What is Web3 and why should IT professionals care? Mike Lempner, vice president of engineering and technology at Mission Lane, a San Francisco-based company that uses advanced data and underwriting to provide credit and other financial products to subprime borrowers, has insights based on his experience with the emerging technology.
Lempner spoke with StrategicCIO360 about what Web3 makes possible, particularly for fintechs, the dangers of fraud and why Web3 could open up big possibilities for empowering consumers.
Can you explain Web3 and the opportunity it presents for CIOs at fintechs?
Web3 is the latest decentralized model of the internet, built on blockchain technology that tokenizes users’ online contributions. Web 1.0 was a read-only or one-way communication model of the internet where users had limited ability to provide content or interact. More recently, we experienced Web 2.0, which enabled users to post their own content online, subject to ownership of big tech, who also profits off of this content and user data. Web3 places the ownership in the hands of consumers.
In the decentralized model created by Web3, individuals have more control over the data they choose to share. This can open a world of opportunities for fintech and financial CIOs and their customers. Web3 can enable a digital wallet, where individuals can add and store information in similar ways to how their physical wallet is used for identification, credit cards and cash. This is powered by blockchain technology, which shifts storage of data from big tech to millions of devices on one network.
Through Web3, individuals could give fintechs access to their data, which can be used for activities such as underwriting consumers for loans or credit cards.
This could be especially important for the customers we work with, for example, who are typically denied financial services or charged unreasonably high fees due to poor or nonexistent credit scores. Mission Lane works with its customers over time to build and improve their credit.
This is because Web3 could enable individuals to share data beyond what’s historically considered for credit scoring. For example, people could store additional documentation such as pay stubs, regular payments they’re making such as rent or utility bills, or even web activity. This provides opportunities for additional and differentiated data to be considered, beyond what traditional credit bureaus would examine.
For IT departments considering Web3-based products and solutions, how should they be thinking about fraud and cybersecurity risks?
For CIOs and IT departments looking to incorporate Web3 products into their company operations, blockchain provides the benefit of an added level of security and transparency for users to protect their data as it tracks each transaction and informs users each time their owned information is shared. This means that users have increased visibility into how their data is used and stored, as opposed to Web 2.0, where consumer data is frequently bought and sold.
Fintech CIOs should be mindful of exposure to a range of fraud risk for both the organization and their customers. Fraud can occur when accounts are created—identity fraud, as well as with account takeover, transaction fraud. “Know Your Customer” checks using Web3 could allow fintechs to have visibility into the identification data that consumers provide with a full audit trail provided by blockchain of where and when that data was created. Conversely, consumers would have visibility into who has used and accessed this data. And just because Web3 may be used to view and grant access, it doesn’t mitigate the need for IT to properly store and protect the sensitive data they gather and use.
While giving individuals more control over which data they share with financial institutions can provide added security, it also has fraud considerations. There will still be a minimum requirement of data that must be shared—such as name, date of birth, social security number and contact information—in order to verify identities.
What should fintech CIOs and their teams be doing now to prepare for when the technology becomes more mainstream?
Web3 is still in development, and we are a few years away from it becoming mainstream, but it’s definitely coming. Here are a few questions CIOs at fintechs should be asking themselves:
What technology integrations must be in place to support it? For CIOs of fintechs, adoption is just one of the challenges Web3 presents. They will also have to determine which technology integrations to support given the multitude of different solutions, wallets and platforms available.
How will we protect the data associated with Web3? Using the data provided by Web3 is one aspect but protecting it will be a huge undertaking. Given the usage within financial services, there are also major regulatory considerations involved in implementation that will likely change over time as adoption increases.
Have I informed my colleagues and customers about the opportunities Web3 will bring? I’d advise IT leaders at fintechs to have regular touchpoints with both their customers and colleagues to unpack the technology in layman’s terms. Clear, consistent communications on the technology, its use cases and benefits are necessary for mainstream adoption. Average consumers need more instructions, as well as comfort and understanding with the technology before they’ll feel confident using it and technologists will play a significant role in enabling them. To this end, educational resources will also play a critical role in onboarding users along with a clear articulation of the benefits.
As with any emerging technology, CIOs must explore and evaluate the opportunities the technology can bring to their existing operations. Specifically for technologists at fintech companies, CIOs and their teams will need to be thoughtful about designing comprehensive user experiences that integrate seamlessly and help overcome barriers to adoption.
How would Web3 empower customers to have more control over their data?
More broadly, there are significant opportunities for technologists to leverage Web3 to improve customer experiences for their clients. Web3 brings forward the notion that people should be empowered to control their own data. CTOs, CIOs and other technology leaders should be thinking carefully about identifying potential use cases for Web3 to empower trust with customers regarding data usage.
Web3 will enable customers to share data with companies for new and more personalized experiences. It will also give consumers more agency over what data they want to share and when they want to share it. At Mission Lane, my team and I are exploring how Web3 can help to break the black box around credit bureau data—this is the data that traditional bureaus use to determine credit scores, but consumers typically can’t fully understand what data is captured and who is using it.
Customers are already sharing significant amounts of data with companies, and technology leaders need to be thinking about how Web3 will transform this data-sharing if they aren’t already. I think we are only at the tip of the iceberg when it comes to exploring the possibilities for using Web3 to empower customers to have more control over their data and for companies to drive transparency with data.