Collateralized internet-based lending may be the next wave of peer-to-peer platform growth. From a business perspective, the approach is a ready answer to managing loan defaults among the riskiest borrowers. That issue matters dearly in an industry that is dependent on external capital to drive loan origination. But is it realistic to require borrowers to surrender collateral before closing on a loan? One Singapore-based company, Silver Bullion, thinks so. Its customers deposit 200% of their loan value in precious metals at its secure vault. While the startup was recognized by the Monetary Authority of Singapore for fintech contributions, the business model is suspiciously akin to a pawn shop with a computer, albeit without usurious terms. Investors may want to embrace the metaphor; default risk grinds to zero. The approach works better for small enterprises than individuals, given the potential for exploitation. A Chinese platform recently asked its borrowers to collateralize their personal loans with revealing photos. ■
Our Vantage Point: Many P2P lenders run the risk of seeing their funding sources evaporate as loan write-offs increase. One way to mitigate that concern is to expand collateralized lending.
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Image: In Europe, pawnbrokers classically use a three-ball symbol. Credit: Audioworm at Can Stock Photo Inc.