Shifting Loan Power to Borrowers
Tags: web5, ai, data, decentralization
Published: 2024-01-31 13:34:44

_"Our current credit system says, 'Saddle yourself, so we can give you more to saddle.'"_ Eric Lapin, President of [FormFree](https://www.formfree.com/), stated during a recent [TBD live stream](https://youtu.be/TZkK8a64E7I?si=2qhaIF22uGbD7lbJ). 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](https://www.newyorkfed.org/microeconomics/sce/credit-access#/experiences-credit-demand1), 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 Index™ (RIKI™)](https://www.formfree.com/news-and-insights/formfree-releases-residual-income-knowledge-index/). 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](https://passport.formfree.com/) 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:
- [Decentralized Identifiers (DID)](https://developer.tbd.website/docs/web5/learn/decentralized-identifiers) - After sign up, the application associates a user's account with a DID.
- [Verifiable Credentials (VC)](https://developer.tbd.website/docs/web5/learn/verifiable-credentials) - A borrower's credit profile is secured as a Verifiable Credential enabling the borrower's information to stay anonymous and tamper-proof.

## Coming Soon - tbLend and Credential Selector
As part of our [incubation program](https://developer.tbd.website/community/incubation-projects/), organizations such as [FormFree](https://www.formfree.com/), [Sophtron](https://sophtron.com/index), and [MX](https://www.mx.com/) are working in partnership to build Web5 protocols that will help their products evolve.

- [tbLend](https://github.com/TBD54566975/incubation-tblend#web5service) - A Web5 protocol that connects the lender and borrower to exchange money securely.
- [Credential Selector](https://github.com/TBD54566975/incubation-verifiable-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](https://youtu.be/TZkK8a64E7I?si=2qhaIF22uGbD7lbJ).

{% youtube TZkK8a64E7I %}

*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](https://twitch.tv/tbdevs ) or in our community [Discord](https://discord.com/invite/tbd).*