Blockchain startup Spring Labs has put its first fraud prevention tool into production using an authorized version of Ethereum. The Los Angeles-based company now works with two lenders in the Property Assessed Clean Energy (PACE) financing space and onboard two more, said co-founder John Sun.
Each lender now shares borrower and property data through the Spring Labs protocol, where it is either tokenized or fragmented so that only the entity that provided the data can see it. Lenders have been testing the platform since June and believe it could save up to $ 10 million in fraud or 1% of the industry’s total loan transactions.
“They built a real-time database that I could ping to see if there were any other appraisals on a property now or in the future,” Mike Schmidt, COO of PACE funding, said in an interview. “None of us did anything [with blockchain] before, but in less than a week it was paying dividends.
PACE loans are used to finance construction projects that make buildings more energy efficient or provide new sources of renewable energy for private commercial, industrial and residential properties. Managed by the US Department of Energy, the PACE residential program allows local and state governments in California, Florida and Missouri to fund energy improvements.
Specifically, PACE loans create liens that are repaid by the owner’s property taxes. Consumers seeking PACE financing typically have below average FICO scores because they typically come to the program after being denied an unsecured loan or home equity line of credit, Schmidt said.
“We are often their only hope of getting a new roof or an air conditioner,” Schmidt said. “We’re helping make solar power mainstream and not just for the wealthy with rights, but for those in lower-income neighborhoods. ”
Spring Labs’ blockchain solution was attractive to PACE lenders who feared that a centralized hub for data exchange was another target for entrepreneurs trying to play with the system, Schmidt said.
The space is dominated by four lenders because the most natural financiers are incentivized not to be PACE lenders: Mortgage lenders have the skills to enter the PACE lending business, but PACE loans have a ‘super privilege’ on the property, which means they get paid off before the mortgage payments.
For Spring Labs, this small number of attendees made PACE an attractive place to test the Spring protocol, Sun said. As data is either tokenized or fragmented, sharing financial data is no longer a competitive disadvantage. The ultimate goal of Spring Labs is to replace credit bureaus and data aggregators by making data exchanges possible without centralized data hubs, which can be hacked and which also makes data sharing more expensive.
Removing intermediate data exchangers is also the same logic The R&D branch of Visa had quietly developing a blockchain which would allow banks to exchange customer data without data aggregators.
The privilege stack isn’t the most legally binding type of fraud the PACE program faces, but it’s an issue clients have pushed lenders to tackle, Schmidt said.
The most immediate gain for Schmidt’s company will be to launch other states on the PACE loan idea. Currently, PACE Funding is an approved lender of the California Department of Financial Protection and Innovation.
“Now we can come in and say, ‘California took one on the chin for you, and we’ve learned a lot of lessons the hard way, but now we have a lot of consumer protection, so we never have to. worry about stacked reviews. in your state, ”Schmidt said.
In the future, Spring Labs also aims to provide PACE lenders with more data on bad entrepreneurs and more data on PACE borrowers to better determine creditworthiness, Sun said.
“It’s an interesting use case for us to apply our technology,” Sun said. “We quickly set up a bespoke data sharing network in an industry that hadn’t shared a lot of information before. We believe it is secure technology that is better for lenders and consumers, and has much less risk of data loss. ”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.