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Fintech Prepares For Another Financial Crisis: How Ready? {Details Here}

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(Credit: Suhaimi Abdullah / Stringer) Fintech wants to be prepepared now. Fintech Prepares For Another Financial Crisis: How Ready? {Details Here}
October 28
6:00 AM 2016

New financial technologies, colloquially known as Fintech, include radical ideas such as Bitcoin and block chain technology, as well as more mainstream concepts that involve payments and lending. The fact is, these new technologies are changing the financial landscape.

Fintech's main benefit is essentially a better deal for all parties, whether that means lower fees or higher rates for savers or lower rates for borrowers. There is another key benefit in new Fintech technology which tends to get significantly less exposure.

As with every new business model, especially when it comes to finance, there is tremendous interest but also a stark warning of the risks it poses for those who invest their savings. Yet, paradoxically, the P2P lending banking model may actually have the power to prevent the next financial crisis.

More than seven years have passed since the 2008 US sub-prime crisis, and the global banking system is still trying to recover. Yet, with US housing prices once again on the rise and with mortgage rates close to record lows, another credit bubble could be in the making, and this time, not just in the US.

As of presstimes, efforts to prevent another crisis have focused putting in place tougher regulations. But there is one major flaw in the current banking system that has not been properly addressed but is, in fact, very well addressed by P2P lending.

Under the current system, bankers do not risk their own money; rather, the risk is entirely on their savers aka the bank's depositors. Under extreme circumstances, the government may be required to foot the bill if and when things turn sour at the bank. As for the bankers themselves they have very little at stake; in fact, their willingness to take risks often leads to lucrative bonuses. Bankers at no time do they risk their own savings or pensions.

In P2P lending it is the individual who lends his own money and it is the individual who decides who to lend to and it is the individual who decides how much risk to take.

Fintech should come out with an effective system would allow an investor to insure some of his investment against a default. Or perhaps there could be a system in place which would require some borrowers to put up assets as collateral-especially if we were to see P2P lending expand into P2P mortgages. And yet, despite all the challenges and the risks, the upside is clear-P2P lending is the only way in which credit will become more accountable, perhaps making P2P lending a banking system better designed to avert future financial bubbles.

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