Winter isn’t coming
David Bradley-Ward (pictured), chief executive of Ablrate, explains why peer-to-peer lenders should wake up to the benefits of blockchain
I started writing an article with a Game of Thrones theme and wanted the title to be ‘Winter is Coming’ but I ran out of writing talent when trying to ram my subject into the theme. That is because GoT is dark and I happen to think the future is bright.
As a lender you could easily get caught up in the thoughts that the golden age of online lending is coming to end. We know something is up when aggregators, funds and ‘experts’ spring up from everywhere to tell you where to lend your funds and how dangerous it is if you don’t use their particular services. This trajectory could see online lending end up being the fund management industry with shiny websites, lower rates for lenders, more layers of middlemen etc… everything it was supposed not to be.
The eternal optimist in me, however, sees a different future, a future where technology continues to level the playing field for direct lenders/investors. The catalyst for that, I believe, will be the blockchain technologies that are being worked on all over the world. For me, it is not so much about digital currency, I am still suspicious of that, but more about smart ledgers and smart contracts.
For example, Ablrate already has a rudimentary ‘smart contracts’ system where contracts are updated automatically as people buy and sell loans on the platform. All platforms, of course, have a ledger system, but what we have tried to do is make it cross from digital to physical, where lenders can download all the agreements. It is a hop, skip and a jump for blockchain technology to be applied to that ledger system. When you start applying the same technology to security and embracing big data for lending decisions, things start to get interesting.
Online lending should be a tool that removes the friction between lender and borrower, and blockchain technology can help that. With seamless (and instant) registration of ownership of assets, capital can safely flow to borrowers more quickly and, perhaps more temporarily, creating asset-backed cashflow lending products.
What about the opening up of a transaction to multiple lenders across multiple platforms? With a digital ledger, digital asset allocation and ownership, that could be easily done when you solve settlement issues.
Read more: Blockchain feature: Building blocks
If you add in big data to help lenders make the decisions based on their risk profile and continued data for making buy and sell decisions throughout the term, perhaps automated to certain criteria, then online lending could become something totally awesome.
The current system of giving the bank all the upside profit in lending in return for no risk, easy access to your money and a drizzle of interest, is dying.
Increasingly the lending decisions of banks are not really based on lending expertise, but are based on data and well-worn offline procedures for securing that lending. If blockchain can take care of the security elements, while digital ledgers and open transactions can take care of diversification and big data can assist in lenders’ decisions, why would you look to funds, middlemen and banks to invest your money when you have the same tools?
Everyone wants to sit on fintech’s equivalent of the Iron Throne, but the industry should be looking to work together to make a system like this happen. However, I fear protecting a niche will be more important.
It’s best for everyone if they heed the wise words of Ser Davos Seaworth, who gets the best line of the GoT season seven trailer: “If we don’t put aside our enmities and bound together, we will die,” he warns, “and then it won’t matter whose skeleton sits on the Iron Throne.”