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Shifting Loan Power to Borrowers

· 4 min read

Shifting Loan Power to Borrowers

"Our current credit system says, 'Saddle yourself, so we can give you more to saddle.'" Eric Lapin, President of FormFree, stated during a recent TBD live stream. His comment sheds light on a fundamental paradox of the U.S. credit system: it often requires you to accumulate debt as a prerequisite for obtaining loans, leading to more debt. This systemic issue is underscored by recent data from the Federal Reserve Bank of New York, which reveals that 1 in 5 applicants for mortgages, car loans, or other types of loans were rejected — the highest rate in five years. This trend disproportionately impacts Black and Latino applicants. Guided by their slogan, 'Democratizing lending for all people without bias,' FormFree developed a platform built with Web5 and AI to address these issues.

Residual Income Knowledge Index (RIKI)​

The Fair Isaac Corporation score, better known as a FICO score, is a three-digit score that helps lenders in the U.S. evaluate the likelihood of a borrower repaying a loan. A higher score indicates greater reliability. However, achieving a high FICO score — or any credit score — largely depends on accruing and gradually repaying debt. This may come as a disadvantage for various groups of people who may not have a credit score, including veterans, formerly incarcerated individuals, immigrants, young adults, and folks who prefer cash transactions.

To provide a more holistic view of a person's creditworthiness, FormFree developed a new system called Residual Income Knowledge Indexâ„¢ (RIKIâ„¢). Instead, RIKI analyzes monthly income and spending. Integrating this method into our existing credit system provides greater opportunities for home ownership, car purchases, and other essential loans.

"It's like Tinder for banks!"​

During the live stream, FormFree Software Engineer, Jon West, showcased their Passport product. The demo highlighted Passport's ability to match borrowers with lenders. This feature inspired an audience member to comment, 'It's like Tinder for banks!'"

Here's how it works:

  • Borrowers securely connect to their bank account.
  • FormFree analyzes the account records and creates an anonymized credit profile for the borrower.
  • Lenders review these anonymized profiles and decide which borrowers to extend offers to.
  • Borrowers can now review offers from lenders and choose their preferred option.
  • All necessary borrower data is shared with the lender once a match is made.

Typically, borrowers endure aggressively pitched products from dozens of lending institutions. FormFree shifts control to users for more tailored loan consideration.

How FormFree Uses Web5​

FormFree uses the following Web5 technologies:

Coming Soon - tbLend and Credential Selector​

As part of our incubation program, organizations such as FormFree, Sophtron, and MX are working in partnership to build Web5 protocols that will help their products evolve.

  • tbLend - A Web5 protocol that connects the lender and borrower to exchange money securely.
  • Credential Selector - A Web5 protocol that enables developers to embed the Verifiable Credentials (VCs) into their application and allows users to select and retrieve VCs.

Rewatch the full episode​

Learn more about what FormFree is building and watch the full live stream here.

This post highlights key moments from our collaborative live stream with leaders and builders at FormFree. Join our weekly live streams every Friday at 12pm ET/9 am PT. We're learning how innovators and community members are advancing the Self-Sovereign Identity and Global Payments industry. Tune in next time via Twitch or in our community Discord.