Banking systems and financial institutions keep making it difficult for people to make use of and access financial services with their high transaction rates and Startups get discouraged when they apply for loans in banks, because they equally have high-interest rates on loans. These banks and financial institutions are able to do all these because they operate a centralized system; they call the shots and can decide to do what they like even with the customers’ financial assets. A centralized system of banking has regulations and policies guiding it and is usually backed by the government who in turn get revenues from the sector.
The Concept of Decentralization
The creation of the blockchain technology and cryptocurrency brought decentralization as one of its features. Decentralization eliminates the need for 3rd parties, regulations, policies, restrictions, interference from governments, banks, and financial institutions. This invariably means that users on a decentralized system are in total control of their funds including how they disburse it, and also transaction fees are usually either zero or near-zero. A decentralized system also comes with other features that make the traditional banking system look like child’s play. If banking becomes decentralized, it will still function like the centralized bank and provide the normal services including credit scoring and lending services, but this time customers will not have to go through middlemen who would normally approve loans, and also the structure financial data of a centralized banking system will get replaced with peer-to-peer lending and services, and smart contracts.
The Future
Money is becoming digitized, and transfer of digitized money has also had a technological facelift via new and innovative technologies such as the blockchain technology which has revolutionized the FinTech market and made Peer-to-Peer lending better. Over time, after making the blockchain technology known to the public, including the discovery of its many uses, FinTech startups, entrepreneurs, and even individuals have begun to explore the possibilities of implementing the blockchain technology into systems that can allow startups, and anyone have access to loans and funds. It is a known fact that the model of the traditional banking system is created such that the poor are taken advantage of, top-tier investors have access to loans but pay huge interests, while the low-tier customers have very limited options. Financial markets in the near future will become more automated than it is now, and there will be more decentralized banks than centralized banking systems, and this will be due to a total integration of the blockchain technology and cryptocurrency into the traditional banking system.
The financial market will make use of cryptocurrencies, Artificial Intelligence, Smart Contracts, with the blockchain technology to make Peer-to-Peer lending much better. Artificial Intelligence will be used to link the right lenders with the borrowers, machine learning big data will automate the processes involved in lending.
New blockchain based FinTech startups have begun to spring up everywhere, and they have gotten venture capital funding from financial investors, and this is due their business structure to offer access to people in need of loans, and at the ensuring that the investors enjoy the same advantages as they would if it were a traditional bank. The FinTech startups are enjoying a great deal of success.
If the blockchain technology moves mainstream (which looks like a certainty), then there will be a paradigm shift in the financial market, which will, in turn, affect the way lending is carried out, possibly peer-to-peer lending will be the order of the day. First thing is the decentralization which will eliminate 3rd parties, and in turn make room for a lot of opportunities, including making peer-to-peer lending much better and more profitable for both the investor and borrower. More startups will be created, and this will be as a result of the easy and unhindered access to loans, access to funds for investments, clearing and settlement, etc.
A lot of entrepreneurs and investors have begun to turn their attention to Peer-to-Peer lending, and this is a revolutionary move that says a lot about the future of decentralized financial markets. Ease of access to loans is what a lot of people crave, and a decentralized financial system is just the perfect answer.