Blockchain finance - beyond the hype

Currently, one cannot escape the news without hearing about blockchain. In fact, in the 12 months to this article, approximately US$1.6 billion has been raised by blockchain companies through Initial Coin Offerings, including companies that plan to offer alternative lending services such as: invoice financing, trade finance and working capital loans.

It is unclear how many of these alternate financing companies will survive beyond the next few years, but one thing is certain – their success will deeply rely on how well they are able to convince customers of the impending wallet world.

Mass adoption of a digital wallet system is possible if you have the clout of Apple and more notably Alibaba or Tencent. However, for a startup to convince SMEs, and possibly even corporates, to adopt a wallet system is a daunting task, at least initially. Zapp and Pingit have allowed smaller merchants to receive and make payments with their wallet software for at least the past 3 to 5 years.

Moreover, these systems are even integrated into the existing banking infrastructure. Yet, despite the ease of use, together with backing from notable brands, neither solution has been able to materially change the way in which consumers or SMEs in the UK make and receive payments.

Some readers may wonder why we’re discussing payments and wallets when the focus is alternative lending. However, as many of you may know, lending has two parts: the transfer of payment in exchange for the transfer of, or at least first rights to, an asset. Banks know this; alternative lenders understand this.

Based on several conversations, we’re not sure how many of the blockchain startups realise this. As a result, we are quite cautious about blockchain-based lending solutions. More specifically, we wonder whether these startups properly planned how their wallet-based systems for payment transfer will be adopted.

Indeed, the aim of this article is to lift the veil on the blockchain craze and advise caution when partaking in any ICOs. More importantly, the goal of this article is to offer insight into one of the many challenges that must be addressed in order to reap the benefits of blockchain for lending practices.

To learn more about how Tallysticks has considered blockchain’s applicability for trade finance or how Tallysticks intends to implement its wallet system, please come visit our stand at Alternative and Receivables Finance Forum on 16 November.