On March 15, 2018, the Royal Bank of Canada (RBC), “one of Canada’s biggest banks, and one of the largest in the world based on market capitalization” according to their website, took a step forward in terms of technological advances, after filing a patent before the US Patent & Trademark Office in which they explain their project for a credit score platform using blockchain technology.
Previously, other major players in the financial services sector had already expressed their intention to use Blockchains to speed up their commercial transactions. Many of them through the implementation of third party services as the ones provided by Ripple – a group that has as its most important adopter the Saudi Arabian Monetary Authority (SAMA) and others through the development of their own platform, which includes no less than the SWIFT system itself.
The use of blockchain platforms is quite attractive to banks because it allows them to efficiently handle records, providing a virtually error-proof level of transparency and account management, ensuring almost near-immediate transactions. However, when it comes to the use of cryptocurrencies based on this technology, the story is way different…
But given the evolution of blockchain technologies, RBC intends to go even further with the filing of a patent which, if implemented, would bring a level of automation, standardization, and transparency to the credit rating process never experienced before in the history of banking.
The document shows a process of automation of the bank’s lending platform that virtually eliminates the possibility of human error. In general terms, they have patented a system that looks quite well though at first glance:
“1. A system for credit and digital identity records comprising: a distributed ledger of a plurality of nodes, each node including at least a computing device, and the distributed ledger having a plurality of blocks, each block comprising identification data linked to a set of identifiers for an individual, transaction data, a timestamp indicating when the block was created, and a hash reference for the distributed ledger; (and) a credit history application”
The data goes through a series of automatic processes that are detailed in the report and ends with a transparent and standardized computation with a credit score for each user:
“17. The system of claim 1 further comprising an alert and notification unit configured to generate a credit alert for the individual indicating the credit event and transmit the credit alert to the individual using the first set of identifiers, wherein the credit history application is configured to determine an impact of the credit event on the credit history record of the individual.
- The system of claim 1 wherein the credit history application is configured to compute a credit score based on the credit history record of the individual and generate a credit score notification indicating the credit score and the credit event.”
This gives RBC the ability to have objective information about each user without the alterations that could arise due to the handling of information by intermediaries, or by the application of different subjectivities. The graphical representation provided by the same patent in Fig. 7c shows the level of automation possible:
The interaction between creditors and debtors, as well as almost all the necessary information, will be carried out through smart contracts developed on their platform as shown in Figs 9a and 9b:
Another of the technological advances that RBC is seeking to implement is the development of a Machine Learning Unit, which would play a fundamental role in the robustness of their technology: According to the patent “The machine learning unit can be configured to provide a smart contract middleware application to detect a violation of a term of a smart contract (…) and trigger the notification of the credit event in response”
It will also be in charge of providing a secure way to process registrations, verify the interface according to the permissions granted, verify every credit event before recording each new block, among others. But perhaps the most attractive feature is the fact that this AI unit will serve as a secure basis for the efficient interaction between parties:
”The machine learning unit provides a credit marketplace engine configured to generate a listing of loan offer indicating a creditor and loan terms, received a selected loan offer indicating a selected creditor and selected loan terms, generate a smart contract with the selected loan terms and record a new block on the distributed ledger.”
The machine learning processor trains using different processes on data stored in the blockchain related to a particular identity. Then a scoring processor uses that information and “defines credit score calculations based on credit data and weightings from different credit data metrics.”
At this time, it is not possible to know what mechanisms will be used to develop the technology. If it will be a single blockchain or if they will use several networks, neither have they mentioned whether they will create this platform from scratch or if it will be based on some existing implementations such as NEM or Ethereum. Nor can we know for sure whether there has been proof of concept or if they will be able to implement this project once the patent is granted.
This, of course, raises some moral debates as to what point will machines control our lives and how much interaction and privacy are we willing to sacrifice for convenience. The truth is that in a near future, users will be able to have their credit scores updated in real time as well as an almost instantaneous aggregation of business transactions thanks to the blockchain advances that RBC has in mind.
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