- Lufax will transfer its entire peer-to-peer (P2P) lending portfolio to the blockchain
- The nature of DLT helps to improve transparency and bring down costs
- P2P lending using blockchain can help reduce delays and allow for quick approvals
While China’s negative stance towards cryptocurrencies is clear as day amid tight regulations since 2017, the country’s financial industry has embraced the benefits of the technology behind digital currencies. China’s leading online wealth management group Lufax has plans to adopt the blockchain technology to cut costs and promote compliance.
Lufax is transferring its entire peer-to-peer (P2P) lending portfolio worth “tens of billions US dollars” onto the blockchain platform, according to a post on South China Morning Post.
The group’s Chief Executive Officer Greg Gibb told the ongoing Hong Kong Fintech Week 2018 on Wednesday, October 31, 2018, that the nature of the Distributed Ledger Technology (DLT) is what serious players in the sector need to improve transparency and bring down costs.
According to Gibb, the P2P industry is under siege and hundreds of platforms from the existing 1,500 in business today are likely to disappear. He explained:
“The problem for the P2P lending sector, not just in China but also globally, is that it is not transparent. So if we could put all the contract terms between a borrower and lender on the blockchain ledger, then these [become] unalterable.”
Blockchain technology, by its very nature is trustless and decentralized, making it possible to transfer the ownership of assets from one individual to another with no intermediaries, in this case, banks. The distributed ledger helps to build on the timeless peer-to-peer lending and makes the whole process seamless and reduces the time it takes for the entire process to be completed.
This is because smart contracts enable lenders to validate transactions, verify the legitimacy of counter-parties and perform routine account administration procedures in real-time. P2P lenders using blockchain can help reduce delays, make quick approvals, eliminate the need for middlemen, and bring transparency.
The CEO said Lufax’ insurance unit Ping, will also use blockchain technology to “verify the eligibility and documentation for qualified investors in China. According to the new rules on the asset management industry that came into force last May, they define a qualified investor as someone whose net financial assets are at least 3 million yuan (US$432,950), and gross financial assets of 5 million yuan.
The firm plan to use blockchain technology to update client documentation including bank statements or others that can verify their source of income in the blockchain ledger. Gibb explained:
“This would be similar to a digital passport, [whereby] this is trustworthy information that also does not require banks to re-validate frequently that the investor is a qualified investor.”