Verifying consumer data is the cornerstone of electronic commerce. Blockchain’s transparency and accountability could straighten out a convoluted process pocked with weak points.

But aligning blockchain applications with ongoing verification processes is hardly straightforward.

“It’s not just that incumbents will fight back,” says Ed Page, the Chicago-based managing director of the financial services technology practice at Protiviti. “Blockchain might be cheaper in the long run, and [with blockchain], the operating cost probably will be less, but there’s still a one-time, significant cost to integrate it.”

Ultimately, blockchain applications could support a sort of “Intel Inside” consumer brand that signals a fresh start for the sprawling industry. Consumer-facing services would seem ripe for a reset. Consumers loathe credit bureaus for good reason, given numerous reports of credit breaches and unresponsive customer service.

Credit Card Fraud Complaints

Identity theft is the No. 2 consumer complaint (after perennial front-runner debt collection), according to the Federal Trade Commission’s annual compilation of consumer headaches. In its latest report, the FTC reports a 23 percent increase in complaints about credit card identity fraud. The federal Consumer Financial Protection Bureau reaffirmed in January its determination to hold consumer credit reporting companies to greater accountability.

“We are creating a blockchain network that will create the right mechanisms and incentives for financial institutions to share that data directly,” says Spring Labs’ Adam Jiwan. “They don’t share directly now because of regulatory reasons and for competitive reasons.”

And consumers expect companies to clean up the mess, according to a 2016 survey of 9,000 consumers conducted by Gemalto, a security consulting firm, which also found that 70 percent of consumers believe it is the responsibility of companies to keep data safe.

This is the opportunity that a company called Spring Labs hopes to seize. “We are creating a blockchain network that will create the right mechanisms and incentives for financial institutions to share that data directly,” says co-founder and CEO Adam Jiwan. “They don’t share directly now because of regulatory reasons and for competitive reasons. It’s more transparent, it’s encrypted and because of the nature of privacy-preserving contracts, they can share information that is not competitively sensitive.”

Seed Funding

Last week, Spring Labs announced that it raised $14.75 million in seed funding to start building out its blockchain network. August Capital led the round, joined by Victory Park Capital, GreatPoint Ventures and Pritzker Group Venture Capital, as well as some funds that specialize in blockchain and cryptocurrency.

Jiwan and other Spring Labs founders gained experience with credit and identity technology while working at Avant. They say they have detected the intersection of efficiency and self-interest that will propel financial institutions to invest in blockchain — namely, the cost savings of the sharing of data verification that organizations now replicate on their own.

Jiwan says that if financial services organizations could see and trust – through blockchain – each other’s verifications, they could save time and money. He adds that duplication of effort is costly and doesn’t really drive competitive advantage, which is why reducing duplication might be the key to rapid adoption.

It’s a concept that has been gaining interest for “a while,” says Page, citing Kyck and the State Bank of India as early innovators. “It’s a good application of the technology, but I also think we’re in the early stages of this.”

He adds, “There are things that have to get resolved to make it effective. The regulatory overlay has yet to emerge. And what industry standards will be adopted?”

There is also the enormous effort to link any new blockchain process with existing systems, both at and among financial institutions, he says.

Future Engine of Trust

This all adds up to a major, but not insurmountable, conversion of mindset and technology, says Page, which means that it’s likely that it will be years before blockchain can become an engine of trust for consumers.

Consumer awareness and brand-building would be great, says Jiwan, but business adoption is the bigger win. The task at hand is to build critical mass to show that blockchain transforms identity validation and protection, saving money in the process. Only after financial institutions are largely on board does the new system’s advantages potentially convert to consumer branding, because marketing has to reference actual consumer experience.

“Eventually, consumers could ‘stake’ their value to signal that they are good borrowers,” he says. “There are many ways that consumers could interact with this to get to additional transparency, but their adoption isn’t required to add value.”

Joanne Cleaver
Joanne Cleaver is a Chicago-based freelance, business and lifestyles journalist based. Her work has appeared in a number of national and regional publications. Earlier in her career, she was the deputy business editor at the Milwaukee Journal Sentinel.