Top P2P Crypto Lending Platforms

Blockchain technology could be the future of digital banking. All players in the banking industry stand to gain from the cheaper, faster cross-border transactions. In fact, based on the P2P lending principles, blockchain technology will open up banking for the underbanked, the unbanked and even those who are currently locked out of the banking system because of bad credit history. Therefore, blockchain technology is here to make the banking industry an all-inclusive one, with fair interest rates for loans approved in cryptocurrency.

According to experts, P2P lending will level the playing field, making banking fair for everyone, from borrowers to investors.

The History of P2P Lending

P2P (peer-to-peer) lending is basically a social concept of lending. It was first used around the 1700s. We can trace it back to Jonathan Swift, the man behind Gulliver’s Travels. Swift created the Irish Loan Fund, a very popular lending program back in the day. He had noticed that there were lots of people who earned a low income and didn’t have any experience with credit. These individuals didn’t have sufficient collateral but were creditworthy. To help them, he would lend them small amounts without charging any interest.

In Europe, P2P lending grew by leaps and bounds between the 18th and 19th centuries. In fact, it was one of the most used forms of lending. More than 300 lending programs were running in Ireland in the 1800s. These programs would lend small amounts of money to the underbanked and unbanked for a short period of time. This would continue until the 20th century when the current legacy banking systems became prominent, and with it, P2P lending took a back seat.

Dr. Mohammad Yunus, a civil society leader, banker, economist and social entrepreneur in Bangladesh came up with a modern version of P2P lending in his country. This would soon earn him the Nobel Peace Prize, being the founder of the Grameen Bank, and especially for his effort in championing microfinance and microcredit facilities in the country.

The concept behind his work was to help poor entrepreneurs get loans from the banks. Over time, Grameen bank’s books would grow to more than 8 million borrowers, giving out more than 95% of the loans to businesses that were run by women.

In 2005, the first P2P lending platform was launched online. More than £2.8 billion has been lent to UK customers since then. The idea of P2P lending is similar to the concept of microfinance according to Yunus and Swift.

The only difference is that this was the first time that such a service was being introduced in a developed country. Therefore, P2P lending has evolved from the shadows and is now no longer about serving the unbanked and underbanked, but it’s about offering borrowers a reprieve from the current high-interest rates that are levied by banks.

What Are P2P Lending Marketplaces?

P2P lending has opened up alternatives for different people. Consumers have access to better alternatives to expensive bank loans, while intelligent investors have the opportunity to make a profitable investment in this venture. For consumers, the prospect of lower interest rates, reduced bureaucracy in the lending process and a faster, better approval rate are worth smiling about. Investors, on the other hand, are looking at the prospect of a better return on investment compared to other investment instruments, thanks to the low market volatility. Therefore, this is a win-win solution for all parties involved.

At the moment, cryptocurrencies are all the rage. In fact, a financial revolution could be underway, and P2P is making a stunning comeback. A lot of companies are currently holding Initial Coin Offerings (ICOs) to raise funds for new businesses, projects or expansion. Soon a lot of entities will be offering a variety of services and products leveraged on different cryptocurrencies. Economists and financial experts on Wall Street also agree that blockchain technology has infinite potential and can transform the world as we know it.

Before delving into P2P lending and learning how it will revolutionize the lending market, it’s important to understand what P2P marketplaces are, and what they do.

P2P marketplaces are online marketplaces where investors meet borrowers. Investors and borrowers in this can be individuals and companies alike. What makes these marketplaces different from banks is that they don’t hold any funds, but instead, provide an avenue for lenders and borrowers to connect. They simply facilitate the process.

Since they don’t hold any funds, they generate revenue from commissions and fees that are paid by the parties involved in the process of borrowing and lending. Regarding the features on offer, there’s so much for the interested parties to benefit from including faster approval and repayment terms, shorter decision-making times, and almost no overhead costs. Depending on the type of borrower profile and loan, each P2P service has different returns, with investors looking at between an 8% and 13% return on their investment.

How Do Cryptocurrency Loans Work?

Built on the blockchain technology, P2P lenders offer a cheaper, faster and more transparent service to borrowers and lenders. The services are incorruptible, instantaneous and there are no prohibitive transaction fees involved. To be precise, there are three main benefits that you can look forward to in any P2P lending platform:

• Lower Fees

Through the legacy banking system, P2P providers must interact with banks to conduct business. As a result, banks transfer the cost to lenders and borrowers in the form of fees. With cryptocurrency, on the other hand, the parties are independent of third parties. Hence there’s a significant reduction in the cost of doing business, making it more effective.

• Geo-Diversification

There are no geographical limitations to transactions that involve cryptocurrency. Therefore, borrowers and lenders are free to diversify their portfolio in different countries according to their personal risk aversion projections. Borrowers, on the other hand, have the opportunity to access funds from lenders all over the world

• No Need for a Bank Account

More than 38% of the world is unbanked. Cryptocurrency loans are designed to support everyone, including those who are unbanked or underbanked. They are particularly relevant for those in markets where there’s internet access, but low bank penetration. Cryptocurrencies make it possible to borrow and lend without using a bank account.

This is a platform that will give customers the chance to borrow in fiat currency while using cryptocurrency as collateral. However, it’s important to mention that those who hold Fast Invest Tokens (FIT) are the only ones who will be able to use the lending service.

How does this work?

Here’s an example that should make it easy to understand.

Jim, a credit analyst, has just been laid off. The company he was been working for is struggling and has decided to lay off some employees to save their balance sheet. Jim can no longer pay the mortgage he took on his house. He also has a low credit score, and as a result, banks cannot even give his loan application a second glance.

Jim is facing a race against time to find a solution, or his house will be gone. However, in his digital wallet, he has 3 Bitcoins. If he can sell them, he should be able to cover the mortgage payments. However, he doesn’t want to sell them. Instead, he wants to hold onto these as a long-term investment plan, so if he sells them right now, he will lose out on the potential returns in the future.

Say the Bitcoin ratio is 1 BTC = £10,000, and Jim has 3 Bitcoins, which is the equivalent of £30,000. Jim is able to borrow up to £24,000, or 80% of his total Bitcoin value.

On the other hand, there are investors who might be willing to fund Jim’s loan. If they do, they earn a 20% interest. As a result, Jim receives the loan at 22% interest, making use of his Bitcoins without necessarily selling them off. In fact, while he’s paying off his loan, his Bitcoins will probably be worth much more than they were when he took the loan.

Taking Advantage of the Opportunity

The P2P lending market was estimated to be worth $3.5 billion back in 2013. Experts have projected this figure to be more than $1 trillion in 2025. This is one of the fastest growing segments in the finance market. From $26 billion in 2015, Transparency Market Research suggests that opportunities in the P2P market will be worth more than $877 billion in 2024. During this time, it’s expected that the market will experience a compound annual growth rate of 48.2%.

Morgan Stanley predicts that P2P lending markets will be worth between $150 billion and $490 billion by 2020.

According to a Cambridge report, consumer lending in 2015 was €366 million, making it the largest alternative finance segment, with P2P business lending coming in a close second at €212 million.

Different reports might have different figures based on their estimates, but one thing that all these financial analysts agree with is that P2P has infinite growth potential. If you factor in the growth potential as a result of the blockchain technology, this is the opportunity of a lifetime.

Crypto-Proved Lending Risks

Crypto lending, like any other lending market, has some risks. However, you can decide to mitigate against such risks. Whether you’re using a crypto-backed model that uses cryptocurrency as collateral or lending primarily in cryptocurrency, there are some concerns that you have to be on the lookout for, such as the following:

• Security

You have to make sure you’re using a platform that has a robust security system, one that hasn’t been subject to breaches in the past. This might be a tall order, so in case they have been victims of the attack in the past, find out how they handled the situation. Other than that, pay attention to their security policies and steps that they have taken to mitigate against vulnerabilities.

• Market Volatility

Market fluctuations are a major risk for anyone who plans to convert fiat to cryptocurrency for investment purposes, and then convert them back fiat once the loan is settled. You can make a lot of losses if you do this.

Any investor who plans to lend on a platform that allows the use of cryptocurrency to back loans while using the cryptocurrency as deposits should be aware of the volatility in the markets. The biggest risk is a situation where the value of the assets falls to a point where it’s more reasonable to default than pay the loan.

Best P2P Crypto Providers

• BlockLoan

This is a platform that uses a decentralized ledger to offer crypto loans to borrowers from all walks of life. It uses a credit score system and smart contracts to determine the creditworthiness of a borrower. The goal behind BlockLoan is to make credit access easier for consumers.

BlockLoan ventured into the Australian market by leveraging on the exposure and experience of Lodex that has more than 35,000 account holders on their system. There are several services that these users are already enjoying by being on the Lodex network, such as social scoring, asset valuation reports and credit scores. There’s also a reverse auction feature that allows brokers and banks to bid for loans or consumer deposit requests.

• Fast Invest

Fast Invest is built on the promise that blockchain technology will be the ultimate driver for change and the future of digital banking. As a result, they work hard to give their customers front row access to this financial revolution. Having completed the expansion on the Fast Invest platform, users can enjoy access to crypto-backed loans, which are returned to the borrower once they settle their loans. Investors, on the other hand, will earn 20% on their investment.

• Salt

This lending platform is one of the facilitators for loans that are secured with crypto assets. There are no credit checks when using this platform. All the borrower has to do is to put up some crypto assets as security to borrow from the lenders. Once the loan is settled, the borrowers get back their crypto assets.

• Bitbond

This is a platform that offers P2P business loans backed by crypto-assets. It evaluates the creditworthiness of individuals and institutions before they can be offered loans. Borrowers can collect their loans through an AutoInvest tool or manually.

• BTCPOP

This platform uses reputation for P2P lending, instead of credit scores. Therefore, it doesn’t use smart contracts. Members can borrow from other members, and at the same time earn money by loaning their peers. What BTCPOP does is it turns all the members on board into prospective investors. This is done by providing an opportunity through which they can generate funds for projects that the BTCPOP community needs.

• Kiva

This is an NGO based in the US that uses Bitcoins to assist the underbanked and unbanked people in developing countries. It’s more of a crowdfunding platform than a P2P lending platform. This is because they barely charge interest rates.

Their cost of operation is covered through donations, and support from sponsors and grants. Lenders can put forward anything from $25 to help borrowers who might need to get clean energy, pay for school fees, grow a business or anything else. It’s essentially a crowdfunding platform built on the generosity of lenders.