Need Personal Loans? Blockchain is here

By Contributing Author

If you’ve ever been in a situation that requires you to take a loan, you probably realize that getting a loan from traditional banks can be quite hectic. In most cases, these lenders not only charge exorbitant fees for personal loans but also have a complicated application process that can take weeks to complete.

As a result, a huge number of millennials are moving away from the conventional financial institutions and are seeking loans from peers and alternative digital platforms. The underlying reason for this shift is that most of these young people tend to trust the blockchain technology other than conventional banking institutions.

The dwindling trust between banks and millennials has contributed to the rise of an underground lending industry. Basically, it’s characterized by high lending charges but there isn’t any established organization that can push for industry regulation.

Blockchain is the answer

According to financial experts, the answer to the problems facing the lending industry lies in blockchain technology. This innovation has already started revolutionizing other industries and the financial sector is no exception.

Since the blockchain innovation is a decentralized technology, it’s a global phenomenon that isn’t easy to regulate or even stop. It’s quickly introducing a completely new paradigm shift in the lending sector. Generally, this can be considered as the third wave of the internet revolution and it’s definitely going to have a huge impact in the way transactions are made today.

When blockchain technology is used in the lending industry, it facilitates the replacement of traditional centralized banking institutions. In their place, lending is now carried out by tech-savvy startups as well as peer-to-peer networks. This makes the lending rates quite competitive since the managers have been replaced with intelligent technologies.

Ease of borrowing

The lending industry is known to be contract-intensive and it also bears a high risk on the side of the lender. In addition, there tends to be limited trust by both parties.

Generally, most personal loans have an extensive lifecycle that can be discouraging to most customers. At the same time, gathering customer information takes a significant amount of time since you must validate every detail to minimize the chances of fraud. In the process of doing this, banking institutions must remember that customer experience is an important factor in the lending industry.

But the blockchain technology is changing all these complications that have plagued the lending industry for many years. To begin with, its characteristic as an open ledger helps in boosting transparency and making every transaction almost irrefutable since it’s easy to track and verify.

Its innovative combination of privacy and transparency is a feature that has come to salvage the situation. While transparency is enhanced between the involved parties since the technology discourages public naming of participating individuals.

This technology offers a lower cost of lending

The fact that this technology uses an effective single view of details between the parties makes it easy to eliminate any unnecessary duplication of information. This eliminates the costs involved with data collection. If this technology is used in the front-end, it can be easy to bring onboard some third parties who are better positioned to offer identity verification and hence lower the cases of fraud in the sector.

When the risk is lower, the lender is comfortable to charge lower fees for the issued realistic loans. In addition, they will be having fewer employees whose work has been simplified by the technology.

The fact that blockchain is a decentralized technology eliminates the need for a single trust authority. Instead, it’s designed in a way that multiple transactions link together to create a smart referential point. This ensures that no part of the data can get altered or replaced without being noticed. This collaborates with the huge effort involved in any attempt to cook data on the blockchain to ensure that the system is stable and remains cost-effective.

Technology as the value driver in the lending industry

When the blockchain technology becomes the central driver for value across multiple banking platforms, the potential is endless. Given that the personal loans sector has been faced with a high risk and dwindling trust among the involved parties, the need for verification and evaluation is indispensable.

In addition, the long and tedious lifecycle of personal loans makes it complicated for borrowers to access the desired loan products. The problem becomes greater when the loan involves some collateral since the lenders have to keep you under constant scrutiny to ensure your creditworthiness.

When blockchain comes into play, it brings onboard some features that have been absent over the years. As such, it’s ideal to eliminate most of the difficulties that are intertwined with the lending process. The concept of a decentralized platform and smart contracts helps lenders to capture more data within a short time.

The utilization of an open ledger as well as an intuitive and integrated database enhances transparency and eliminates unnecessary costs. As such, lenders build more trust with their clients and are able to venture into market segments that have been neglected.

Final words

The blockchain technology is relatively new and most of the applications are still in the early testing phase. However, some unconventional financial institutions have dived in and are implementing the technology.

At the same time, major banks are employing the blockchain innovation in some of their business processes but they are shying away from integrating the technology on their core business functions.

However, blockchain will continue disrupting the financial sector and banks, as well as other financial institutions, will have to adopt the trend if they are to stay in business. This has already started considering that a huge number of millennials are ditching traditional banks for institutions where they can get a satisfactory digital experience.

Today, even the financial heavyweights that held negative sentiments towards bitcoins have come out in the open and confirmed that it has a place in the financial sector. Considering that bitcoin is supported by the blockchain technology, it’s safe to conclude that this technology will soon become a mainstream innovation in the lending sector.

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