Blockchain technology could be used as part of a new way to automate the credit rating system in the world of lending thanks to the Royal Bank of Canada.
The blockchain has arrived in a huge way. This technology is seemingly everywhere and is taking over just about every aspect of business and life. Considering the constant news surrounding blockchain technology and the soaring value of bitcoin and other such cryptocurrencies, it should come as no surprise that droves of businesses are tapping into blockchain technology, including big banks.
In fact, RBC is now considering the use of blockchain in an effort to automate the generation of credit ratings when borrowers apply for loans. The bank recently filed a patent to develop a platform based on a blockchain that would automatically provide a borrower’s credit rating using both historical and future anticipated financial data.
Should the patent application go through as planned, the new system would make use of more data sources compared to the current credit rating systems. It would also help boost credit rating accuracy. In turn, the overall loan process would be greatly improved.
In addition to creating a new credit system to provide more comprehensive financial data on borrowers, the system would also create more transparency for consumers. As such, users would be better able to improve their credit scores faster than what can be done today.
As of now, credit score processes aren’t transparent for consumers. Anyone’s credit score could be negatively affected – whether by legitimate incidences or by an error in recording – without their knowledge. The individual whose credit score is impacted might not understand what data affected their credit score.
The majority of Canadians don’t understand how their credit score is calculated or generated and don’t have access to the necessary tools to control their credit score.
With the proposed blockchain technology, credit history applications will be configured to alert financial organizations about a credit event that could affect borrowers’ score. This can offer consumers a heightened level of transparency.
When loan applications are completed and submitted, the new platform would automatically select an appropriate lender and loan for the applicant. It would then generate a specific loan contract unique to the borrower that contains all pertinent loan terms.
Essentially, a new blockchain system would automate credit ratings in each phase of the process.
Once the patent is granted for the new blockchain system, it remains to be seen whether or not RBC is actually ready to start creating the system or whether the bank would make use of one blockchain or several blockchain networks.
One thing is for certain: should such technology come to light, it will be a game-changer in the world of credit ratings and lending overall.
