Can blockchain be used in digital lending?

Lizzie Chapman

The potential for digital technology, and especially those technologies leveraging India Stack, to change the way lending is done in this market, is well understood.

Paying through easy instalments or applying for loans has become a smoother process because of digitization. Blockchain lending essentially builds on the timeless peer-to-peer model, making the entire process more seamless and reducing the amount of time the process takes. The middleman is cast aside, and individual borrowers or businesses are connected directly to the willing lenders. The immense value of such decentralized lending is that with a single request, a borrower can access very competitive financing. With geography being no constraint on a blockchain platform, lenders from all over the world can bid to provide the loan as well.

What is barely discussed is how the deployment blockchain technology could revolutionize digital lending and make it easier for all of those in the value chain (the lender, the borrower, the processor, the platform, the regulator and the collections agent for example).

Security

The data received through blockchain is authentic because as soon as any transaction is recorded in the blockchain ledger, it cannot be altered or deleted. Third party verification isn’t necessary on blockchain because of robust system of member identification. Digital lenders can find out the transaction history for an applicant which wipes out the need for trust. Blockchain applications in digital lending open the possibility of an entirely new credit risk system which overcomes the problems of loan review, disbursal, and management.

Transparency

In times when privacy has become a significant problem, blockchain’s decentralized nature makes it more secure than other regulated systems. Today internet organizations have exclusive control over customer data which are also monetized by them. Customers are left in the dark about who has access to their information making them susceptible to identity thefts. But with blockchain, no single company or person owns the data of people who have transacted on blockchain. Customers can control access to their data and through a transparent authorization system even monetize it!

Better Management

The direct implication of unalterable Blockchain ledger is improved record keeping. All transactions can be tracked, stored and receipts cannot be destroyed. This gives a boost to paperless lending process which in turn increases the speed of transactions. Why should loan approvals and disbursals take multiple days? Moving from the old technology stack to blockchain will allow innovative fintech companies to complete transactions within seconds while maintaining efficient records to work in a compliance driven digital lending environment.

We believe blockchain technology can meaningfully improve the lives of more than 300 million households who currently have no access to credit cards or any other formal financing options because of insufficient credit history.

The author is Co-Founder and CEO, ZestMoney