TransUnion Brings Credit Data Verifications to Crypto Lending

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Cryptocurrency lenders will be able to start checking credit reports.

TransUnion,

TRU 1.96%

one of America’s top three consumer credit reporting companies, will allow consumers to give blockchain companies access to their personal credit data through security firm Spring Labs’ ky0x digital passport.

Consumers will be able to benefit from better interest rates when they borrow money from financial services companies that operate on public blockchains such as Ethereum by providing this information, the companies said.

Cryptocurrency investors can currently borrow money by putting digital assets such as bitcoin as collateral. The companies have stated that because lenders will be able to verify a borrower’s creditworthiness, they may issue loans that do not require collateral.

More and more large financial institutions have started to participate in the crypto boom. Bank of New York Mellon Corp.

and Fidelity Investments have announced their intention to provide crypto services to institutional clients such as asset managers and hedge funds. Banks outside the United States, including Banco Bilbao Vizcaya Argentaria HER

and Commonwealth of Australia Bank,

have started testing ways to offer customers the ability to invest and store bitcoin and other digital assets.

Traditional US consumer banks have become more suspicious. An association representing major banks said current regulations would prevent them from holding cryptocurrencies. The Basel Committee on Banking Supervision, which sets global standards for banking regulation, introduced a proposal last year that would require lenders to set aside a dollar of capital for every dollar of bitcoin and others. cryptocurrencies they hold, seeing them as one of the riskiest assets. bank could own.

The market for decentralized financial assets, or DeFi, has grown significantly in recent years, analysts say. The total value of DeFi applications on the Ethereum blockchain climbed to nearly $ 200 billion in November, from around $ 20 billion the year before, according to JPMorgan.

DeFi faces several regulatory hurdles until it becomes mainstream, JPMorgan analysts wrote in a recent memo.

“Enforcing know-your-customer and anti-money laundering controls is a necessary first step, but a general perception that regulations would naturally be less effective on DeFi could prove to be a major hurdle going forward. in terms of regulators allowing DeFi to go mainstream, ”the bank analysts said.

Although the SEC has not announced any major actions against major crypto exchanges, the commission has threatened to sue companies offering crypto loans. Dion Rabouin of the WSJ explains why this part of the crypto market has received such a strong backlash. Photo: Mark Lennihan / Associated Press

Spring Labs digital passport currently displays anti-money laundering and know-your-customer checks after users go through the registration process and attach the passport to their digital wallet. No personal data is shared publicly, just attestations of completed processes, the companies said. They expect consumer credit data to be available on the passport by the end of this year.

TransUnion President of U.S. Markets and Consumer Interaction Steve Chaouki said that by providing credit and identity data on the blockchain, more businesses will be able to access and develop DeFi and crypto applications while by remaining compliant with regulators.

“By having that in hand, you start to turn on the tap for incoming capital, and that increases competition,” he said.

Last year, Spring Labs announced that it had raised $ 30 million from investors led by TransUnion and that the two companies were working together to increase access to Spring Labs’ network and data exchange products.

Venture capital firms invested more than $ 17 billion in digital asset and blockchain companies in the first half of 2021, according to a report by Bank of America, compared to $ 5.5 billion in investments in 2020 during the same period.

Write to Sebastian Pellejero at [email protected]

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