The peer to peer (P2P) lending industry is fast expanding, but most of the platforms available today are not being built using blockchain technology.
Industries which have existed for a long time are constantly striving to increase their efficiency to maintain an edge over the ever growing competition, and in any industry, over time margins will be driven down, and companies will be forced to look towards new technology to enable them to remain competitive.
P2P lending is a very new industry, with the world's first company, Zopa, being founded in 2005. P2P lending as a concept is able to offer huge advantages over traditional lending, and being a new industry, is still able to drive significant margins through the right strategy, as opposed to technological innovation.
There exists much misconception that new industries are the ones who will benefit the most from cutting edge technology, but in fact it is the older, more established, and therefore more competitive industries which require constant technological innovation to remain ahead of their competition, and P2P lending has not reached this stage yet.
We are starting to see the emergence of P2P lending platforms build from the ground up on blockchain technology particularly with technologies such as ethereum, however, because they do not provide a legal framework for lending and therefore any asset locked up as collateral would have to be equal or larger than the loan, these platforms are still at a very early stage.
Trading of debt forms the backbone of the traditional lending industry, but today does not exist in P2P lending. Where we will see mainstream adoption of blockchain in P2P lending is with private blockchain platforms, such as BTL’s Interbit, which allows tokenisation of a loan asset, enabling participants of a P2P lending network to trade their loans with other participants. This will radically improve the architecture of the existing P2P systems and processes and open up large opportunities in P2P lending which are not possible today.
Given the current stage of the P2P industry’s evolution you can argue that it’s too early for it to adopt blockchain technology as it is still establishing itself into the mainstream. There is also still a great deal of uncertainty in respect to the regulatory environment. However, there are examples of P2P failures that may have been avoided if blockchain technology was being used.
Where we see blockchain making the biggest impact is in many archaic back office processes and legacy architectures being used by much older and more established industries. Only secondary to new opportunities will the P2P lending industry eventually have to look towards new technologies such as blockchain to drive down their own costs in an increasingly competitive landscape.
We naturally think of improvements we can make to existing processes with new technology, but when it comes down to the numbers, new business opportunities are always more profitable than cost reduction in existing opportunities.
Guy is the Founder and CEO of BTL Group, the first public blockchain technology company (TSXV:BTL).