Online Lenders vs The Banks

The financial crisis of 2008 has spawned a number of innovations in the world of finance. Cryptocurrency and fintech startups are two of them, but these were preceded by a new wave of online lenders.

The truth is, and it remains so, that the Big Banks failed to respond to the financial crisis in a meaningful way for consumers. They caused the problem, but they remained in denial about the effects on the person in the street who needed access to credit. Furthermore, the banks simply didn’t want to take on more risk. The banks instead of thinking about people, concerned themselves with regulatory challenges and stuck to technology that first saw the light of day in the 1960s.

Online lenders get VC support

Enter the online lenders, supported by venture capitalists who could hear the money dropping into their coffers. Lending money appeared to be an easy and profitable game, however it wasn’t all plain sailing.

Still, online lenders had their customers well figured out: they knew what they wanted and what they didn’t want: they wanted instant access to loans and they didn’t want to visit a physical branch and discuss every detail of their lives with somebody in a suit. That aspect of it all went well.

Online lenders at a disadvantage

However, the economies of lending have been another matter. As fintech expert, Ben Cukier writes, “Loan profitability is driven by the spread (the cost difference between the interest charged on the loan, less the cost of funding those loans), the cost of acquiring the loan, and the default rates of those loans.” From the outset online lenders were at a disadvantage when compared with the traditional banks, because the old-school bankers uses low cost deposits to fund loans. By contrast, the new online lenders had to rely on “raising debt or even more expensive equity,” as Cukier points out..

Enter Big Data

Plus, customers knew the bank brands, whereas the newcomers had to invest a lot in raising brand awareness. But they did have a weapon that the banks did not posses: the newcomers had Big Data. They talked up their Big Data platforms, which use disparate data to better underwrite credit risk in ways common credit scores did not. And, they leveraged this data to target specific consumers on social media, and then used the data they mined from customer behaviour on social media enabled them to dictate borrowing terms.

Fintech is the real financial innovation

This gave the banks a wake-up call, and now bank customers can interact with their banks through apps and even get quick credit approval. Plus the banks offer a range of products, whereas online lenders only offer loans. Then fintech startups came along and offered more help to the big banks. Mark Hookey, CEO of Demyst Data says, “Fintech innovators demonstrated that a data focus matters, however banks can apply that insight at a far greater scale to know their customers and launch new products.”

In the end it is these fintech companies, rather than the online lenders, that offer the promise of a real revolution in lending.

What’s happening in technology in 2019?

What do you think are going to be the major advances or innovations in technology during 2019? In 2018 artificial intelligence (Ai) was one of the big stories, as were self-driving cars. I notice that as we start 2019, we have already gone beyond self-driving as cars with legs and flying cars are already set to launch at the various motor shows. Robotics was also hotly debated in 2018 as was cyber security, due to the number of hacks that happened. We also witnessed online retailers killing off the shops in the high streets, with Amazon being a leader in the destruction.

But that was 2018. Is tech going to be much different this year?

One of the areas where we can expect to see quite a lot of activity and forward movement is blockchain technology and cryptocurrencies. 2018 may have been a rocky year for bitcoin and other altcoins, but we are seeing less volatility in the market, which has its benefits. I also believe we will see some major changes in the use of blockchain and crypto in banking, with more new digital-only neobanks appearing.

2018 may be remembered as the year that Facebook skidded on a banana skin and fell flat on its back. All social media use is coming under more scrutiny, largely because we have over-indulged in its use and now it is time to go on a ‘social media diet’. It is likely that apps will appear that will track the time we spend on various SM channels and will reward us for spending less time online; perhaps with some tokens.

There will be more regulations. These won’t just be aimed at the cryptocurrency sector, they will also cover privacy, due to last year’s discovery that Facebook had basically sold its members’ data to the highest bidder. Europe already has the General Data Protection Regulation in place, and America is likely to follow with something similar.

There will be more self-driving cars and the possibility of legislation to deal with what this technology brings. The Tesla 3 will probably see more competition, and possibly by the end of the year, the introduction of self-driving-only lanes on some roads.

There will be more advances in robotics and more debates around facial recognition technology, especially regarding its potential to be open to abuse. Augmented reality is also likely to make a breakout in 2019, and somewhere in the world, technology needs to emerge that deals with the amount of waste we all generate. There will be plenty of other innovations as well, but without a crystal ball it’s hard to predict them all!

What’s going to happen to the blockchain in 2019?

The coming year promises to be quite an exciting one for blockchain technology, so what are some of the experts predicting will take place in 2019?

Brent Jaciow, Head of Blockchain Affairs at Utopia Music, a blockchain based music streaming platform says:

Throughout 2019, we will continue to see an increased use of AI and machine learning to improve customer experiences, whether it is the use of enhanced chatbots to facilitate quicker client assistance, or the use of imaging recognition software to provide hyper-targeted marketing based on age, sex, and even temperament.”

Robertas Visinskis, Founder of Mysterium Network, says:

“As 2018 draws to a close, a highlight for blockchain is how the wider space succeeded in differentiating itself from strictly being associated with cryptocurrency. In 2019, we will see privacy and personal data protection trends continuing to grow in importance. “

Nicolas Gilot, Co-CEO of Ultra, a blockchain-based, game publishing platform, says:

Looking ahead to 2019, I believe we will reap the rewards of work put in by industry players, teams, and communities over the past two years. Blockchain technology has a bright future but the road to get there will be full of twists and turns. As with any new and emerging technology, there will be plenty of ups and downs before we see mainstream adoption of the tech, but I believe blockchain will change industries as we know them — everything from finance and banking, to retail, education, healthcare, and entertainment.”

Gabriele Giancola, CEO and Co-founder of qiibee, the Swiss loyalty token protocol helping brands around the world run their loyalty programs on the blockchain, says:

“Moving into 2019, and further down the line, I believe we will begin to see a separation between hype and reality. We are slowly but surely beginning to witness the gradual disruption of other industries such as retail, education, healthcare, loyalty, banking, and finance. Companies are experimenting with new functions of the technology on a daily basis, and the wide range of applications for blockchain is beginning to emerge.”

Vladislav Dramaliev, Head of Digital Marketing at æternity, the open-source smart contracts blockchain protocol, says:

“In 2019, I expect we will see the first commercial (i.e., consumer-facing) applications of public blockchains go live next year, and the general public will finally experience the benefits that blockchain can bring.”

Casey Kuhlman, CEO and Co-founder of Monax, says:

“My prediction for 2019 is that the industry will shift its focus more toward the problems that blockchain technology can solve. Taking just one example, the advent of smart contracts offer a technical basis on which scalable, technically enabled legal products can be built and delivered. In 2019, my hope is that we apply the technology not only to the legal sector but to the myriad of industries that can and should benefit from its transparency, speed, efficiency, and reliability.”

The case for a blockchain Universal ID

Governments have been floating the idea of a universal ID around for a while, but haven’t come to any conclusions. The case for having such a thing as a universal ID is that it would increase national security, help with counter terrorism and prevent, or at least deter, identity theft. This would all make people’s lives easier it is argued.

Naturally there are problems with the concept. There are countries like the United Kingdom that don’t believe in a national ID, and in countries that do have ID databases, like the USA, the information is held in a centralised national database, which may not be as secure as they should be.

To give you an example: in the first six months of 2018 there were 668 data breaches in the USA in sectors including banking, business, education, government/military and health care. There are weaknesses in the databases that leave them exposed to cyber attacks. And, as the cyber criminals become more sophisticated, the national ID database’s security systems simply don’t seem to be able to keep up with them. So, imagine how fortunate the cybercriminals would feel if there were a universal ID database set up on a centralised system — it would be the biggest gift they ever received.

Blockchain solves the data breach problem

The most obvious solution is the use of blockchain technology. By using a distributed ledger, each person’s ID information could be held in a decentralised system that is more secure, because it uses cryptography. For example, a wide range of identity documents could be stored on the blockchain in a single place — let’s call it an identity wallet — and each wallet could have its own form of encryption. The information would be decentralised on the distributed ledger, which makes it far harder for cybercriminals to get access to it.; it would certainly make it much harder for them to undertake the kind of mass scale identity theft attacks that they are capable of right now, because they would have to hack into each individual wallet.

Using the blockchain would also give us a s citizens more control over our data, because we would have the ability to update out data in a single space and decide what data we share with certain individuals.

Companies are already working on identity blockchain technology, however it is still in early stages and will have to be proved before presenting it to governments. Of course, even these projects raise questions, such as who is developing it, how will they monetise it and how will they maintain it. Legally, there is also an issue about who owns the information once it is uploaded to the blockchain; each individual or a government?

Although we’re not quite there yet, it is to be hoped that blockchain technology will make data breaches a thing of the past, although whether we ever see a universal ID system emerge is another matter altogether.