Imagine waking up one morning and you get an alert from your bank, not via text, not via email, but via your personal assistant – a robot or perhaps a device that is built like Alexa or Siri. She senses you are awake, greets you ‘good morning’ and tells you that your bank balance has fallen drastically compared to the previous month. This time it is the 1st day of April so your
direct debits had gone through the previous day (31st of March).
Though your assistant tells you your bank balance at the start of every month, you are alarmed this time because she used the word “drastically”; You then remembered you took out a new life insurance policy for which you pay a relatively large premium per month. You stop panicking…it
wasn’t a fraudulent activity on your account. Immediately, you ask her to make a transfer, of course after security and voice recognition procedures to bring your balance back to its buffer level or previous balance.
You did all this without walking to the bank, you did all this by the help of an unpaid assistant. How efficient! This is how banking will be in less than a decade depending on how fast things move. As you may already be aware, major UK high street bank NatWest is piloting this feature with Google Home smart speakers – this will enable customers to know their balance, pending transactions and latest transactions by asking the smart device.
With the emergence of Artificial Intelligence (AI), robotics and Natural Language Processing (NLP), the internet of things (IoT) has transformed the way we live and the way we go about handling certain routines. Talk about increased efficiency, speed, accuracy and less hassle. PwC has forecasted that 45% of gains by 2030 will come from the increased efficiency due to AI and that AI could add more than $10 trillion to the global economy in the next decade.
Today, banking across borders has become even more seamless, thanks to tech legislation such as Open Banking and Distributed Ledger Technology (DLT) which is commonly referred to as Blockchain. In simple terms, Blockchain serves as a tool for analysing transactions between
banks or accounts and creates a ledger that reconciles them to agree with available balances. It also ensures security and serves as a shield against fraudulent transactions.
Typically, transaction analytics is used in carrying out checks and balances so that any breaches of the bank’s control system will result in security alerts being flagged. This process allows appropriate action to be taken – either reverse transactions or correct errors. Therefore, using transaction analytics enables a bank to automate part of its internal audit process and
ensure that it is applied continuously and effectively. This method offers a greater advantage over traditional approaches of checking internal controls, in that it can be used to cross-check every single transaction that the system recognises.
In the past, manual sampling was used to check that controls were being applied properly, the results from the manual sampling will then be used to make decisions about the effectiveness of the entire system.
The propensity for blockchain to provide an understanding of how cross-border transactions work in real-time is very relevant for financial institutions and regulators. The good old financial crime remedies such as Anti-Money Laundering (AML), Know Your Customer (KYC) and
Countering the Financing of Terrorism (CFT) would be addressed with regulatory requirements by institutions through the application of distributed ledger technology.
Lending Takes a New Approach
P2P lending which fully stands for peer-to-peer lending is a way of connecting lenders to borrowers on the same online platform. This approach replaces the traditional lending option of physically going to a financial institution such as a bank or micro-lending house to apply for a
loan. P2P lending goes back to 2005 when Zoopla, the very first company that specialises in this type of lending was launched in the UK – Growth in the market has been exponential and compounded, though Europe now ranks third after USA and China.
P2P lending is much easier to access considering it is done online. The average consumer will prefer online channels rather than traditional brick and mortar approaches. With P2P lending, one does not need to go to a bank to apply for credit. It also cuts out the traditional and boring paperwork, which is normally required by banks. Although verifications are required, it can all be done seamlessly online and paperless!
Being one of Fintech’s most groundbreaking inventions, Blockchain is used to securitize the P2P lending process through a distributed ledger to avoid third party permissions. It gives both parties an additional layer of security to carry out transactions in an efficient manner. Because some people still feel safer with credit verification authorities and other third parties, blockchain does not serve as a solution for them in terms of security verification.
What are the challenges and limitations of P2P Lending?
The most predominant challenge will be the lack of government regulations
No real physical connection between the lender and the borrower
They tend to be more risky for the lender but at the same time gives them higher returns should there be no defaults. Default rates are relatively higher which leads to the collapse of P2P startups
Is P2P the future of lending?
The global P2P lending market is projected to have a capitalization of about $450bn in 2022. It is only safe to say that the rise in the value of the P2P market is drastic and exponential. The UK government, for example, allocates some millions of pounds to startups and entrepreneurs
through P2P platforms; this is how the government supports tech startups. Looking at the advantages of using P2P lending, there is a very slim chance that this approach to lending will die out any time soon. For any reason at all, it will only get better in the future. Life is much easier when the traditional method of lending or borrowing is avoided. Disruptive technology always leads the way!