P2P Lending and the Future of Cryptocurrency
The crypto market has gone mainstream, and as cryptocurrencies continue to become more and more accepted in the fintech world, the real question comes what happens when banks start to accept this currency as collateral.
Yes, you read that right.
What if lenders start to accept cryptocurrencies as collateral for loans. The possibilities are practically endless, and it is about time that someone took a look at the potential of the loan market if crypto becomes acceptable by traditional lenders.
Let us start with a revolution that is currently happening within the lending industry, and that is the push to peer to peer lending or P2P.
Peer to peer lending is a lending platform that has pushed the conservative idea of loans into the 21st century. In fact, the model takes traditional lending and puts it on its head. Peer to peer platforms do not lend their own funds, and instead, act as their own platform to match borrowers who are seeking a loan with an investor. These investors purchase notes or securities that are banked by notes that are issued by the peer to peer platform.
Now you may be asking how do these lenders generate revenue without interest from their own money? The answer is simple, the platforms generate revenue from the origination fees charged to the borrowers and a portion of the interest charged to the investors as servicing fees. Much like many middlemen, these platforms provide an avenue to connect the peers, and thus can charge for this.
Although we have seen a limited amount of banks jump on to the peer to peer model, you will start to see more following the fin-tech companies as these companies show that peer to peer works within the larger market.
So how can the crypto industry affect this?
Simply put, the answer is DRASTICALLY, but it will be a long process. Cryptocurrencies offer a flexible and often easier payment method that will be an attractive option for lenders within the peer to peer space.
Consider this, cryptocurrencies, and especially the leading ones such as Bitcoin, Ether and Litecoin offer a simple transfer method that is encrypted for those who wish to invest. The process is typically a little easier to transfer the funds, and when compared to fiat currency, crypto transfers are faster and more secure. Plus, with an ability to sign smart contracts that are not only secure but self-enforceable, the ability for a banking or lending institution to secure collateral has never been easier.
However, there are still some issues that need to be worked out for those who wish to back lending with crypto capital.
The first of these issues that need to be worked on is the volatility of the crypto market. Currently, peer to peer lenders who are experimenting with the possibility of using crypto charge massive interest fees to the volatility of the market. This will change, and as crypto is reclassified through the North American market, we should see a flattening out of the various top currencies and stability will be the norm.
So what is the future of crypto and the lending market? That is the million dollar question, but for those in the industry, peer to peer lending and crypto might be the magic pairing. With peer to peer’s decentralized approach, and the attraction of crypto as a possible method of collateral, the future of lending might be on the back of crypto.