POC: Credit Monitoring with Blockchain
Softjourn

POC: Credit Monitoring with Blockchain

Softjourn investigated how banks can monitor credit more accurately with blockchain

January 13, 2020



For some time, the question surrounding blockchain was, "will it work?" 

The answer to that query seems to be a resounding yes, as spending on blockchain solutions jumped to $1.5 billion in 2018; a 2019 Deloitte survey regarding blockchain trends and overall investment among industry executives shows that there is less "blockchain tourism" and more companies looking to spend money to investigate use cases. 

Increasingly, the new question about blockchain is, "what can it do for my company?" Two-thirds of participants in the same 2019 Deloitte survey agreed that failure to adopt blockchain technology would result in losing a competitive advantage.

With the above trends in mind, we used our R&D capabilities to meet a bank’s innovations department’s need to test blockchain. The client had a high priority initiative to explore blockchain technology. 

Softjourn had previously developed several projects for this client, including a credit offer generator (COG) MVP; because we had become a trusted partner, we provided clear direction on how the client should move forward testing blockchain. We advised using the COG as an anchor point for the new blockchain POC. By building on the previous project, Softjourn was able to start testing blockchain quickly and efficiently.

The Need

As the world grows increasingly digital, businesses are realizing how paper documents negatively impact both interior and exterior processes. Sixty-one percent of small to medium-sized businesses stated that creating a document workflow process would have a positive impact on their bottom line. 

For instance, misfiling of paper documents happens all too easily and can eat up as much as 30 to 40% of an office worker’s time just by trying to find the needed item. When that’s multiplied by the fact that large organizations lose one document every 12 seconds, well, that stacks up.

Lending remains a key source of bank revenue, and due to credit risk management being heavily reliant on customer information, losing even a single document is deeply detrimental to all aspects of the credit monitoring process. 

Using our previously created COG, Softjourn conducted research to see if blockchain could help give additional flexibility to the credit monitoring process. Softjourn knew that the client needed time and awareness in order to detect red flags so that they could protect the bank’s interests with proactive and relevant decisions. 

To gain this flexibility, the client would need:

  • Information

  • Organization

  • Advanced warning

In addition to this, there was another need: collaboration. The credit monitoring process was not handled by one person or team; it was instead spread out across various teams with different rights and decision-making needs.

All of these needs could be served with a central tool that collected information and organized it according to the credit line it was related to, not unlike collecting and centralizing information in a project manager. The POC would explore handling flexible monitoring variables, such as changes in management team, as well as more static variables such as missed payments.

With blockchain, the system would have the additional bonus of inherent security and transparency. Because of the nature of blockchain, all comments, revisions, and updates would be preserved in the “chaincode” itself. This would allow for the overall lifespan of the loan to be traceable from beginning to end.

 

The Solution

Using our COG as an anchor point for the monitoring system, Softjourn selected Hyperledger Fabric as the type of blockchain to use in designing and developing this POC. All information for an approved credit line would be imported from the COG into the Hyperledger Fabric chaincode.

Hyperledger Fabric has a modular architecture that optimizes performance and network scalability. It separates transaction processing into three phases, which ensures that only those who have the correct permissions can see certain phases. This requires fewer levels of trust being assigned to different users, thus increasing security.

The chaincode would then validate the inputted data, such as the identities of those involved in the transaction and their signatures. Once this validation was performed successfully, the chaincode would generate a smart contract that included the agreed-upon terms of the loan.

From there, users such as sales persons or credit monitoring officers could access the smart contract within the chaincode to view all information related to the credit line and make appropriate decisions. This could be done from within a series of dashboards designed by Softjourn to clearly display all relevant details. 

For example, a user designated as a sales team member can review forecasted financials against actuals and develop a proposal on actions to be taken with the credit line. Because all details are captured in one place and are immutable, the system provides a foolproof comparison. 

Proposal templates are created directly from the chaincode, ensuring all relevant details are captured. Other examples of templates include, but are not limited to:

  • Freezing a line of credit

  • Reducing a line of credit

  • Releasing another tranche of credit

Hyperledger Fabric has permissioned membership, which means all participants accessing the system have known identities. With Softjourn’s POC, this feature ensured that the bank was complying with data protection regulations. For the client in question, credit lines were only accessible to specific team members or authorities, and our POC ensured that employee compliance with this requirement was maintained.

When information was transmitted to another team member for their review and adjudication, all actions (i.e., the action of transmission, comments from reviews, and the result of adjudication, etc.) are recorded in the chaincode. Any action taken in regard to the credit line is recorded in the chaincode, creating an immutable history throughout the life of the credit line.

This is ideal not only for knowledge retention, as information is secured and accessible whenever there is a query from either the customer or administrator side, but also knowledge transfer. In the event that there is management or team member turnover, all relevant information is centralized in one secure location. There is no chance that paperwork or other important documentation is lost in the transition.

The Benefits

R&D Testing Benefits

Through Softjourn’s R&D, our client received valuable insight regarding blockchain and the technology’s capabilities by being able to test it firsthand. Blockchain had pros and cons for the specific situation that this POC was intended to test.

Overall, the project was a success as it provided direction for the client to proceed when it came to implementing blockchain. They gained valuable understanding about whether or not blockchain would work for them in this particular instance, which in the long run saved them money, time, and energy that might have been spent in error had they simply chosen to implement blockchain without testing it first. 

POC Benefits

With Softjourn’s POC, banks can easily capture and extract vital information from any physical or electronic document. An average bank sifts through thousands of documents and images a year, which becomes a complex and sometimes tedious process. A document solution combined with blockchain offers the system user additional security, trust, and integrity both to their processes and to their business.

Our POC can offer the credit monitoring process the following benefits:

  • Expedited document processing cycles. Funds are spent more intelligently because less time is spent on tedious, manual processes such as storing a physical copy of a document in a filing cabinet. Blockchain adds immutability, which makes the auditing process quick, efficient, and cost effective. This in turn adds trust and integrity to the data businesses use and share every day.

  • Ensure compliance with changing regulations. Document management plays a key role in regulation compliance by offering complete, auditable, and secure data capturing that ensures compliance with important regulations. Blockchain adds the additional benefit of holding the full history of changes and reasoning within the ledger as a financial institution updates information.

  • Provide first-rate customer service. Information is immediately accessible thanks to document management solutions, which in turn provides quick answers to customer questions and other inquiries. In addition, blockchain preserves all updates regarding customer and client relationships in the ledger history.

  • Improved decision-making. Banks gain a more robust and accurate view of client and customer activity when using document management software. This leads to timely reporting by downstream systems, and fewer exceptions.

 

Conclusion

It’s clear that blockchain technology holds many yet untested benefits; not just for financial institutions, but businesses across many industries. What’s needed is a questioning mind and the interest in finding out how this technology can be used to develop solutions to today’s needs.

Softjourn is a global technology services provider that understands how blockchain can augment Fintech, Cards & Payments, and Media & Entertainment services. We research this technology in-house in our R&D Centers, and have developed blockchain solutions in the ticketing and banking industries.

These solutions allow for unparalleled tracking and management of services, allowing clients to more easily oversee their assets and dramatically reduce costs. We are experts in five blockchain platforms, and can help our clients understand why they should use blockchain and what works best for their organization.

If you’re interested in understanding how blockchain could benefit your business, or even in testing a hypothesis of your own, contact Softjourn today.

 

1Worldwide Blockchain Spending Forecast to Reach $2.9 Billion in 2019, According to New IDC Spending Guide. (n.d.). Retrieved from https://www.idc.com/getdoc.jsp?containerId=prUS44898819 

2Device Magic. (n.d.). What Paper is Actually Costing Your Business - Ebook by Device Magic. Retrieved from https://www.devicemagic.com/what-paper-costs-your-business/ 

 


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