Despite the “banks vs. blockchain” stereotype commonly seen on the Internet today, there is enough room for both to grow. Banks can continue holding the funds for the most conservative folks out there, while the blockchain can make a much better offer to those who are looking for a good deal on a loan, for example. Compared to banks, the blockchain has already proven its capability to reduce weeks of work to days and mountains of paperwork to zero. There’s no need for rivalry and hard feelings. But there are more questions looking for an answer:
- Have you ever considered how banks choose the right candidates for their loans?
- What do people who got turned down do?
- What about the “other” 6 billion unbanked people on the planet who are considered unworthy of being serviced and are paying a dear price for not being “good enough” for banking
And what if you’re next?
The dire need for loans
In the case of Mexico, for example, there’s a direct correlation between being able to take out a loan and being better off financially: “When banks in Mexico expanded access by opening terminals in retail stores, the average income in those population centers rose by 7% while employment grew by 1.4%.”
There is a vast number of unbanked clients who desperately need the money and don’t get it through banks. What happens when 1.7 Billion unbanked people around the world find out they can get help and thrive by other means than through banks? Let’s take one example.
The size of the global remittance market is estimated to amount to $1.54 billion in 2019. According to Reuters, this figure will grow to $5,890 billion (or $8.61 billion by 2025 according to Zion Market Research). Some 10% to 15% (in transaction fees) of it goes to the banks that foreign workers use to send money overseas to their families. What happens when all of those workers find out that by using the blockchain they only need a dumbphone and hardly any payment at all to send money home? Plus, they won’t have to rely on the banks that are using their absolute monopoly to pick and choose who gets a loan, then charge high interest rates.
The status quo
If you’re not banked, life is hard. If you’ve been picked and chosen by a bank, life is still hard: pay extortionate fees for sending money abroad and for cashing in large amounts, while bearing in mind that intermediaries, of which there can be half a dozen, will also relieve your wallet for some of its contents. Yandex Money charges 3% for the withdrawal of funds and an additional 15 roubles on top of that. It's not much, of course, but wait, now a fee has a fee? And don’t even get us started on loans!
Banks will gladly take your money so you can get a fraction of a percent on yearly interest, and then they turn around and give this money to the guy in front of you at a 29.9% Annual Percentage Rate (commonly referred to as APR, as in “APRil Fools!” because it’s a joke)! What is that all about if not highway robbery?
What are the alternatives?
BitMex, a cryptocurrency trading platform with the highest-in-the-world XBTUSD market, and more Bitcoin/USD liquidity than any other exchange, is offering cryptocurrency loans. But with its “up to 100x leverage on Bitcoin” is this the safest place to ask for a loan?
Facebook's highly anticipated Libra can change the world if it becomes the biggest bank in the world by managing to get just $1 from its every user. What kind of regulations will Facebook put in place regarding client suitability for loans? We imagine they would be directly proportional to the number of likes or hours spent using the platform, but joking aside, what if Facebook introduces an intelligent loan service that has extremely low rates and quick, non-intrusive KYC procedures for clients - and no-one one ever goes to a bank for money again? This one sounds more like an alternative, but you might be looking for something that you can use right now.
I need a loan. Now!
One platform that manages intelligent lending is FinWhaleX, which, in addition to its basic functions, acts as a PaaS for exchanges and provides marginal trading for them. According to the white paper, FinWhaleX offers a variety of professional tools aimed at revolutionizing the global financial industry, but it also addresses the big picture.
According to the FinWhaleX whitepaper, “Despite the growing number of digital assets, traditional institutions treat them with suspicion and apprehension. Large organizations find it difficult to add something new to existing processes, and fundamentally changing their development vector is no trivial task. The tradition of using outdated methods for assessing the extent of client solvency in combination with a conservative approach to the choice of technologies does not allow them to quickly adapt to the rapidly changing world, and therefore expand the boundaries of their credit markets.”
The world is learning its lessons quickly. After evidence emerged that lending can provide businesses with quantifiable growth, the market for all kinds of loans started growing exponentially. According to Allied Market Research, the P2P lending market is estimated to amount to $26 billion and will reach $460 billion in 2022, rising on average by 51.5% a year. Additionally, the market share of peer-to-peer lending is expected to be growing at a higher tempo than that of the business-to-business sector.
FinWhaleX has competition. Another company that uses blockchain to lend money is Salt. People prefer Salt with its 5.99% APR to Barclayloan with 29.9%. For the same reason, Ethlend is the world's first crypto lending marketplace offering fees as low as zero, cross-chain interoperability with Bitcoin, and a yearly interest rate of 3% (minimum, we know, but it’s still 25% less than at a bank).
They are all better options than a bank, but by eliminating third parties FinWhaleX can achieve a seemingly impossible feat of offering borrowers lower APR and a possibility of being considered if they have been turned down by the classical banking system. Those who loan their funds (and as you learned, their numbers are growing rapidly) get higher rates than if they traded them on the exchanges.
What’s not to love? Next-gen companies use AI to save you paperwork, the blockchain to guarantee trust, and smart tech to cut down your waiting time from weeks to hours. In the same way online banking made it easier to use your PC instead of actually walking to the bank to submit a check, the evidence speaks firmly for the new companies becoming an obvious and quick choice over banks.
This type of win/win scenario seems impossible, or very improbable at first, but if you think about one example that involved HSBC, ING, R3’s Corda blockchain and a lot of soybeans, perhaps you could consider how using very smart technology could introduce the world where every situation is a win/win. For now, though, you don’t have to part ways with the banks. In fact, cryptocurrency is not at war with the banks in the same way that people who enjoy great automobiles are not at war with horses - they enjoy them both and use them for different things.