Reshaping Peer-to-peer Lending with Crypto Assets

Nov 07, 2017 at 15:08 // News
Nina Lyon
Peer-to-peer and marketplace lending had been developing exponentially.

Peer-to-peer and marketplace lending had been developing exponentially in the wake of the 2008-2009 financial crisis. Alternative lending platforms, such as Lending Club, Zopa, and Prosper, came as an answer to credit terms tightening. Having less access to affordable loans, while still having huge demand for these kinds of financial services, borrowers needed a new solution. And peer-to-peer lending eventually eliminated the middlemen.

In the meantime, the burst of blockchain technology led to another revolution in fintech. And it seems that these two fintech revolutions have finally found a way to interact and enrich each other, providing new possibilities both to investors and borrowers.

The Bitbond, BTC Jam, and BTC POP platforms were pioneers in the market of crypto lending. From that time forward, it can be clearly seen that blockchain and crypto assets usage in p2p lending is stepping up. The congruence of the proven peer-to-peer lending business model and possibilities of blockchain seems to be a solid base for advanced financial services. What does it mean for investors and borrowers, how does it affect global economy, and how can crypto assets possibly reshape the existing peer-to-peer lending market?

Financial Inclusion

According to McKinsey research, there are still about 2 billion unbanked and underbanked people in the worldwide adult population. Blockchain-based lending services can offer microloans to a customer who has no previous credit history. While some banks in Asian countries require enormous amounts of paperwork to be done before approving a loan, cross-border lending platforms have unified rules for everyone. Not mentioning the fact that bank account penetration in developing countries hardly reaches 30%. Given that Internet and smartphone penetration is much higher, and borrowing in cryptocurrency doesn’t require a bank account, blockchain-based p2p lending platforms can bring financial services to a client otherwise totally excluded from the economy.

Globalization means equality

It’s no secret that interest rates set by traditional banks may significantly vary by country. While the difference can be about 0.1% between loan interests in Germany and UK, interest rates in Thailand, Turkey or Latvia may be 10 times higher. Global platforms offer the same terms regardless of citizenship.

There’s one more thing about global reach ensured by crypto lending which concerns investors. Geographical diversification reduces systemic risk, given that the investor's activity doesn’t correlate anymore with local economic ups and downs. Needless to say, lower operational costs allow crypto lending platforms to guarantee better financial returns for investors.

Alternative becoming mainstream

Statistics on the factors which influence the decision to invest via peer-to-peer business lending platforms rather than through more traditional methods have shown pretty unexpected results. Alongside generating a financial return and portfolio diversification, respondents to a survey have mentioned their will to support alternatives to traditional banks in third place. It seems that alternative lending has all the chances to quickly plant itself as one of the mainstream investment and borrowing scenarios.

Blockchain-based lending startups are booming, and more and more of them are entering the market at this given moment. Here are some highlights from ongoing or forthcoming ICOs: 

Lendoit is a decentralized P2P lending platform. Lendoit has created a marketplace for loan applications so that lenders can bid the interest rate they are going to give. To become a lender on Lendoit a user doesn't need to register or provide personal details. The lending transactions on the platform can remain anonymous. It is also possible to sell the loan on a secondary market in order to quit the loan. Defaulted loans can be auctioned to professional collection companies.

CoinLoan is a platform for lending secured with crypto-assets (cryptocurrency, tokens). The platform supports a variety of currencies and provides worldwide coverage. Lenders can set their terms and conditions for providing a loan, and proceed with an automatic funds management system. The system can create orders automatically. Borrowers can be issued a virtual or plastic card for convenient withdrawal. There's no need to prove creditworthiness for a borrower. Popular cryptocurrencies can be used as collateral, a loan can be obtained in any available currency and is easily prolonged. 

ETHLend offers fully decentralized P2P lending. Each loan on the ETHLend platform creates a smart contract on Ethereum blockchain network for the purpose of decentralization and security of system, in which no assets are held by platform. A borrower can get Ether by placing Digital Tokens on the Smart Contract as collateral. Any ERC20 token can be used as a collateral in the system. Due to system architecture, bank account is not required for lending or borrowing, and loans are sent within seconds or minutes. For each 1 ETH that is repaid, the borrower receives 0.1 ETHLend native credit tokens that can be used later to access unsecured loans. 

Inspeer is a P2P lending service that works with cryptocurrency and fiat. Inspeer team combined their previous experience in online microlending and unique AI-based scoring algorithms. For the purpose of creating the best conditions for borrowers and lenders, Inspeer is using the highest standard of scoring with more than 20 000 parameters. Due to machine learning algorithms, Inspeer’s scoring is constantly improving. Anti-fraud systems used by Inspeer allow detecting fraudsters at early stages, in some cases even before loan application is sent. The platform will offer automatic invest tool for the lender’s convenience, rating system, and wide possibilities for portfolio diversification.