Blockchain based Lending Platform | FinTech Startup Ideas

This 1001 startup idea from YoStartups is to create an Blockchain based Lending Platform   that will lend cash loans to SMEs and Entrepreneurs against cryptocurrency or blockchain assets.

 

Market Definition for 1001 Startup Ideas – Blockchain based Lending Platform

According to world bank that over that over 2 billion people worldwide don’t have access to bank accounts because of their geographical location and lack of infrastructure. Another estimate says that currently there are about 2.5 billion people who have access to a Smartphone across the world and this number will grow to 4.78 billion by 2020 and over 90% of the adult population will have access to smartphone and basic internet.

As cryptocurrencies can be traded across borders without any restrictions with just using a smartphone and a working internet, this has lead to the opening of cross-border banking and lending organizations..With global internet penetration rising, and initiatives such as Google’s Project Loon and facebook’s internet drone Aquila’s successful flight there is a promise of a expanding market in the segment.

 

Competitor Analysis for 1001 Startup Ideas – Blockchain based Lending Platform

SALT

Salt is an online lending platform based on the Etherium Blockchain Network which will disburse cash loans against Blockchain assets like Bitcoin, Etherium, etc. on the basis of a mutually agreed smart contract (Loan to Value Ratio) of the collateral. Any dip in the Loan to value Ratio will trigger margin calls wherein a borrower will have to repay the difference to get back to the agreed LTV or top-up his blockchain asset. Failure to do so will automatically trigger liquidation to realize the loan and difference if any will be paid out to the borrower. All the smart contracts are multi-signature smart contracts for more security and can auto enforce triggering maintenance calls.

SALT can be accessed only by buying membership with salt tokens which are redeemable for a product, services, and rewards available on the platform.

 

Bitbond for 1001 Startup Ideas – Blockchain based Lending Platform

Bitbond registered and regulated by the German government is another peer-to-peer lending platform which uses cryptocurrencies for Small & Medium enterprises (SMEs) and entrepreneurs. All borrowers are credit checked by Bitbond and rated from ‘A’ to ‘F.’ The lenders can invest manually by browsing through the loan listings, or automatically through their autoinvest tool based on the risk appetite of the lender, geographical distribution, and choice of currency. There is no fee charged for the investors on the platform.

 

EthLend for 1001 Startup Ideas – Blockchain based Lending Platform

Ethlend is an online lending platform for Etherium Users based on an Etherium blockchain. Wherein, the borrower, feeds data like loan amount, interest rates, duration of the loan and the digital token address for the cryptocurrency to be used as collateral and this data is moved to a ‘Smartcontract’ on the platform which is made available to the lenders registered with the platform. After a lender funds the loan and a borrower reneges on the terms of the loan, the tokens held as collateral are automatically transferred to the lenders Etherium address. As all the tokens of EthLend are on a decentralized blockchain application, they cannot be moved from ‘Smartcontracts’ making the platform more secure. EthLend is also building a reputation management system by issuing tokens based on repayment history, which can be used as collateral instead of other cryptocurrencies.

 

Pain Point and Target Audience for 1001 Startup Ideas – Blockchain based Lending Platform

According to business news daily, only 20% of all the loans are approved by the banks making them inaccessible and difficult to get times. This practice, in turn, affects the small businesses in scale-up as they don’t have the necessary working capital required to grow the business. As per Forbes, Fiat currency P2P loan providers like LendingClub and Prosper are charging interest rates of over 40% to 60% over a year compared to 15 to 35% on the cryptocurrency lending platforms. Fiat p2p loans are restricted to the country of origin because of high international transaction fees and regulations, and as cryptocurrency loans are decentralized on blockchain infrastructure, they are peer to peer and allow people from all over the world to borrow and lend between them.

 

Value Proposition  for 1001 Startup Ideas – Blockchain based Lending Platform

 

Fiat currency loans are expensive than cryptocurrency loans as banks use an outdated infrastructure which is cost heavy, while cryptocurrency needs no third party intermediaries to execute loans, so are cheaper than traditional loans.

Cryptocurrency borrowers enjoy the same terms of borrowing irrespective of their geographical location.

Anybody with an internet connection can borrow a cryptocurrency loan and avoid high international transaction fees.

As the cryptocurrency loan is governed by a ‘Smartcontract’ which is easier to execute and auto enforced, it is more efficient.

As the creditworthiness of a borrower owning a small business on cryptocurrency lending platforms is assessed through online business presence, past business acumen and thousands of positive reviews on, including but not limited to, platforms like eBay, PayPal, Amazon. Small business owners are more likely to pay loans on time to establish repayment history and payment reputations to ensure a credit line in place; lenders can use these as parameters for lending in future.

 

Business Model for 1001 Startup Ideas – Blockchain based Lending Platform

The start-up will have to develop an online lending platform based on the popular blockchain platforms like Etherium or bitcoin. The start-up can charge a nominal subscription fee which can be redeemed for products, services or rewards based on the platform and a small transaction fee based on both borrowing and lending platforms.

 

Way to Market for 1001 Startup Ideas – Blockchain based Lending Platform

The first step would be to register itself with state and federal regulators and the local securities commission as an investment advisor. The startup can start by collaborating with popular bitcoin exchanges like coindesk, Kraken, etc. by developing API’s which can communicate with bitcoin exchanges. The pilot project can be run with bitcoin exchange on a revenue sharing model till the startup becomes sustainable.

 

Milestones for 1001 Startup Ideas – Blockchain based Lending Platform

The start-up should have tied up with at least one major bitcoin/cryptocurrency exchange and developed its’ platform, API and developer tools in the first year of operations. Once the platform is sustainable, the platform should start creating reputation building management systems for borrowers and lenders risk profile for ease of use in the future.

The long-term goal should be to offer an ICO so that these coins can be used on the platform to borrow and repay loans to unlock the actual valuation of the platform.

 

Investment Needed for Prototype for 1001 Startup Ideas – Blockchain based Lending Platform

The proposed startup should raise up to 200k from accelerators or angel funds like Point Nine capital, IBM Blockchain Founder Accelerator, Synechron, etc. for prototype building. All the money received should be utilized only to build the platform and not towards salary payout.

 

Team Capability for 1001 Startup Ideas – Blockchain based Lending Platform

The team would require one web developer who has extensive experience working on Etherium, bitcoin or Hyperledger block chains preferably in a fintech environment. Individuals with expertise in handling legal affairs in an audit firm preferably in the fintech sector would bring in the necessary AML and KYC compliance know hows according to global regulations.

 

Investors/Expert Take for 1001 Startup Ideas – Blockchain based Lending Platform

While the banks are unwilling to change and are still offering products which are inefficient, P2P cryptocurrency lending platforms are more flexible in lending to small businesses based on their business acumen and validated invoices, helping entrepreneurs manage supply chains more efficiently and do business scale-ups. The business of P2P blockchain lending will only grow, and the added benefit of boosting local manufacturing is likely to gain the support of the authorities. Chinese conglomerate Foxconn joining forces with P2P lender Dianrong to launch a blockchain platform to lend working capital to small business is an indication of things to come.

 

 

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Abhishek Singh

COO & Founder, YoStartups

YoStartups is a Pre Accelerator and it empowers entrepreneurs to propel their business ideas into successful ventures. Yostartups’ core mission is to take the message of entrepreneurship to 1 billion people globally by 2020, as on date Yostartups reaches out to over 100 million people globally through its direct and indirect channels.

 

*Any information given in the article does not constitute any warranty of marketability or fitness for a particular business idea for any market or industry segment. It is the readers’ sole responsibility to further research and assess the market opportunity.
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