This is part of a blog series Can Blockchain Save Our Financial System?
The blog covers the benefits that borrowers are expected to receive from integration of blockchain technology in the lending industry.
To read the previous blog post about Blockchain Technology Benefits for Lenders, click here.
To learn about how Bloxable is building the most advanced debt platform using blockchain and smart contracts, visit us here.
There is little doubt that smart contracts can enhance and significantly improve the lending industry.
Most businesses that are looking to tap into the potential of blockchain ledger and develop new platforms are now focused on the next big question: how will blockchain add value to the lending process for the borrower?
Value Addition for the Borrower
Building a blockchain based platform for the lending process will add value for the borrower in six main ways.
Transparency
Smart contracts that are executed through an open-access, distributed ledger system are openly available for viewing by authorized personnel at any time. The borrower can easily check the progress of whatever loan there are applying for 24/7 online via the Internet.
Furthermore, these ledgers are backed up by data centers spread all around the world. This means that in case of an accident or damage to one data node, there is no chance of accidental loss of records.
Faster Loan Processing
In order to qualify for a loan right now, the borrower has to wait for a long time, even months. Take the home mortgage industry. The average time it takes from loan application to final approval and disbursement of funds is two to three months.
The main reason for this delay is due to the verification process. A borrower typically needs to get verification from their employer, the credit rating agency, the homeowner’s association, Title Company, previous mortgage bank, county tax assessor, FEMA, home appraiser and home surveyor among others. With so many parties verifying each document separately, delays are an inevitable part of the lending process.
With a blockchain platform, the verification process can literally be completed within days. When all the stakeholders are given access to the network, the verification is instant.
System Security
Blockchain based smart contracts operate through a decentralized ledger. This means that the record of transactions for a loan contract is saved on thousands of computers around the world.
Any attempt to hack or manipulate the record is checked by thousands of ledger holders from all around the world. While it may be easy to hack one computer, no one can simultaneously hack all the systems on the network.
This makes blockchain ledgers an incredibly safe and trusted way to borrow.
Borrower Privacy
While the blockchain ledger is openly available for viewing the record of transactions, the borrower’s identity can be completely hidden. This is because transactions and contracts are executed between cyber addresses rather than named individuals.
A lender and other stakeholders would be aware of the identity of the borrower, but any third parties would be completely unaware of the borrower’s identity.
Transparent Credit Scores
The number one reason for the rejection of loan applications is bad credit score. Most first time borrowers are not aware of their credit score and don’t even know where they can find out or how to improve it.
A blockchain platform will allow borrowers to build a portfolio on a secure ledger and form the basis of a transparent credit scoring system. On the one hand, it would allow lenders to easily review the borrower’s credit history and make a better decision. On the other hand, it would improve borrowers’ awareness of their credit scores and increase their chances of success for their loan application beforehand. The transparency achieved by moving to the blockchain will enable users to more easily track their credit scores and improve those scores in the process.
Transparent/Direct Property Search
One idea that is gaining traction in the mortgage industry is to integrate the property search process through a blockchain platform. A multiple listing service (MLS) built upon the blockchain could potentially allow brokers more control over their data.
For borrowers, this would greatly enhance the trust on the listings system as the data would be freely available and free from erroneous entries. The blockchain-based MLS would provide property address, location, rental rates, capital value, ownership history and all the other features of the properties which will make things much easier for borrowers.
To read the next blog post in our series, about Blockchain Advantages for Rating Agencies, click here.
