Block chain is a trending technology that is revolutionizing global financial sector. Its impact on various industries has been so positive that even the lending market has taken note. P2P Lending firms globally have started harnessing blockchain concepts as it is a potentially disruptive technology. Start-ups in this space are all set to invest in block chain technology and develop a distributed ledger system between themselves. So, how exactly could blockchain can propel its influence in transforming P2P lending? Let’s examine.
Benefits of combining P2P lending with block chain
Lending revolves around two factors: risk & trust. When it comes to Peer-to-peer lending, it is basically a form of unsecured lending. The lenders, who in this case are referred to as investors, loan money to borrowers directly without any middleman. This makes it a little bit complicated to use assets as collateral for loans. But block chain have a truly trans-formative effect on P2P lending in addressing the risk and trust factor.
With block chain technology, anyone can independently record any data that needs to be verified as having happened and thanks to its distributed nature, anyone on the network can have access to the same, up-to-date data, which makes the whole process inherently transparent and incorruptible.
Another significant benefit is tokenization. Adopting block chain would allow tokenisation of loan assets, enabling investors to easily trade their loans with other P2P network participants. Some of the assets may not qualify as collateral in the mainstream lending market, but with blockchain technology and through tokenization, assets such as patents, intellectual property or even branding can be tokenized and used as collateral for hard money loans.
In addition, borrowers are also likely to get better value for the assets provided as collateral if done via a block chain-based network than in the mainstream market. In the tokenized form, valuation of such assets is likely to be more global and reflective of the actual market value than a placeholder valuation a mainstream lender might attach to the property.
This will lure more borrowers to the peer-to-peer lending market, thereby growing the addressable market. Generally, peer-to-peer platforms try to spread the risk across several loans, which means investor money is rationed to different borrowers. This is another concept that has helped the peer-to-peer lending market continue to gain more investors.
P2P Lending platforms that understand how to make the intelligent use of block chain technology will always have the edge over their peers.
About Insight Consultants
Insight Consultants specializes in digitizing the lending ecosystem. From general to specialized, prime to sub-prime, we have helped firms operating across the lending landscape reap the benefits of digitization. We provide 360-degree solutions starting with business consulting, solution creation, deployment and roll out of Block chain based solutions for IoT, supply chain and the fintech and lending verticals. So, if you are looking for ways to harness the power of block chain or would just like to know more,
