Blockchain, the disruptive technology is revolutionizing the business of lending. Lending firms have globally started harnessing blockchain concept as it offers much potential for creating new types of financial contracts and debt instruments that will allow an economy to grow to a much larger scale.
“A blockchain is an anonymous online ledger that uses data structure to simplify the way we transact. It allows users to operate the ledger
in a secure way without the help of a third party. A blockchain is anonymous, protecting the identities of the users.”
There are many different blockchains—public and private—and they allow anyone to send value anywhere in the world where the blockchain file can be accessed. Each chain is an online database stored in a distributed peer-to-peer fashion. The storage devices for the database are not all connected to a common processor and each block—ordered records—has a timestamp and a link to a previous block.
Cryptography ensures that users can only edit the parts of the blockchain that they “own” —by possessing the private keys necessary to write to the file. It also ensures that everyone’s copy of the distributed blockchain is kept in sync.
But, how blockchain can support lending
Lending business revolves around two factors: risk and trust. There are multiple parties involved in the various processes of the loan cycle and at times it is a big challenge to compromise the risk and the trust factor. Here, Blockchain can be a disruptive technology which can solve this increasingly alarming complexity affecting the business of lending. Consumer lending is an important genre where blockchain act as a key value driver.
Here are a few ways that blockchain can be best trusted in lending:
Fraud detection: Trust is one major factor in lending business and blockchain’s fraud detection potential is much accepted factor in the lending sector. It is a distributed ledger where each block contains a timestamp and holds batches of individual transactions with a link to a previous block. This technology would eliminate some of the current crimes being perpetuated online today against our financial institutions.
Identity Authentication: Blockchain networks build a robust system of member identification. A single user can create a unique ID which contain all his financial details. This unique ID can be used at multiple lenders and even for cross-checking with credit agencies and employment verification.
Payment: Payment process can be very transformative through blockchain. In the current system several intermediaries are involved in the payment process. Blockchain can eliminate the need of many such intermediaries.
Decentralization: On the blockchain, there is no central hub. The transactions you make never run through a big data hub, like in the case of bank transactions. Instead, they are individual transactions that use their very own proof of validity, and there is also an authorization which enforces the constraints.
Improved servicing efficiency: Blockchain can be adjusted to the new legislation more easily compared to the existing model where each firm is open to a different interpretation of the new government policy, make the process more efficient and streamlined.
Blockchain undoubtedly lays the groundwork for greater visibility into lending environments. It can drastically streamline operations and cut down costs while opening new revenue opportunities.
Not having blockchain technology can be a competitive disadvantage but how fast one can keep pace with the changing trends can make them competitive.
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 Blockchain based solutions for IoT, supply chain and the fintech and lending verticals. So, if you are looking for ways to harness the power of blockchain or would just like to know more,