Credit: A New Way To Tell an Old Story

| June 25, 2013
After the colossal credit crisis of 2008 and beyond, new forms of establishing credit are emerging from a new crop of techpreneurs. Millennials as well as others left out of the credit food chain want a new way of measuring borrowing accountability. While institutions like Citigroup & Bank of America couldn’t pay their own bills without taxpayer infusions and Fed ” zero-interest loans,” the rest of us are asked to follow a different set of rules.

In the ultimate irony, the largest credit institutions in America: Chase, BofA, Wells Fargo, Citigroup, Capital One, GE Capital, American Express nearly went belly up from bad credit practices, yet stand in judgment once again of Main Street America’s credit lines. Thus proving that the 1956 Fair Isaac Corporation (FICO Score) is a 20th century relic as are the bullying credit agencies built on them.

A recent eye-opening CBS “60 Minutes” report showed the three main credit reporting agencies (Equifax, Experian, TransUnion) have no due diligence or accountability to the general public they are intended to serve. The result is our economy’s “trust experts” can’t be trusted. In response, Next Gen entrepreneurs want out of the broken system and are innovating new ways to tell an old story. Shareable’s Paul Davis discusses an old idea of trust based on old-fashioned reputation introduced in a new way.

Can Trust Systems Build a New Economy From Ruin?

During a talk at TEDGlobal2012 in June, Rachel Botsman posed the question: “How do we mimic the way trust is built face-to-face online?” Which is a fair place to start, but face-to-face relationships are far from foolproof.

Mimicking the qualitative judgments we make about individuals in the physical world isn’t enough; what’s needed is mix of qualitative and quantitative metrics, so individuals engaging in p2p transactions can confidently judge whether a person is trustworthy. With a mix of face-to-face and digital technologies, there’s a chance for a significant upgrade in our species capacity to judge trustworthiness — and make that new capacity broadly available.

This is no small feat, posing significant implementation challenges and privacy concerns. The existing reputation systems that collaborative consumption services have developed in-house are piecemeal and offer little portability of user reputation data. House-sharing services such as Airbnb provide user feedback rankings and plug into users’ Facebook connections to provide an added layer of social vetting, while Couchsurfing verifies identity by through a $25 credit card verification fee, which is also their main revenue source. Taskrabbit performs background checks, while UK-based p2p lending site Zopa opts for identity and credit checks.

Reputation systems silo’d to individual services can serve as a disincentive to new users. Existing users of a service have little incentive to trust new users who have yet to build their reputation. And while some services consider user reputation data to be a competitive differentiator, the friction involved in proving your trustworthiness on a particular service may be depressing user adoption of sharing services as a whole. As Botsman memorably declared,sharing is contagious. Few have the time or inclination to build a profile of trustworthiness on a service like Airbnb, only to have to start from scratch when they choose to delve into car sharing.

 The New Form of Credit is Ancient: Reputation

In the past year, a plethora of reputation services have launched to serve as the connective tissue of reputation and trust across the web. Services like TrustcloudLegitConnect.meScaffold, and MiiCard take varying approaches to developing portable reputation systems, to address what Legit founder Jeremy Barton characterizes as a fundamental problem of context.

“Reputation as a whole is really about context of the transaction,” says Barton. “It’s hard to trust a stranger in an offline capacity, it’s even harder to trust a stranger in an online capacity. Reputation can give you a lot of context to help you manage expectations in a transaction.”

This point is echoed by Trustcloud co-founder Xin Chung. “The methods and resources for trust in peer marketplaces are fundamentally disorganized,” he says. “There is a high time barrier required of the community to quickly and easily look up trust indicators that will give people confidence in an online transaction.”

The various reputation systems differ not only in their approaches and implementation, but also guiding principles. Yet as a whole, they prompt a number of key questions: How do you rank trustworthiness? Is user data from social media useful in measuring trust? Will a single trust score work across multiple platforms? And what procedures are in place to ensure users’ privacy, the accuracy of the rankings, and the ability to address mistakes in rankings?

On a fundamental level, the startups vying to address this problem share common traits. They all claim to provide users and services with a portable reputation system. In theory, your good ranking as a Airbnb host could help vet you as a safe bet as a car renter on Relayrides; a background check Taskrabbit ran on you could provide additional context to this transactional data. In the aggregate, a fuller picture of an individual’s trustworthiness would presumably appear..

There are fundamental differences in implementation and philosophy between the various startups. Trustcloud’s goal is to build a portable, “real-time trust resume that offers a running feed of users’ trustworthy and virtuous actions online,” says Chung. This resume is built from three layers of data: user verification established through multiple authentication approaches including email, SMS, and physical address confirmation; a behavioral layer that aggregates a user’s social activity; and a transactional layer that tracks users’ behavior across sharing services. User trust resumes are displayed as Trustcards, a portable profile that integrates with those on partner services such as about.meTripping, and Sharetribe, and can be embedded into blogs, forum profiles, and the like.

In contrast to Trustcloud’s reputation profile system, Legit and Scaffold aim to operate more like the plumbing of online reputation, offering collaborative consumption services access to standardized reputation systems accessible via API. Unlike Trustcloud, Legit focuses solely on transaction data to aggregate reputation.

“Legit aims to be the credit system of the sharing economy,” says Barton. “We’re solely focused on transaction and reputation data that lives within a marketplace.” The service is developing the Legit Reputation Group (LRG), “a hub that exists between sharing economy companies.” Barton considers such a hub to be the “core piece of infrastructure to grow the sharing economy as a whole.”

Since sharing economy services have already developed in-house reputation systems, Barton isn’t suggesting that they scrap existing systems and the user loyalty accrued through them. Instead, Legit aims to be a way that these systems can share data to provide additional context to users deciding whether to engage in a transaction.

“Companies store data in different ways, so our technology makes it very easy for a company to connect to our centralized API,” says Barton. “We normalize the reputation and transaction data across services, and also provide identity matching, so we can develop a unified reputation profile across services.”

Read More at: Shareable

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Category: chutzpah, innovate!, pennypinching

  • carrollstraus

    Oh how I hope this takes off! I cannot tell you how much I despite the Fair Isaac model…