead at The World Bank Group and advocate for data as capital was recently quoted as saying that, “whether you’re a rural farmer in sub-Saharan Africa or a fresh college graduate in Los Angeles, there are still a lot of barriers for accessing capital within the traditional financial systems,” he explains. “While blockchain and DeFi have helped democratize data and finance, there is still a lack of trust that can be limiting for people without existing collateral. But a solution that provides access by rewarding good on-chain behaviour and allows new users to earn trust within the system could unlock new possibilities for nearly 2 billion people around the world.”
Crypto Credit Scoring with CreDA
CreDA offers the perfect solution to the current dilemma faced by people all over the world: how can they use their alternate money dealings as verifiable and acceptable data to obtain loans. Offering the world’s first-ever crypto credit scoring system, the platform breaks down the barriers and unlocks the potential of the $250 billion DeFi industry. Using its advanced AI and dedicated cNFTs, it allows any crypto holder to connect their private wallets to the service, let the AI determine their credit score based on their wallet history, and mint the non-fungible tokens as a means to show their ability to pay back loans. The cNFTs can help millions of DeFi users around the world to secure loans with lower collateral or even none at all.
Supporting Polygon, Elastos Sidechain, Arbitrum, BSC, and HECO, it already has 90 million wallets worth of data, making it an expansive service. As the DeFi sector grows, it will be able to offer more people a crypto credit score and with its long-term plans of integrating on-chain and off-chain data, it just might become the bridge between the two worlds. Such as.