Swapy Network - The Solution for Universal Access to Credit

A Brief Introduction to Swapy Network

Swapy is building a decentralized protocol with a suite of three integrated applications aiming to provide Universal Access to Credit.
These applications are:

(1) The Swapy Exchange, which aims to connect smart money to emerging economies. It will introduce international investors from countries where the interest rates are comparatively low to credit companies in countries where the interest rates are comparatively high, providing better returns to the investors and lower cost capital for the credit companies;

(2) Swapy Financial ID, which aims to empower people, giving them a financial identity that has the purpose to be valid anywhere in the world;
(

Swapy Data Market, which aims to transform users’ financial data into self-determined value through a token-based system. This suite of decentralized applications will allow the individuals to hold their own data and to choose how many tokens they receive in exchange for it, and when, and with whom they want to share. The Swapy Data Market also aims to reduce the entrance barriers for new participants since huge pools of data will no longer be exclusive to large corporations, and instead will present an opportunity for the new entrants. The Swapy Company envision a world of efficient credit markets, with no barriers to entry for new players, where consumers have the power and reap the benefits of Universal Access to Credit.

Background

We propose that the potential and need for Swapy Network is motivated by the convergence of several extant factors. These include the global pervasiveness of under-served populations where credit is concerned, interest rate disparities between countries, asymmetries in data access and ownership, data integrity, costs of servicing credit demand, and preferred modalities for conducting transactions. We consider these factors in reference to several world economies, with particular focus on Brazil, a G20 and BRICS country with one of the highest interest rates in the world.

Information Asymmetry

Information asymmetry describes the imbalance of privileges needed to access information for credit purposes. In a world where the most assertive decisions regarding credit are drawn from a combination of algorithms and data, the access to information is essential for companies to improve their operations. However, data is not fairly or equitably accessible to all players in the credit market, and this is a limiting feature of the credit paradigm as we see it. Of course, a shift toward symmetry means little if the data itself has questionable veracity and integrity, which also drive costs. For example, many systems rely on complex and expensive infrastructures to guarantee an individual’s data security and privacy, although fines still may apply.

To deal with data integrity, companies maintain multiple algorithms to find, fix, and prevent problems such as data tampering, data falsification, or data loss. Also, to improve data veracity, many of the players query different data sources with sophisticated algorithms to co-validate information since the techniques rely preferably on several data sources to accept the claims as truth.

The quantity and quality of information that a credit bureau maintains vary from country to country and this is attributable to several factors such as government regulation, the existence of high levels of informal labor, or a high degree of poverty. However, even in countries where credit bureaus hold quality data about consumers, the cost to access that data is high, and this in turn, impacts the spread between the cost of borrowing and lending, and therefore the cost of credit.

Brazil presents a useful example. Brazil has four primary credit bureau agencies: SPC6, Boa Vista SCPC7, Serasa Experian8 and CCF (Cadastro de Cheques sem Fundo).9 The cost to query a single name in each of these databases is R$15 (USD$5) on average for low volumes except CCF. If a creditor wants to report a default, it has to pay an additional fee. This cost is transferred to the client in the form of higher interest rates and origination fees.

Also, some companies keep detailed records regarding their clients’ financial behaviors and sell those records to large corporations. One such example is Abril Big Data, a subsidiary of Grupo Abril10. Company publications [16] identify more than 3000 databases and hundreds of millions of points of contact with clients. However, no value is returned to the client. One of the ways Swapy Network returns value to the client is in the form of data privacy and data security.

In an attempt to alleviate problems associated with information asymmetry, the Brazilian Central Bank created an initiative for a shared database among financial institutions. However, not all credit agents have access to that database and therefore, the information is fragmented among different databases. Furthermore, it is very expensive to read and write information in those databases and that cost contributes to the final cost of credit to consumers. It is imperative that we eliminate the information asymmetry problem in order to allow new entrants to prosper, to increase the competition among the players, and to lower the costs for the consumers.