Chinese Wealth Management Giant Lufax Explores Blockchain Technology for P2P Lending
Lufax, China's leading wealth management group has hinted at possible plans to incorporate blockchain technology to its peer-to-peer lending platform. Speaking at the Hong Kong Fintech Week 2018, Greg Gibb, the CEO, expressed the growing interest in distributed ledger technology to improve the lending transparency, bring down the overhead costs and gain from the immutability feature.
The move by Lufax comes at a time when the lending industry in China is facing a siege from the government, with increased regulations and oversight. However, the actions by authorities are consequences of a myriad of problems within the P2P firms. The Trillion-Dollar industry is facing a possible collapse already, with 118 firms falling to the crisis in July alone.
Gibb did also note the number of lenders falling off could increase out of the 1,500 firms remaining. He explains the possibility of the problems exist on a worldwide scale and are not custom to China alone.
“The problem with the P2P2 lending ecosystem, not just in China but globally, is that it's not transparent. So if we could store all the lending contract agreements between borrowers and lender on the distributed ledger, then they become unalterable.”
At a fundamental level, the value proposition that Lufax intends to use is by no means without cause. The P2P lending marketplace in China is facing challenges that threaten the core of the business, raising the significant question as to whether the industry will survive. The lax regulation in the past led to a rise of individual and unsophisticated lenders who presented an adequate amount of risk.
Fraud, for instance, is mainly a challenge as P2P lenders can defraud investors and ran Ponzi schemes. The lack of enforcement also makes it nearly impossible to control the loan rates, platforms or even the individuals. The unsecured nature of the credit is also a matter affecting the industry, with borrowers defaulting on loans.
Walking The Path Of Innovation
Despite these challenges forcing a portion of the market away from the business, Lufax looks determined to take advantage of the peer-to-peer lending space with blockchain technology. One potential way that Lufax is attempting to assess the use of blockchain technology is within the proper documentation. Gibb explained how a DLT solution would ensure all the parties within the lending industry, be it custodians, lenders, regulators or borrowers, have access to an unfalsified source of data. Also, the client documentation technology would act as a form of virtual passport to creditors to verify the eligibility and asset management capability of the borrowers. Gibb explained:
“This would be similar to a digital passport, whereby the trustworthy information that also does not require the banks too frequently re-validate that the investors are a qualified investor.”
Lufax or Shanghai Lujiazui International Financial Asset Exchange is a Shanghai-based online marketplace for trading financial assets within the growing internet finance industry. The firm prides itself as a pioneer and innovator in the industry, developing to become a reliable, safe and convenient financing platform.