Most people think that the risks correlated with borrowing and lending are solely from defaulting or non-settlement of the credit. However, there is another type of risk. Lenders tend to have a tough time overcoming the lost opportunities because of the lack of data about the borrowers.
Given that P2P lending targets those at the bottom of the economic pyramid, there is a critical need to minimize these risks so as to make the financial services affordable for everyone. Both parties can use financial tools with minimized risks. Modern technologies like Blockchain have placed innovative platforms at our disposal that let us adjust the difficulty level of micro-financing.
Minimizing risks by getting to know one another
One of the causes that let lenders doubt the client is the lack of credit history. They need to have some guarantee that borrowers do pay back according to the agreed timeline and schedule, and that, in general, they are lending to the right category of people. That means getting accurate and comprehensive profiles through a collection of useful data.
Other new technologies such as Internet of Things (IoT) and artificial intelligence (AI) serve well in providing detailed user data, including the people with a non-existent credit score. They provide efficiency that could also be enjoyed by the final customers, but they also expose users’ privacy – a problem that fortunately can be fixed by yet another innovative technology.
Securing user data – on to the next step
Blockchain is the technology that gives user data security and high level of privacy. This technology makes it possible to use the data without exposing it to security breaches and also gives users control over their personal information.
Just as important is the fact that the blockchain makes digital data immutable, meaning that it is impossible for someone to do arbitrary changes to user records.
Most important though, is that blockchain allows lenders and borrowers to move across platforms and international borders with their credit scores and ratings. A borrower can move around the world and he can present his profile to a new lender and the accuracy and authenticity of his profile cannot be doubted.
Simplify and automate contracts
The blockchain also facilitates smart contracts, agreements written in code that not only self-execute but also acts as an extra layer of protection for lenders and borrowers against non-performance scenarios.
The smart contracts will at least protect users from basic risks of non-settlement and intentional theft. Furthermore, smart contracts allow those without detailed credit scores to be loaned, as means exists to remedy the situation if they default.
For AssetStream, a smart contract serves as a second layer protection for the lender with the first one being local agents who can commence debt collection through a legal process in the event of a default.
Try the new solutions
Do you represent any of the parties involved in the lending/borrowing process? You’d be glad to minimize, or at least learn how to minimize the risks with AssetStream.