Abstract
Background
In 2015, the US Congress declared credit scoring to be a monopoly controlled by just one organization, FICO[1]. FICO provides credit scoring for more than 90% of top US lenders[2]. FICO’s credit scoring system leaves over 26 million Americans “credit invisible” and an additional 19 million unscorable[3].
Globally, the situation is even worse. 38% of the world’s population does not have a bank account[4]. 3 billion people are unable to obtain a credit card and 91% of residents in developing nations experience difficulty receiving debt financing from traditional financial institutions. Traditional credit bureaus require borrowers to take on debt before obtaining a credit score, leaving millions of potentially creditworthy individuals unscorable by the current credit system.
Credit scoring is similarly siloed around the world, further exacerbating these issues.
Credit scoring providers can not operate globally, meaning that when a borrower moves to a new country, they must rebuild their credit scores from scratch as their score does not follow them. Since identity verification is also centralized, applying for a loan requires users to expose all of their personal information, putting individuals at increased risk of experiencing identity theft. Credit losses due to identity theft exceed $21 billion each year.
Overview
In this whitepaper, we introduce a global, decentralized credit protocol, Bloom.
Bloom addresses these existing limitations in lending by moving credit scoring and risk assessment to the blockchain.
Bloom is a standardized, programmable ecosystem to facilitate on-demand, secure, and global access to credit services. Bloom presents a novel approach to credit risk assessment allowing both traditional fiat lenders and digital asset lenders to issue compliant loans on the blockchain while increasing competition to lower fees and improve borrower experience at every layer of the credit issuance process.
The Bloom protocol presents solutions to the following problems:
1. Cross-Border Credit Scoring: Credit histories are not portable across countries, forcing individuals to re-establish their credit track records from scratch when they relocate.
2. Backward-Looking Creditworthiness Assessment: Credit systems rely on historical debt repayment information and therefore cannot easily accommodate users who are new to credit. This is especially prevalent among minorities, the underbanked, and the youth[5].
3. Lenders Have Limited Ability to Expand and Offer Loans Globally: Borrowers in markets with less developed financial and regulatory infrastructure struggle to access credit as lenders have limited identity and scoring data to base credit decisions.
4. High Risk of Identity Theft: Borrowers must expose all of their personal information when applying for a loan – the same info an attacker can use to open new lines of credit.
5. Uncompetitive Credit Scoring Ecosystem: Credit data is centralized. In most markets, a single provider scores credit, resulting in an uncompetitive ecosystem for evaluating credit risk. FICO was checked on 90% of all U.S. Loans.
Protocol Components
There are three main systems which comprise the Bloom protocol: 1. BloomID (Identity Attestation): BloomID creates a global secure identity, allowing lenders to offer compliant loans globally, without forcing borrowers to expose personal information.
2. BloomIQ (Credit Registry): BloomIQ is a system for reporting and tracking current and historical debt obligations that are tied to a user’s BloomID.
3. BloomScore (Credit Scoring): The BloomScore is a metric of consumers’ creditworthiness. This decentralized score is similar to FICO or VantageScore score, but with updated models.
The Bloom protocol improves the current credit ecosystem by creating a globally portable and inclusive credit profile, reducing the need for traditional banking infrastructure and opaque, proprietary credit scores. This means both traditional fiat lenders and digital asset lenders will be able to also securely serve the 3 billion people who currently cannot obtain a bank account or credit score.
Bloom decentralizes the credit industry while lowering rates and increasing security.
Bloom makes it easy for lenders to transition to the blockchain by offering a new, compliant way for them to access new markets.
Bloom Protocol
