Springcoin Inc., which does business as Spring Labs, is a relatively small company, but it has historic ambitions.
 
The Marina del Rey-based business is building technology to upend the century-
old infrastructure underpinning America’s financial system.

After a successful pilot with the Property Assessed Clean Energy, or PACE, loan industry, the company is preparing for the rollout of a financial information system it hopes could one day replace the credit rating industry.

“What we believe we have developed is a fundamentally better mousetrap for the exchange of information,” said Adam Jiwan, Spring Labs co-founder and chief executive.

Jiwan has spent his career at the intersection of finance and technology at some of the world’s leading firms. He worked for private equity giant Blackstone Inc., at a fund founded by billionaire investor George Soros, and as a hedge fund manager in Asia before starting on a career building and investing in technology companies.

He helped create successful finance businesses in Brazil, Russia and the United Kingdom, among other places.
 
Jiwan’s work at one of those companies, Chicago-based online lender Avant, sparked his drive to improve the way financial information was communicated between lenders, institutions and anyone else who might need it.

Avant makes personal loans to consumers, who are often passed over by mainstream lenders, such as those with lower credit scores. The company does this through a data-heavy approach it says helps it make more informed decisions about who is likely to repay a loan.

“As one of the early companies that was using really granular data to make better identification, fraud and credit decisions,” Jiwan said, “we spent a lot of time thinking about where that data was coming from.”

Often that data was pulled from credit bureaus — companies that collect financial information on consumers and sell assessments of those individuals’ creditworthiness to interested parties, such as lenders. The industry is heavily concentrated among three companies in the United States — TransUnion, Equifax Inc., and Experian. Together, those businesses have a combined market capitalization of more than $70 billion.

“The reason why credit bureaus exist is that financial institutions often cannot share information about their customers directly with their competitors,” Jiwan said.
 
“If you apply to a loan with JP Morgan, they very much want to know your financial history from their competitors,” he said. “There are, however, (regulatory) prohibitions on sharing personally identifiable information. And there is also just a competitive business logic.”

If a lender such as JPMorgan Chase & Co. asked a competitor about an individual’s history of loan repayment, Jiwan said, that business would realize that the individual was in the market for another loan and likely target them for sales and marketing of their own products.
 
“So here come the credit bureaus, which operate give-to-get business models,” Jiwan said. “They have no underlying data themselves, they just get the data from those institutions and then sell it back to them.”

“We thought that was crazy,” he added.

Jiwan said that the existing credit bureau model also came with security issues, describing the massive volumes of sensitive personal information held by credit bureaus as “a magnet for hackers.”
 
He pointed to the 2017 Equifax hack, which saw the personal information of more than 147 million Americans stolen by what the Department of Justice determined were Chinese hackers.
 
According to Jiwan, traditional credit models also fail to capture holistic pictures of a person’s creditworthiness and their likelihood of repaying a loan.

“There is literally no reflection of the assets you have, what liquidity you have, what your income is and what your liabilities are,” he said. “We thought to ourselves, ‘Here’s a system where the underlying plumbing is being done in a way that is not necessarily inclusive.”

A better mousetrap

Jiwan and two other members of Avant’s leadership team, co-founder John Sun and General Counsel Anna Fridman, decided to create a platform that would address these issues. The three left Avant and founded Spring Labs in late 2017.

“We didn’t want to start in Silicon Valley,” Jiwan said. “We saw talent moving away from Silicon Valley for years, which has only sped up under Covid. … It had taken us a long time to recruit talent there.”

Avant had previously had an office in Los Angeles where Jiwan said he experienced a relative ease in recruiting skilled staff. Hoping to scale quickly, the founders based Spring Labs in Marina del Rey and got to work building their financial information network.

After several years of work, the team finally hit on their “better mousetrap.” Spring Labs would build a network of information “rails” connecting groups such as financial institutions to each other.
 
There would be no centralized “honeypot” of data, like at the credit bureaus, but rather anonymized data about specific individuals shared directly between companies on the network.
 
These businesses would be paid for the information they share, while Spring Labs would earn revenue by taking a cut of the fees paid by information-seekers.

“Like FedEx, we get paid to push packages around,” Jiwan said.

The CEO cited a number of advantages to this model. Chief among these were the ability for companies to earn money from their data and better data security through decentralization — both while maintaining competitive secrecy comparable to the current credit bureau model.
 
Jiwan also said that the structure of the network would better support the addition of different information sources not reflected in traditional credit reporting.

“Someone like Verizon wouldn’t want to provide information on if you pay your bill on time (to a credit bureau) because one, they don’t have incentive, and two, they aren’t sure if that data is going to end up in a marketing list in the hands of their competitors,” he said.

PACE test

Spring Labs put its technology to the test last summer. PACE, a niche lending industry that provides funding for green energy home improvements, was in need of a solution to a common type of fraud.
 
Referred to as “loan stacking,” the process involves a fraudster applying for multiple loans in rapid succession. The speed of the applications often outpaces lenders’ reporting times, allowing someone to qualify for a much greater loan volume than they would otherwise be capable of.
 
This problem was exacerbated with PACE, which backs loans with liens on customers’ homes. Situations such as unscrupulous contractors putting multiple leins on unsuspecting individuals’ homes had led to millions in fraud and many financially devastated homeowners.
 
Spring Labs deployed its platform to lenders representing about 70% of loan volume on the PACE network last year.
 
The company found its first instance of fraud within 24 hours of going live, according to Jiwan, and later calculated that about 1% of all loan requests on its PACE network were likely fraudulent. These, he said, were flagged and halted by Spring Lab’s technology before they could be funded.

“For an industry that does an annual rate of about $1 billion in loans, that is about $10 million in captured or identified fraud (per year),” Jiwan said.

Despite this success, he said the PACE network was more of a successful case study than an actual full-scale application of his company’s technology.
 
Today, the company is preparing for the rollout of its larger network sometime late in the first quarter, or early in the second. Jiwan declined to disclose the specific participants prior to the unveiling but said they included one large multinational bank and “several leading fintech companies,” among others.

Regardless of the rollout’s near-term success, Jiwan said it would likely take years before the Spring Labs network was able to reach a scale that could seriously rival the credit bureaus.
 
“The next milestones in the next three to five years are in how we can bring these products to market to prove significant scale,” he said. “We are mindful that we need to crawl before we walk and walk before we run.”