How loan providers will be using blockchain
The concept of blockchain is still very alien to many, but this innovative technology has the potential to replace and disrupt our traditional bank systems and borrowing and lending money as we know it.
Whilst we still might be a few years away from blockchain becoming mainstream, we look at how some loan providers will be using blockchain to carry out their business in new and improved ways.
The use of blockchain technology should allow for much faster approval for loan applications and credit cards, something that is currently long-winded and costly for lenders to do.
The use of credit scoring, pay slips and bank statements may become increasingly less important to approve a loan. Thanks to smart contracts, lenders are able to validate transactions, verify the legitimacy of counterparties, and perform routine account administration tasks almost momentarily, reducing costs and accelerating the process. (Source: Medium.)
Similar to quicker approval, we should see customers receiving their payments much faster than before. Whilst companies like My Jar and Wonga are currently at the forefront of the industry, funding loans within 15 minutes, blockchain could make transferring money instantaneous. Loan companies using blockchain will be able to avoid the traditional hurdles associated with centralised banks to provide immediate funding upon approval.
The threat of cyberattacks and online fraud is growing year-on-year and so the idea of blockchain and a new banking system is very promising in terms of online security. Blockchain works as a public ledger of transactions that stores all records of Bitcoin activity on the computers of numerous Bitcoin users, making it all but impossible to hack.
Following the introduction of GDPR legislation in May and the need to secure customer data more carefully, the blockchain offers a potential solution to safeguarding customer data more effectively. By having more protection for customer loan applications and data, it may prevent loan providers from the risks of cyberattacks and fraud. A cleaner and safer environment for online lenders may put greater faith into their customers and increase things like loyalty and consumer confidence.
Without decentralised banks, we could see loan providers lending to customers in several countries and not just those within their jurisdiction. In a blockchain environment, there is no reason that a lender in the UK could not offer a loan to someone across the other side of the world.
In doing so, we might see customers having access to a wider range of products from all over the world, provided it is facilitated through blockchain.
Using cryptocurrency as payment
In the distant future, we might see cryptocurrency being the norm and both lenders and customers using Bitcoin, Ethereum and other coins as the currency of choice. One loan provider already offering this is SALT, the US-based company who are offering loans, secured against an individual’s cryptocurrency assets.
For instance, if you have a portfolio or collection of cryptocurrency, your loan will be secured against its value. SALT takes hold of your crypto assets and then releases them once your interest and loan has been repaid. SALT hopes that the cryptocurrencies go up in value, helping them maximise their return and they will notify you if they can see the currencies falling dramatically.
So whilst blockchain has the potential to disrupt the entire way loan providers operate, make decisions and providing funding, its immediate use is still a bit of a grey area. There is no regulation currently on cryptocurrencies and blockchain and it requires a huge adoption by every day consumers to really gain momentum.
However, there are still entrepreneurs, investment banks and companies such as SALT who are investing huge sums into blockchain technology, so it won’t be long before loan providers are using it effectively.