This interview is part of our new Blockchain In Lending series, where we interview the world's leading thought leaders on the front lines of the intersections between blockchain and lending.
In this interview we speak with Makoto Tominaga, CEO and co-founder of Credify Pte. Ltd, to understand how his company is using blockchain to transform the lending business, and what the future of the industry holds.
1. What’s the story behind Credify? Why and how did you begin?
MT: Credify was born out of research that we conducted on how to achieve a fair and truly meritocratic reputation system in e-commerce. Research clearly showed that the systems we currently rely on to understand counterparty credibility in this context are fundamentally flawed, in that they are easily gamed and manipulated by rogue actors in the system. We realised that we could address this issue by taking an entirely new approach, enabled by certain features unique to blockchain and smart contract technology, such as programmable transfer of value.
I started the company with my co-founder in early 2018, but we took a lot of time last year to research and define the Credify system, understanding that the fundamental concept of Credify had far broader reach than simple reputation in the e-commerce setting, expanding its scope to alternative lending and fractional insurance (for example, guaranteeing accuracy of oracle feeds to conditional financial transactions).
2. Please describe your use case and how Credify uses blockchain:
MT: Credify has the potential to transform lending by allowing third parties to fractionally post collateral on behalf of a borrower, lowering risk for the lender and creating a new micro-economy of financial inclusion.
This is especially powerful for people that are locked out of traditional finance due to lack of credit history or sufficient collateral, which is almost always the case in micro-lending.
We also believe that as more and more financial instruments are shifted to DLT, we will have the ability to apply Credify to debt obligation derivatives, like CDOs, where third parties can insure against counterparty risk using the same service and mechanism that underlies the reputation and alternative lending applications.
3. Could you share a specific customer/user that benefits from what you offer? What has your service done for them?
MT: We are still development stage at this point, but are in talks with several potential clients with the aim to initiate pilot programs when we are ready to launch the main service. These organisations realise the value that Credify brings in several terms: 1) reduced costs associated with vendor fraud and manipulation of their existing vendor reputation programs, 2) overall elevation of vendor quality as only good businesses will have people willing to place value at risk on their reputations, and 3) capture of heightened user engagement, as they return to the property more often to track their earnings progress.
This last point is especially powerful, as existing rate and review systems are all “one and done,” translating into lost opportunity for continued engagement. As users return daily to the properties (sites or apps) to check their statuses, the stickiness of this experience results in more time in-market, which means platform owners are given more opportunity to present deals and secure higher GMVs.
On the alternative finance side, we have been in talks with one major MFI about the potential of Credify to fundamentally drive a new micro-economy within their existing client base. Talks are still very early, but we are confident in the potential of Credify to foster credit inclusivity in areas of the world that need it most.
4. What other blockchain use cases in the lending industry are you excited about?
MT: We are particularly excited about the use of blockchain in achieving greater transparency for better accuracy in risk assessment of structured financial instruments, such as CDOs. Traditionally, the financial industry has been beholden to opaque credit rating agencies with conflicted interests as clients of the institutions that market these instruments; this was essentially at the core of the recent GFC. With blockchain, or more generally DLT, we will break into a new era of accountability and transparency, enabling a new order of products and services, like Credify, to come along and completely transform how counterparty risk is mitigated.
5. Where will Credify be in 5 years?
MT: Honestly, I'm mostly concerned about keeping Credify alive for the next year, let alone in five years' time. Blockchain based services require a higher level of complexity in system design, as we must account for usage paradigms that require appropriate balances between true decentralisation, disintermediation and practical, real-world usability. Integrating decentralised technologies into traditionally centralised systems in a manner that does not impact existing business flow is no small-order task, and operating at the bleeding edge of applications in this space means startups face higher probabilities for failure.
This being said, in five years we hope to have established Credify as the de facto standard for elevating trust in commerce and alternative lending.