Our first reflex when we wish to take out a loan is to contact one or more banks through the intermediary (or not) of a broker. You may also sometimes use the services of a comparator. But with the advent of Blockchain, will this model still exist in 5 years, 10 years, 20 years, ..? No one can really say today. We are in 2018 and the technology is too recent, and its applications too anecdotal, so that we can really draw a certain trend. But nothing prevents us from making some assumptions.
We know that what essentially makes the rate of a loan is the rate at which the bank finances itself (on the market or thanks to other elements of its liabilities such as savings collected) and the risk taken.
Let’s take a look at the latter. The risk taken
It is ultimately only the estimation of a probability that you will not repay, or partially. Banking establishments or brokers who do not know you, have decided to get an idea of your ability to repay by asking for a certain number of administrative documents.
A tax sheet, an employment contract, the number of children, … are all parameters that will be integrated into a mathematical formula that will indicate whether the bank lends you or not, and at what rate.
What could blockchain change?
As the blockchain wants to be both completely reliable and transparent, one could imagine that it could meet the needs of banks and even lenders who are not banks.
Imagine that you are part of a blockchain dedicated to credit, in which you authorize trusted third parties to publish information about you. We could imagine that you authorize the administration or your employer to place certain information concerning you there.
You could also authorize your creditors to indicate the loans that you have in progress, the quality of your repayments, the number of loans that you have repaid,…
In this blockchain will pass completely reliable and quality information.
Also imagine that this platform generates a scoring (note that you assign to the banks, based on your borrower profile). The scoring would be carried out, not on a probability of reimbursement, but on the confidence that you have in the actors present in your blockchain. And what a better asset than the rating given by those who lent you … even a little. It should not be forgotten that a loyalty and payment card in installments remains a credit, and that if you have reimbursed this credit without problem, it should raise your rating on this blockchain.
When you want to take out a new loan, or when, why not, you want to resell your receivables to a third party, all you have to do is open this blockchain and solicit your trusted third parties.
The miracle of this technology is that you wouldn’t be asked to do anything. No information, no document. Nothing.
It is a safe bet that the rate that you will be offered will be lower than the rates charged elsewhere. Why? Simply because the risk of fraud will be extremely low and you will not be charged this in your rate.
And then maybe something else will happen. Maybe it will not be a bank that will lend you but an individual or a business.
The first job of a bank in terms of credit is to estimate a risk (which it never shares with other third parties). But if this work is already done, and if it is also reliable, then why would others not want to lend you? They could then lend you to you directly or to a pool of people who have the same rating as you.
Banks would therefore find themselves in competition with private lenders
The companies that invest their money, etc. which would not necessarily be subject to the same regulations. Today it is only a scenario, but it makes you think.
We are entering an era which values data more than ever and even more the sharing of data. Even if this scenario does not happen exactly, the way we borrow and we are lent, will probably change quickly thanks to Blockchain.